Company Taxation
Tax Losses
The ITA deals with losses arising under the following heads of income:
- Losses under the head ‘Income from house property’
- Losses under the head ‘Business income,’ further split into ‘Business loss’ and ‘Unabsorbed depreciation’
- Losses under the head ‘Speculation business income’
- Losses under the head ‘Capital gains’, further classified into ‘Long-term capital loss’ and ‘Short- term capital loss’
- Losses under the head ‘Income from other sources’
These losses are computed under the different provisions of the ITA, and there are various provisions governing the set-off and carrying forward of such losses. Also, the losses under the head ‘Income from house property’ and ‘Business income’ can be set off against income from any other head computed for the same year. However, losses under the head ‘Speculated loss’ and ‘Capital loss’ can be set off only against 'Speculated gain' and 'Capital gain' respectively, computed for the year.
This is shown in the following table:
| Loss under the head | Can be set off in subsequent years against | ||||||
|---|---|---|---|---|---|---|---|
| Salaries | Income from house property | Business income | Speculated business income | Short-term capital gains | Long-term capital gains | Income from other sources | |
| Loss from house property |  |
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| Business loss |  |
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| Speculated business loss | |
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| Unabsorbed depreciation | |
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| Short-term capital loss | |
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| Long-term capital loss | |
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| Loss from income from other sources | |
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There are also restrictions on the utilization of tax losses under each head when they are carried forward to subsequent years, as shown in the following table:
| Loss under the head | Can be set off in subsequent years against | ||||||
|---|---|---|---|---|---|---|---|
| Salaries | Income from house property | Business income | Speculated business income | Short-term capital gains | Long-term capital gains | Income from other sources | |
| Loss from house property | |
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| Business loss | |
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| Speculated business loss | |
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| Unabsorbed depreciation | |
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| Short-term capital loss | |
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| Long-term capital loss | |
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| Loss from income from other sources | |
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There are specific provisions for carrying forward losses with respect to the head of income against which theycan be set off and the time limit for each, which are mentioned below:
| Nature of loss | Can be set off against | Number of years that it can be carried forward for |
|---|---|---|
| Loss from house property | Income from House Property | 8 years |
| Business loss | Business profits | 8 years |
| Speculated business loss | Speculated business profit | 4 years |
| Unabsorbed depreciation | Business profit | Infinite |
| Short-term capital loss | Capital gain (Short-term or Long-term) | 8 years |
| Long-term capital loss | Long-term capital gains | 8 years |
It is pertinent to note that closely held companies are required to satisfy a 51% continuity of ownership criteria for carrying forward business losses.
