They can be set off against your income from the same or
another source while computing your taxable income, thereby reducing your overall tax outgo, explains Mayur Shah
Intra-head set-off
If, during a year, a loss has been incurred in one stream of income and there is profit in another stream of income under the same head, say: house property, business income, capital gains or income from other sources, then such loss can be set-off against profits under the same head while computing the income tax. For example: Loss from one house property can be set-off against income from another house property. Such a set-off is known as an intra-head set-off.
Exceptions: A long-term capital loss is a loss incurred on sale of a capital asset held for more than 36 months (In case of shares/ listed mutual funds, the loss is considered a long-term loss if the shares have been held for more than 12 months). Long-term capital loss can only be set off against long-term capital gains, if long-term capital gains in the same financial year are not sufficient, the loss can be carried forward and adjusted against long-term capital gains of the next eight financial years. Long-term capital loss from sale of securities on which securities transaction tax (STT) has been paid cannot be set-off since the capital gains from these are statutorily exempt. Short-term capital loss can be set-off against short-term capital gains as well as long-term capital gains.
Inter-head set-off
Loss under one head of income can also be set-off against income under another head and this is known as an inter-head set-off. For instance, if an individual has suffered a loss from house property, it can be set-off against his salary income.
Exceptions:
-Business & professional loss cannot be set-off against salary income
-Loss from speculation business can be set-off only against income from speculation business
-As explained above, long-term capital loss can be set-off only against loss-term capital gains. Short-term capital loss can be set off against short-term or long-term capital gains.
Carry forward of loss
If a loss cannot be set off entirely in one year, it can be carried forward to the next eight financial years (four years for speculation losses) and set off against income falling under that particular head. However, business loss on account of depreciation can be carried forward indefinitely.
By filing tax returns in time and adjusting the losses as per the tax laws, one can ensure all is not lost, when there is a loss.
Shah is senior tax professional with Ernst & Young. Views expressed are personal.
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