SET OFF AND CARRY FORWARD OF LOSSES: ILLUSTRATION 1

Income from lease of building

together with plant and machinery

Allowable deductions:

Interest on borrowed money

Expenditure on collection Loss on income from other sources Rs. 34,000

In the same way, there can be a loss from a business, and a capital loss. There is also a possibility that a person may have three businesses. ‘From two of them there is a profit but from the third one a loss is sustained. It will mean income from two sources and loss from one source under the same head.

SET OFF OF LOSSES

Now the question is: how this loss which can arise from any of the heads (except salary) should be treated? Income tax law allows that generally, such a loss can be adjusted against any other source of the same head or against any other head of income in the same year. This adjustment in the same year is known as ‘set off of losses. However, as a rule, Dfa Ho if a person sustains a loss under the head income from business’ and a loss under another head of income, the loss under the head ‘income from business’ shall be set off last.