Loss from Business/Profession

Loss, in simple terms, means excess of expenses over incomes. Loss arises when income earned during the financial year by the taxpayer is less than the expenditures incurred by him during the same year. There might be house property loss or capital loss or loss from business/profession/other income.

Losses under “Income from business/profession” could occur in following 3 types:-

A) Loss from speculation business:

‘Speculation business means a business transaction in which actual delivery of the goods is not provided’. Example- Business of Trading in Futures & Options through stock exchange. Generally it is known as F & O trading.

If the taxpayer incurred loss in trading of F & O, the same is taxed under “Profits and Gains from business or profession”. The provisions of the Income Tax Act, 1961 regarding such loss are as follows-

  1. A loss from the speculation business can be set off against profits from speculation business only. This loss can not be set off against any other incomes.
  2. If loss still exists then it can be carried forward to next financial year.
  3. Loss from speculation business can be carried forward to the next 4 financial years only. If loss still persists after 4 financial years, then such loss shall be forgone.

B) Loss from specified business:

‘Specified business means an investment linked business in which huge investment is made by the taxpayer’. Some of the popular business covered in this criteria are –

  1. Setting up & operating cold chain facility,
  2. Setting up & operating warehousing facility for agricultural products,

iii. Building & operating hotel of 2 star or above category in India.

If the taxpayer incurred loss in specified business, the same is taxed under “Profits and Gains from business or profession”. The provisions of the Income-tax Act, 1961 regarding such loss are as follows-

  1. A loss occurred from the specified business can be set off against profits from specified business only. That is this loss cannot be set off against any other income.
  2. If loss still exists then it can be carried forward to next financial year.
  3. Loss from specified business can be carried forward to indefinite financial years.

C) Loss from ordinary business/profession:

This includes any kind of business not covered above. If the taxpayer incurred loss in ordinary business, the same is taxed under “Profits and Gains from business or profession”.

The provisions of the Income Tax Act, 1961 regarding such loss are as follows-

  1. If taxpayer is having more than one business, then loss from ordinary business can be set off against any other business incomes.
  2. If there is no other business income available to set off, then loss from ordinary business can be set off against any other income except salary.

NOTE: That is, business loss cannot be set off against salary income.

  1. If the loss still exists, then such loss can be carried forward to the next year. However, a loss if carried forward to the next year then it can be set off against business income only. Hence, last year’s business loss can not be set off against any other incomes.
  2. A business loss can be carried forward to the next 8 financial years only. If the business loss still persists after 8 financial years, then such loss shall be forgone.

[NOTE- Loss of unabsorbed depreciation and loss of unabsorbed family planning expenditure can be carried forward to indefinite financial year. That is there is no time limit for carrying forward these losses.]

Click here to know about “Loss from house property income”.

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Loss from Business/Profession
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Loss, in simple terms, means excess of expenses over incomes. Loss arises when income earned during the financial year by the taxpayer is less than the expenditures incurred by him during the same year. There might be house property loss or capital loss or loss from business/profession/other income.
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