Rules for taxpayers to compensate for losses when filing tax returns


Income tax rules allow losses of businesses and fixed assets to be offset against profits made from other assets.

Neha Malhotra, director of Nangia Andersen LLP, said that both intra-head and inter-head adjustment mechanisms are allowed. “Taxpayers are allowed to adjust the loss from one source under a particular income item against income from another source under the same income item, called an intra-item adjustment. For example, business income and losses of two business enterprises, respectively. After making intra-head adjustments, taxpayers can also adjust the loss under one income item against the income under another income item. For example, an operating loss can be offset by short-term capital gains. This is called the fit between the heads, ”said Malhotra.

Capital losses: Losses from a fixed asset can only be offset by capital gains. “The loss on ‘capital gains’ cannot be offset by income from other income items,” said Malhotra. The rules vary depending on whether the losses are short term or long term. Long-term capital losses can only be offset against long-term capital gains, while short-term capital losses can be offset by both long-term or long-term capital gains. short term.

However, capital gains, both long term and short term, can be used to offset losses.

Loss of commercial and residential property: The adjustment of the operating loss depends on the speculative or non-speculative nature of the company. “Losses from speculative activities cannot be deducted from any income other than income from speculative activities. However, non-speculative business losses can be offset by income from speculative activities, ”said Malhotra.

Losses due to lotteries, crosswords, races including horse racing, card games and any other game of any kind or games of chance or betting of any form or nature. cannot be offset or postponed. However, the loss of the racehorse possession and maintenance business may be deducted from the income from the racehorse possession and maintenance business. The rules for compensating the loss of real estate are relatively generous. It can be set off against any other income item, but only up to ??2 lakh in a particular assessment year. If the loss is not fully compensated, it can be carried over to the following year, but in this case it can only be compensated by income from real estate.

“In addition, the loss of real estate can also be carried over to the next eight valuation years, even if the income / loss statement for the year in which the loss is incurred is not provided to the later than the filing due date, as prescribed under section 139 (1), ”said Malhotra.

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