Profit and loss are part and parcel of a business. Income tax provisions provide rules for setting off losses against income/profits or carrying forward the losses to the next few years. Carry forward or set-off of losses allows the taxpayer to reduce taxable income in the current year and year in which the losses are carried forward.

SET OFF CAN BE THROUGH:  

• Intra Head Set Off:

Loss from one source of income can be set off against profit from another source of income that falls under the same head of income. This means that loss from one business can be set off against profit from another business.

• Inter Head Set Off:

Loss of one head of income may be set off against income/profit from another head, in line with the Income Tax laws. Loss from house property can be set off against income under any other head.

Carry forward of losses.

After the above set offs are made, there could still be unadjusted losses which may be carried forward to future financial years. Carry forward and set-off of losses is possible for Maximum of 8 subsequent financial years in certain cases.

Points to note!

• Losses cannot be set off against casual income received, such as lottery.
• Carry forward of losses is permitted only when return is filed with the Income Tax Department in time.

TO SAVE TIME, HERE IS TABLE TO SUMMARISE HOW TO SET OFF LOSSES: