Under inter source adjustment, losses from one source to be set off from the profit of any other source under the same head. There are some cases where inter source adjustment is not possible-
- Loss from owning and maintaining race horses- Loss from owing and maintain race horses can be set off only against the income from owning and maintaining race horses.
- Loss of specified business under Section 35AD- Losses from specified business under section 35AD can be set off only against profits from such specified business only but the losses from other business can be set off against profits from specified business as above.
Inter Head Adjustments- (section 71)
Under inter head adjustment, If it is not possible to set off of losses under inter source adjustment he can set off the losses under inter head adjustments-
The loss under one head can be set off against the profit of another head of Income in that financial year.
- House Property Losses- House Property Losses can be set off against profits from other heads. It can be set off against salary income, Business income, Income from capital gain, and income from other sources.
- Non Speculative Business Losses- Non speculative Business Losses can be set off under any other head except income from salary. I.e. means it can be set off from income from house property, income from capital gain and Income from other sources.There have some exceptions of the following losses which cannot be set off under inter head adjustments.-
1. Speculative Business Losses.
2. Specified Business Losses.
3. Capital Gain Losses (Both short term capital loss and long term capital loss).
4. Losses from owning and maintaining race Horses.
Carry forward of Losses-
it is not possible to set off losses under inter source adjustments and inter-head adjustments, he can carry forward the losses to the next assessment years.It must be in your mind that the carry forward losses can be set off only against the profit from that head of income. It will be carry forward if you have file your return within the due dates as prescribed under section 139(1), except the losses arising out of house property. The following losses can be carried forward to next assessment years.
- House Property Losses (section 71B)- From financial year 2017-18 on wards loss of maximum of Rs. 2,00,000 is allowed to be set off with Income from other heads. The amount which is not set off shall be carried forward to next eight years adjusted under the same head. Earlier there was no restriction.
Example-
Mr. X has salary income of Rs. 5,00,000, Income from other sources Rs. 3,00,000 and Income from House property is -4,41,400 during the financial year 2017-18. What will be his taxable income and what amount of loss which can be set off or which can be carry forward to next assessment years?. He has also invested Rs. 1,50,000 under section 80C.
Answer-
Particulars |
Amount (Rs.) |
Income from Salary |
5,00,000 |
Income from Other Sources |
3,00,000 |
Income from House Property |
-2,00,000* |
Gross Total Income |
6,00,000 |
Less: Deduction under Section 80C |
1,50,000 |
Total Taxable Income |
4,50,000 |
*Total losses for the year financial year 2017-18, under the head of “Income from House Property is Rs. -4,41,400, However, form FY 2017-18, such set off of losses has been restricted to Rs 2 lakhs from income of other heads in a financial year and balance amount is carry forward to next eight assessment years and will be adjusted under the same head. So, he can set off only Rs. 2,00,000 from other head of income in the financial year 2017-18 and balance Rs. -2,41,400 will be carry forward to next 8 assessment years or will be set off under the same head of income i.e. Income from house property.