Carry Forward of Losses in Tax

Carry Forward of Losses in Tax

  • An unadjusted can be carried forward for eight years and adjusted against income earned from the same head.
  • However loses under the head ‘income from other sources’ cannot be carried forward.
  • Therefore, while setting off losses, give priority to the loss incurred under the head ‘income from other sources’.
  • Losses under the heads ‘income from business’ and ‘income from house property’ can be used to lower tax liability in subsequent years, but not a loss under the head ‘income from other sources’.

In order to carry forward losses, file your return of income with the I-T department on time. Even a day’s delay in submitting the return will disqualify you from carrying forward your declared loss.

  • This condition is harsh because assesses are sometimes unable to file their return for reasons beyond their control.
  • Business losses carried forward can be adjusted only against business profits in the following years.
  • To claim a set off, you need not continue in the same business in which the loss has been incurred.

  • The loss can be adjusted against profits of other business, including new one.
  • Partnerships losses of a partnership firm cannot be allocated to its partners.

  • Only the partnership firm can carry forward losses and claim a set off, provided there is no change in its constitution.
  • If any partner leaves, losses to the extent of his share in the partnership cannot be set off either in his hands or the hands of the firm in the subsequent years.
  • Similarly, losses attributed to the share of a deceased partner cannot be carried forward by the firm.

Carry Forward of Losses in Tax

In the event of a partnership or a proprietary concern being converted into a company, the outstanding losses of the erstwhile entity are allowed to be carried forward by the company.

Also, unabsorbed business losses of a proprietary concern can be carried forward by the legal heir who takes over the business of the deceased.

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