Order of set-off of losses :
As per the provisions of section 72(2), brought forward business loss is to be set -off before setting off unabsorbed depreciation. Therefore, the order in which set-off will be effected is as follows –
(a) Current year depreciation / Current year capital expenditure on scientific research and current year expenditure on family planning, to the extent allowed.
(b) Brought forward loss from business/profession [Section 72(1)]
(c) Unabsorbed depreciation [Section 32(2)]
(d) Unabsorbed capital expenditure on scientific research [Section 35(4)].
(e) Unabsorbed expenditure on family planning [Section 36(1)(ix)]
Illustration
Mr. E has furnished his details for the A.Y.2016-17 as under:
| Particulars | Rs |
| Income from salaries | 1,50,000 |
| Income from speculation business | 60,000 |
| Loss from non-speculation business | (40,000) |
| Short term capital gain | 80,000 |
| Long term capital loss of A.Y.2014-15 | (30,000) |
| Winning from lotteries | 20,000 |
What is the taxable income of Mr. E for the A.Y. 2016-17?
Solution
Computation of taxable income of Mr. E for the A.Y.2016-17
| Particulars | Rs | Rs |
| Income from salaries | 1,50,000 | |
| Income from speculation business | 60,000 | |
| Less : Loss from non-speculation business | (40,000) | 20,000 |
| Short-term capital gain | 80,000 | |
| Winnings from lotteries | 20,000 | |
| Taxable income | 2,70,000 |
Note: Long term capital loss can be set off only against long term capital gain. Therefore, long term capital loss of Rs 30,000 has to be carried forward to the next assessment year.
Illustration
Compute the gross total income of Mr. F for the A.Y.2016-17 from the information given below –
| Particulars | Rs |
| Net income from house property | 1,25,000 |
| Income from business (before providing for depreciation) | 1,35,000 |
| Short term capital gains on sale of shares | 56,000 |
| Long term capital loss from sale of property (brought forward from A.Y.2015-16) | (90,000) |
| Income from tea business | 1,20,000 |
| Dividends from Indian companies carrying on agricultural operations | 80,000 |
| Current year depreciation | 26,000 |
| Brought forward business loss (loss incurred six years ago) | (45,000) |
Solution
The gross total income of Mr. F for the A.Y. 2016-17 is calculated as under:
| Particulars | Rs | Rs |
| Income from house property | 1,25,000 | |
| Income from business | ||
| Profits before depreciation | 1,35,000 | |
| Less: Current year depreciation | 26,000 | |
| Less: Brought forward business loss | 45,000 | |
| 64,000 | ||
| Income from tea business (40% is business income) | 48,000 | 1,12,000 |
| Income from the capital gains | ||
| Short term capital gains | 56,000 | |
| Gross Total Income | 2,93,000 |
Note: (1) Dividend from Indian companies is exempt from tax. 60% of the income from tea business is treated as agricultural income and therefore, exempt from tax;
(2) Long-term capital loss can be set-off only against long-term capital gains. Therefore, longterm capital loss of Rs 90,000 brought forward from A.Y.2015-16 cannot be set-off in the A.Y.2016-17. It has to be carried forward for set-off against long-term capital gains, if any, during A.Y.2017-18.