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Set off provisions

Set off provisions

What do you mean by set off?

Ans. Income Tax Act 1961 provides that an assessee can adjust his loss arises from one source with income from other source, however, subject to some conditions. This is Known as “ Set off ”

Set off is of two types:-

  • Intra Head Adjustment
  • Inter Head Adjustment

Intra-Head Adjustment: – If in any year , assesse has incurred some losses from any source under a particular head of income, then he is allowed to adjust such loss against income from any other source falling under the same head. This process is Known as Intra Head adjustment.

             Example:- Mr. A can adjust his loss from self-occupied property with income he received from letting of house property. As both the income and loss falls within the same head, thus it is called Intra head adjustment.

Conditions: – a) Loss from speculative business cannot be set off from any other income under PGBP head. However, any other business loss can be set-off from speculative business income.

  1. b) Long term Capital Loss cannot be set-off from Short term capital gain. But Short term capital loss can be set-off against long term capital gain.
  2. c) Loss from business of owning and maintaining race horses cannot be set off from any other income under PGBP head. However, any other business loss can be set-off from such income.
  3. d) Loss from business specified under section 35AD cannot be set off from any other income under PGBP head. However, any other business loss can be set-off from 35AD business income.
  4. e) No loss can be set-off against Casual Income.

Inter-Head Adjustment: – After making Intra-head adjustment, if any loss has still left under one head of income then it can be set-off against income from any other head. This is called Inter-Head adjustment. Inter-Head adjustment can be made only in the year in which loss has been incurred.

Example: – Mr. A can adjust his loss under House property head with income under PGBP head.

Conditions: – a) Loss from speculative business cannot be set off from any other Head income. However, any loss from other head can be set-off from speculative business income.

  1. b) Loss under the head Capital gain cannot be set-off against income from other head.
  2. c) Loss from business of owning and maintaining race horses cannot be set off against income under any other head.
  3. d) Loss from business specified under section 35AD cannot be set off against income under any other head.
  4. e) No loss can be set-off against Casual Income.
  5. f) Losses from business head cannot be set-off from income under the head Salary.
  6. f) Before making inter-head adjustment, the taxpayer has to first make intra-head adjustment.

Set off provisions

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