SET OFF AND CARRY FORWARD OF LOSSES

It has been discussed earlier that the income derived by a person can be categorized under five heads. These heads are salaries, income from property, income from business, capital gains and income from other sources. We have also discussed how the taxable income of each of these heads is calculated separately and then clubbed together for the purpose of tax calculations. It must be understood, however, that under each of these heads, a person may have more than one source. For example, a person may be serving at two different places which will mean that he has two sources under the head ‘salary’, or a person may have three different businesses resulting in three sources under the head income from business.

Uptill now, we have discussed that if a person receives any income or profit from these heads, what is the procedure adopted for its taxation? The second possibility is that a taxpayer may sustain a loss in any source or head of income. We will concentrate our discussion in this Chapter on such cases and study various provisions of income tax law in this regard.

LOSS FROM A SOURCE OF INCOME

Have you ever heard that a person has sustained a loss from salary or a person has received negative salary? No, it is not possible, either a person will receive salary or he will not receive, that is his salary will be zero, but there is no question of a loss from salary. It means there can’t be any loss under this head. But there is a possibility of loss under the head income from other sources’. Recall the procedure we adopted for taxation under this head. There are many Dfa Ho allowances and deductions which are allowed under the law, e.g. profit on debt, depreciation, any amount expended exclusively for earning the income, etc. It is quite possible that these deductions exceed the income from other sources. It will result in a loss under this head.