TM Module IV Notes

7/29/2019 TM Module IV Notes

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MODULE IV

TAX MANAGEMENT

SET OFF & CARRY FORWARD OF LOSSES AND DEDUCTIONS

UNDER CHAPTER VI A

SECTION 80CDEDUCTION IN RESPECT OF LIFE INSURANCE PREMIA, DEFERRED ANNUITY,CONTRIBUTIONS TO PROVIDENT FUND, SUBSCRIPTION TO CERTAIN EQUITYSHARES OR DEBENTURES, ETC. (W.E.F. ASST. YEAR 2007-2008).

Persons Covered - Individual /HUF.

Any sums paid or deposited in the previous year by the assessee1. AsLife Insurance premium to effect or keep in force insurance on life of (a) self, spouse and any childin case of individual and (b) any member, in case of HUF. Insurance premium should not exceed 20% ofthe actual capital sum assured.

2. To effect or keep in force adeferred annuity contract on life of self, spouse and any child in case ofindividual. Such contract should not contain a provision for cash payment option in lieu of payment ofannuity.

3. By way ofdeduction from salary payable by or on behalf of the Government to any individual for thepurpose of securing to him adeferred annuity or making provision for his spouse or children. The sum sodeducted does not exceed 1/5th of the salary.

4. As contribution (not being repayment of loan) by an individual to Statutory Provident Fund; i.e., any

provident fund to which the Provident Funds Act, 1925, applies.5. As contribution toPublic Provident Fundscheme, 1968, in the name of self, spouse and any child incase of individual and any member in case of HUF. Maximum contribution is Rs. 70000/-

6. As contribution by an employee to arecognised provident fund.

7. As contribution by an employee to anapproved superannuation fund.

8. Any sum deposited in a 10 year or 15 year account under the Post Office Savings Bank (CTD) Rules,1959, in the name of self and as a guardian of minor in case of individual and in the name of any memberin case of HUF.

9. Subscription to the NSC (VIII issue).

10. As a contribution to Unit-linked Insurance Plan (ULIP) of UTI or LIC Mutual Fund (Dhanraksha

plan) in the name of self, spouse and child in case of individual and any member in case of HUF.11. To effect or to keep in force a contract for suchannuity plan of the LIC (i.e., Jeevan Dhara, JeevanAkshay and their upgradations) or any other insurer as referred to in by the Central Government.

12. As subscription to any units ofany Mutual Fund referred u/s. 10(23D) (Equity Linked SavingSchemes).

13. As a contribution by an individual to anypension fundset up by any Mutual Fund referred u/s10(23D).


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14. As subscription to any such deposit scheme ofNational Housing Bank (NHB), or as a contribution toany such pension fund set up by NHB as notified by Central Government.

15. As subscription tonotified deposit schemes of (a) Public sector company providing long-term financefor purchase/construction of residential houses in India or (b) Any authority constituted in India for thepurposes of housing or planning, development or improvement of cities, towns and villages.

16. As tuition fees (excluding any payment towards any development fees or donation or payment of

similar nature), to any university, college, school or other educational institution situated within India forthe purpose of full-time education of any two children of individual.

17. Towards the cost ofpurchase or construction of a residential house property (including therepayment of loans taken from Government, bank, LIC, NHB, specified assessees employer etc., and alsothe stamp duty, registration fees and other expenses for transfer of such house property to the assessee).The income from such house property should be chargeable to tax under the head Income from houseproperty.

18. As subscription to equity shares or debentures forming part of any eligible issue of capital of publiccompany or any public financial institutionapproved by Board.

19. As Term Deposit (Fixed Deposit)for 5 years or more with Scheduled Bank in accordance with ascheme framed and notified by the Central Government.

20. As subscription to any notified bonds of National Bank for Agriculture and Rural Development(NABARD) (applicable from the assessment year 2008-09).

21. In an account under the Senior Citizen Savings Schemes Rules, 2004.

22. As five year term deposit in an account under the Post Office Time deposit Rules, 1981.

Relevant Conditions/Points

1.No deduction shall be allowed to assessee in the previous year of happening of following events(referred henceforth as such previous year) and theaggregate amount ofdeductions of income soallowed in respect of the previous years preceding such previous year shall bedeemed to be the income of

the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previousyear; i.e., If the assessee:

(a) Terminates the contract of insurance (referred in item 1 above), by notice to that effect or ifthe contract ceases to be in force by reason of failure to pay any premium, by not reviving thecontract of insurance, in case of any single premium policy, within 2 years or in any other casebefore the premiums have been paid for 2 years.

(b)Terminates the participation in any ULIP plan (referred in item 10 above) by notice to thateffect or ceases to participate by reason of failure to pay any contribution, by not reviving hisparticipation, before contributions in respect of such participation has been paid for 5 years.

(c) Transfers his house property (referred in item 17 above) before the expiry of5 years fromthe end of the financial year in which possession of such property is obtained or receives back,whether by way of refund or otherwise any sum specified in that clause.

(d) Sales or transfers any equity shares or debentures (referred in item 18 above) to any personat any time within a period of 3 years from the date of their acquisition (i.e., date on which assesseesname is entered in the register of members or debenture holders).


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(e) Withdraw any amount (referred in item 21 and 22 above) before the expiry of the period offive years from the date of deposit

2. Any sum paid or deposited as above need not be out of current years income but should not exceed thetotal income of the relevant previous year.

Extent of Deduction100% of the amount invested or Rs. 1,00,000/- whichever is less. However, as per Section 80CCE, the totaldeduction the assessee can claim u/ss. 80C, 80CCC and 80CCD shall be restricted in aggregate to Rs.1,00,000/-.

SECTION 80CCCDEDUCTION IN RESPECT OF CONTRIBUTION TO CERTAIN PENSION FUNDS

Persons Covered - Individual.

Eligible Amount

Deposit or payment made to LIC or any other insurer in the approved annuity plan for receiving pension.


1. The amount should be deposited or paid out of taxable income.

2. No deduction u/s. 80C is allowed on investment or expenditure on which deduction is claimed under thissection.

3. Any amount withdrawn or pension received from the plan is taxable in the hands of the assessee ornominee in the year of receipt.

Extent of Deduction

Least of amount paid or Rs. 1,00,000/- . Refer Note on extent of deduction in Section 80C.

SECTION 80CCDDEDUCTION IN RESPECT OF CONTRIBUTION TO PENSION SCHEME OF CENTRALGOVERNMENT

Persons Covered - Individual in the employment of Central Government or any other employer on orafter 1-1-2004 or any other assessee being an individual.

Eligible Amount


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Deposit or payment made by the employee and Central Government or individual under a pension schemenotified by the Central Government.


1. No deduction is allowed u/s. 80C in respect of contribution claimed as deduction under this section.

2. Any amount received from the scheme either on closure or on the event of opting out of the pensionscheme, is taxable in the hands of the assessee or nominee in the year of such receipt.

3. Salary for the purpose of this section includes dearness allowance, if the terms of employment soprovide, but excludes all other allowances/perquisites.

4. For the purposes of these section, the assessee shall be deemed not to have received any amount in theprevious year if such amount is used for purchasing an annuity plan in the same previous year.

Extent of Deduction

A) Aggregate of (a) Amount paid or deposited by the employee and (b) Amount paid or deposited by theCentral Government. The total deduction shall be restricted to maximum 10% of salary.

B) Amount deposited by individual, subject to 10% of total income, in a previous year

SECTION 80DDEDUCTION IN RESPECT OF MEDICAL INSURANCE PREMIA

Persons Covered - Individual/HUF.

Eligible Amount

Premium paid on Mediclaim Policy issued by GIC or any other insurer approved by IRDA (InsuranceRegulatory and Development Authority).


1. The amount should be paid by any mode other than cash out of taxable income.

2.

(a) Insurance on the health of the self, spouse, parents or children of the assessee in the case ofIndividual or

(b) Insurance on the health of any member if the assessee is HUF.

Extent of Deduction

A. For taxpayer his/her spouse and dependent children: 100% of premium paid subject to ceiling of (a) Rs.20,000/- in the case of premium paid in respect of senior citizen (who has attained the age of 65 years ormore) and (b) Rs. 15,000/- in other cases.

B. Additional deduction for parents of the taxpayer whether dependent or not 100% of premium paidsubject to ceiling of (a) Rs. 20,000/- in the case of premium paid in respect of senior citizen (who hasattained the age of 65 years or more) and (b) Rs. 15,000/- in other cases.


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SECTION 80DD

DEDUCTION IN RESPECT OF MAINTENANCE INCLUDING MEDICAL TREATMENTOF HANDICAPPED DEPENDANT

Persons Covered - Resident Individual/HUF.

Eligible Amount

(a)Expenditure incurred on medical treatment [including nursing], training and rehabilitation of a disableddependant, or

(b) Any payment or deposit made under a scheme framed by LIC or any other insurer or the administratoror the specified company and approved by the Board for payment of lump sum amount or annuity for thebenefit of dependant with disability.


1. The concerned assessee must attach a copy of certificate in the prescribed Form and signed byprescribed medical authority along with return of income filed u/s 139. A fresh medical certificate may be

required to be submitted after the expiry of stipulated period depending on the condition of disability asspecified in such certificate.

2. Dependant means (a) in case of an individual, the spouse, children, parents, brothers and sisters of suchindividual and (b) in the case of a Hindu Undivided Family, any member of HUF; and who is dependantwholly or mainly on such individual or HUF for support and maintenance and who has not claimeddeduction under section 80U for the assessment year relating to previous year.

3. Disability has the same meaning assigned to it in Section 2(i) of the Persons with Disabilities (EqualOpportunities, Protection of Rights and Full Participation) Act, 1995 [hereinafter referred to asPDEOPRFP Act] and includes autism, cerebral palsy and multiple disabilities referred to in clauses(a), (c) and (h) of Sec. 2 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, MentalRetardation and Multiple Disabilities Act, 1999 [NTWPACMRMD Act].

4. Person with Disability means a person as referred to in Sec. 2(f) of the PDEOPRFP Act or Sec. 2(j) ofNTWPACMRMD Act.

5. Person with Severe Disability means a person suffering from 80% or more of one or more disabilitiesprescribed u/s. 56(4) of PDEOPRFP Act or u/s. 2(o) of NTWPACMRMD Act.

6. If such dependant predeceases the individual or the member of HUF in whose name the subscription ismade in the scheme, the amount shall be taxable in the hands of the concerned assessee in the year ofreceipt.

7. The assessee can nominate (a) disabled dependant or (b) any other person or (c) a trust, to receive thepayment from the scheme for the benefit of disabled dependant.

Extent of Deduction(a) Rs. 50,000/- in case of normal disability, or

(b) Rs. 75,000/- in case of severe disability. With effect from 1st day of April, 2010 Rs.1,00,000/- shall besubstituted in case of severe disability

SECTION 80DDB


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DEDUCTION IN RESPECT OF MEDICAL TREATMENT, ETC.

Persons Covered - Resident Individual/HUF.

Eligible Amount

Expenditure actually incurred for the medical treatment of such diseases or ailments specified in Rule11DD (some of the diseases are parkinsons disease, malignant cancers, full blown AIDS, chronic renalfailure, thalassaemia etc.) for self or dependant relative (spouse, children, parents, brothers and sisters) incase of individual or any member of HUF in case of HUF.


1. The concerned assessee must attach a copy of certificate in the prescribed Form No.10-I by aneurologist, an oncologist, a urologist, a haematologist, an immunologist or such other specialist workingin Government Hospital along with return of income.

2. The deduction under this section shall be reduced by the amount received under insurance from an

insurer or reimbursed by an employer, for the medical treatment of the concerned person.

Extent of Deduction

100% of the expenses incurred subject to ceiling of (a) Rs. 60,000/- in the case of expenses incurred forsenior citizen (who has attained the age of 65 years or more) and (b) Rs. 40,000/- in other cases.

SECTION 80EDEDUCTION IN RESPECT OF INTEREST ON LOAN TAKEN FOR HIGHEREDUCATION (W.E.F. ASST. YEAR 2006-07)

Persons Covered - Individual.

Eligible Amount

Any amount paid by way of interest on loan taken from any financial institution or any approved charitableinstitution for his/her higher education or w.e.f. 1-4-2008 for the purpose of higher education of his/herspouse and children.


1. Amount should be paid out of income chargeable to tax.2. Higher education means full time studies for any graduate or post-graduate course in engineering,medicine, management or for post-graduate course in applied sciences or pure sciences includingmathematics and statistics. With effect from 1st day of April, 2010 Higher education shall be substituted asany course of study pursued after passing the Senior secondary examination or its equivalent from anyschool, board or university recognized by the central govt. or state govt. or local authority or by any otherauthority authorised by the central govt. or state govt. or local authority to do so.

3. Approved charitable institution means an institution established for charitable purposes and notified bythe Central Government u/s. 10(23C) or referred in 80G(2)(a).


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4. Financial institution means banking company or financial institution notified by Central Government.

5. The deduction is allowed in the initial assessment year (i.e., the assessment year relevant to the previousyear, in which the assessee starts paying the interest on loan) and 7 assessment years immediatelysucceeding the initial assessment year or until the interest is paid in full whichever is earlier.

Extent of Deduction

Entire amount of interest

SECTION 80GDEDUCTION IN RESPECT OF DONATIONS TO CERTAIN FUNDS, CHARITABLEINSTITUTIONS, ETC.

Persons Covered - All assessees [except for 80G(2)(c), which is applicable for donations made only bycompany].

Eligible Amount

Any sums paid in the previous year as Donations to certain funds, charitable institutions etc. specified u/s.80G(2).


1. Donation in kind is not eligible for deduction.

2. Donations paid out of another years income or out of income not includible in the assessment of currentyear are also eligible for deduction. Lt. F. No. 45/313/66ITJ (61) dt. 2-12-1966.

Extent of DeductionWithout any ceiling of 10% of adjusted Gross Total Income:

(a) 100% of donation if donation given to National Defence Fund set up by the CentralGovernment; Prime Ministers National Relief Fund; Prime Ministers Armenia Earthquake ReliefFund; Africa (Public ContributionsIndia) Fund; National Foundation for Communal Harmony; Anapproved university/educational institution of National eminence; The Maharashtra Chief MinistersRelief Fund during October 1, 1993 and October 6,1993; Chief Ministers Earthquake Relief Fund,Maharashtra; Any fund set up by the State Government of Gujarat exclusively for providing relief tothe victims of earthquake in Gujarat; any Zila Saksharta Samiti constituted in any district under thechairmanship of the Collector of that district; National Blood Transfusion Council or to any StateBlood Transfusion Council; any fund set up by a State Government for the medical relief to the poor;

the Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force CentralWelfare Fund, Andhra Pradesh Chief Ministers Cyclone Relief Fund, 1996; National IllnessAssistance Fund; Chief Ministers Relief Fund or Lieutenant Governors Relief Fund in respect of anyState or Union Territory; National Sports Fund; National Cultural Fund; Fund for TechnologyDevelopment and Application; National Trust for Welfare of Persons with Autism, Cerebral Palsy,Mental Retardation and Multiple Disabilities; Any trust, institution or fund to which Section 80G(5C)applies for providing relief to the victims of earthquake in Gujarat (contribution made during January26, 2001 and September 30, 2001) or


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(b) 50% of donation if donation given toJawaharlal Nehru Memorial Fund; Prime MinistersDrought Relief Fund; National Childrens Fund; Indira Gandhi Memorial Trust; Rajiv GandhiFoundation.

With ceiling of 10% of adjusted Gross Total Income:Where the aggregate of sums exceed 10% ofadjusted gross total income, then such excess amount is ignored for computing such aggregate.

(a) 100% of qualifying amount, if donation given to Government or any approved local authority,institution or association to be utilised for the purpose of promoting family planning; Donation by aCompany to the Indian Olympic Association or to any other notified association or institutionestablished in India for the development of infrastructure for sports and games in India or thesponsorship of sports and games in India.

(b) 50% of qualifying amount if donation given to any other fund or any institution which satisfiesconditions mentioned in Section 80G(5); Government or any local authority to be utilised for anycharitable purpose other than the purpose of promoting family planning, Any authority constituted inIndia for the purpose of dealing with and satisfying the need for housing accommodation or for thepurpose of planning, development or improvement of cities, towns, villages or both; Any corporationreferred in Section 10(26BB) for promoting interest of minority community; For repairs or renovation

of any notified temple, mosque, gurudwara, church or other place.

SECTION 80GGDEDUCTION IN RESPECT OF RENT PAID

Persons Covered - Any assessee other than assessee having income falling u/s 10(13A) (i.e., House RentAllowance)

Eligible Amount

Any expenditure incurred by him on payment of rent (by whatever name called) in respect of any furnishedor unfurnished accommodation in excess of 10% of his total income, before making any deduction underthis section.


1. Such accommodation is occupied by him for his own residence.

2. The assessee should file a declaration in Form No. 10BA along with return of income.

3. This section shall not apply to an assessee if residential accommodation is, (a) owned by the assessee or

by his spouse or minor child or where such assessee is member of HUF, by such family, at the place wherehe ordinarily resides or performs duties of his office or employment or carries on his business orprofession. OR (b) owned by the assessee at any other place, being accommodation in the occupation of theassessee, the value of which is to be determined u/s. 23(2)(a) or 23(4)(a).

Extent of Deduction

Lower of (a) Rs. 2,000 per month, or (b) 25% of the total income (after allowing all deductions exceptunder this section), or (c) Expenditure incurred in excess of 10% of the total income (after allowing alldeductions except under this section).


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SECTION 80GGADEDUCTION IN RESPECT OF CERTAIN DONATIONS FOR SCIENTIFIC RESEARCHOR RURAL DEVELOPMENT

Persons Covered - All assessees

Eligible Amount

1. Any sum paid to a scientific research association or to a university, college, or other institution to beused forscientific research [approved u/s. 35(1)(ii)];

2. Any sum paid to a university, college, or other institution to be used forresearch in social science orstatistical research [approved u/s. 35(1)(iii)];

3. Any sum paid to an association or institution for anyprogramme of rural development [approved u/s.

35CCA];4. Any sum paid to an association or institution for training of persons for implementing rural developmentprogrammes [approved u/s. 35CCA];

5. Any sum paid to a public sector company or local authority or to an association or institution approvedby National Committee for carrying outany eligible project or scheme [approved u/s. 35AC];

6. Any sum paid to arural developemt fundset up and notified by Central Government for the purposes ofSection 35CCA(1)(a);

7. Any sum paid to a National Urban Poverty Eradication Fund set up and notified by Central Governmentfor the purposes of Section 35CCA(1)(d).

Relevant Conditions/Points1. No deduction is allowed if assessee has income chargeable under the head Profits and gain of businessand profession.

2. Any sum in respect of which deduction is allowed under this section will not qualify for deduction underany other provision of this Act for any assessment year.

3. If donation is paid for rural development, then the assessee should furnish the certificate referred to inSection 35CCA(2) or 35CCA(2A) from such association or institution and if donation paid for eligibleproject/scheme then the assessee should furnish the certificate referred to in Section 35AC(2)(a) from suchassociation.

Extent of Deduction100% of the amount paid as donation/contribution.

SECTION 80GGC


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DEDUCTION IN RESPECT OF CONTRIBUTION GIVEN BY ANY PERSON TOPOLITICAL PARTIES ( WITH EFFECT FROM 1ST DAY OF APRIL, 2010 POLITICALPARTY OR AN ELECTORAL TRUST SHALL BE INSERTED)

Persons Covered - Any assessee (except local authority and every artificial juridical person wholly or partlyfunded by the Government)

Eligible Amount

Contribution given by assessee to political parties


Political party means a political party registered under Section 29A of the Representation of the PeopleAct, 1951.

Electoral Trust is defined in section 2(22AAA) of IT Act, 1961

Extent of Deduction

100% of the amount paid as contribution.

SECTION 80UDEDUCTION IN CASE OF A PERSON WITH DISABILITY

Persons Covered - Individual resident in India

Eligible Amount

Deduction to a person with disability out of total Income


1. The concerned assessee must attach a copy of certificate in the prescribed form and signed by prescribedmedical authority along with return of income filed u/s. 139. A fresh medical certificate may be required tobe submitted after the expiry of stipulated period depending on the condition of disability as specified insuch certificate.

2. Medical authority means the medical authority referred u/s. 2(p) of Persons with Disabilities (EqualOpportunities, Protection of Rights and Full Participation) Act, 1995 [PDEOPRFP Act] or u/ss. 2(a), (c),(h), (j) and (o) of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, MentalRetardation and Multiple Disabilities Act, 1999 [NTWPACMRMD Act].

3. Disability has the same meaning assigned to it in Section 2(i) of PDEOPRFP Act and includesautism, cerebral palsy and multiple disabilities referred to in clauses (a), (c) and (h) of Sec. 2 of theNTWPACMRMD Act.


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4. Person with Disability means a person as referred to in Sec. 2(f) of the PDEOPRFP Act or Sec. 2(j) ofNTWPACMRMD Act.

5. Person with Severe Disability means a person suffering from 80% ormore of one or more disabilitiesprescribed u/s. 56(4) of PDEOPRFP Act or u/s. 2(o) of NTWPACMRMD Act.

Extent of Deduction

(a) Rs. 50,000/- in case of normal disability or

(b) Rs. 1,00,000/- in case of severe disability (Rs. 75,000/- A.Y. 2009-10).

Set off and carry forward of losses

1. Inter source adjustment70:

Losses incurred by an assessee in respect of one source shall be set off againstincome from any other source under the same head of income.

Short term capital loss is allowed to be set off against both short term & long term capital gain. Butlong term capital loss can be set off only against long term capital gain.

A speculative business loss can be set off only against the profits of any other speculative business &not against any other business or professional income. However losses from other business can beadjusted against profits from speculative business.

Loss from an exempted source cant be set off against profits from a taxable source of income. E.g. -long term capital loss on sale of shares sold through recognized stock exchange can not be set offagainst long term capital gains on sale of land.

2. Inter head adjustment71:

i) Where net income under any head (other than Capital Gain) is a loss, it can be set off with any headincluding capital gain.

ii) Where under the head Profits and gains from business or profession is a loss, such loss cant be setoff against income under the head income from salaries.

iii) Capital loss cant be set off against income under any head.iv) Speculation loss and loss from the activity of owning & maintaining race horse can not be set off

against income under any head.

3. Setoff and carry forward of losses from income from house property71 B:

i) House property loss will first be set off against income from any other head during the year.ii) If such loss cant be set off, the unabsorbed part will be C/F to the following assessment year

against income under the head income from HP.iii) Such loss is to be C/F up to 8 assessment year immediately succeeding the assessment year in which

the loss was first computed.iv) It is recommended that once a particular loss is C/F it can be set off only against the income from

the same head in the forthcoming assessment year.

4. Set off and carry forward of losses of Business Losses72, 80:


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Conditions to carry forward:

i) Loss should have been incurred in business, profession or vocation.ii) Loss should not be in the nature of a loss on the speculation business.iii) Loss may be carry forward and set off against the income from business or profession not

necessarily against the profits and gains of the same business in which loss have been incurred. Buta C/F loss cant be set off against the income from any head other than Profits and gains from

business or profession.iv) In case of Succession of businessthe successor can not C/F or set off losses of his predecessor

except in the case of succession of inheritance.v) Such loss is to be C/F up to 8 assessment year immediately succeeding the assessment year in

which the loss was first computed.vi) Assessee must have filed a return of loss u/s 139(3).

5. Carry forward & Set off of Accumulated Business loss & Unabsorbed Depreciation allowance in certaincases - 72A:

Amalgamation- amalgamation of a company owning an industrial undertaking or a ship or a hotel with

another company or an amalgamation of a banking company with a specific bank

Conditions for availing benefit under this section

(1) Conditions to be fulfilled by the amalgamating company

(i) Should have been engaged in the business, in which the accumulated loss occurred or depreciationremains unabsorbed, for 3 or more years.

(ii) Held continuously as on the date of amalgamation, at least 3/4th of the book value of the fixed assetsheld by it, 2 years prior to the date of amalgamation.

(2) Conditions to be fulfilled by the amalgamated company

(i) Should hold at least 3/4th in the book value of fixed assets of the amalgamating company acquired as aresult of amalgamation for a minimum period of 5 years from the effective date of amalgamation.

(ii) Continues the business of the amalgamating company for at least 5 years.

(iii) The amalgamated company must also fulfill such other conditions prescribed

Under Rule 9C

Demerger - the accumulated loss and the unabsorbed depreciation directly relatable to the undertaking

transferred by the demerged company to the resulting company shall be allowed to be carried forward andset off in the hands of the resulting company. If the accumulated loss or unabsorbed depreciation is notdirectly relatable to the undertaking, the same will be apportioned between the demerged company and theresulting company in the same proportion in which the value of the assets have been transferred.

Industrial undertakingmeans any undertaking which is engaged in -

(i) The manufacture or processing of goods;


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(ii) The manufacture of computer software;

(iii) Providing telecommunication services, whether basic or cellular, including radio paging, domesticsatellite service, network of trunking, broad band network and internet services.

(iv) Mining;

(v) The construction of ships, aircraft or rail systems.

6. Set-off of losses of a banking company against the profit of a Banking institution under a scheme ofamalgamation [section 72aa]:

The accumulated loss and unabsorbed depreciation of the amalgamating banking company shall be deemedto be the loss or the allowance for depreciation of the banking institution for the previous year in which thescheme of amalgamation is brought into force.

7. Losses in speculation business [section 73]

The losses incurred in speculation can be neither set off in the same year against any other non-speculation income nor be carried forward and set off against other income in the subsequent years.

If the losses sustained by an assessee in a speculation business cannot be set-off in the same yearagainst any other speculation profit, they can be carried forward to subsequent years and set-off onlyagainst income from any speculation business carried on by the assessee.

The loss in speculation business can be carried forward only for a maximum period of 4 years from theend of the relevant assessment year in respect of which the loss was computed. Loss from the activity oftrading in derivatives, however, is not to be treated as speculative loss.

8. Losses from the activity of owning and maintaining race horses [section 74a(3)]

(i) The losses incurred by an assessee from the activity of owning and maintaining race horses cannotbe set-off against the income from any other source other than the activity of owning and maintainingrace horses.

(ii) Such loss can be carried forward for a maximum period of 4 assessment years for being set-offagainst the income from the activity of owning and maintaining race horses in the subsequent years.

(iii Loss = Stake moneyrevenue expenditure for the purpose of maintaining race horses.

(iv) Further, the expression horse race means a horse race upon which wagering or betting may be

lawfully made.(v) Income by way of stake money means the gross amount of prize money received on a race horseor race horses by the owner thereof on account of the horse or horses any one or more of the horseswinning or being placed second or in any lower position in horse races.

9. Order of set-off of losses


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As per the provisions of section 72(2), brought forward business loss is to be set-off before setting offunabsorbed 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 yearexpenditure on family planning, to the extent allowed.

(b) Brought forward loss from business/profession

(c) Unabsorbed depreciation

(d) Unabsorbed capital expenditure on scientific research

(e) Unabsorbed expenditure on family planning

Setoff & Carry forward of losses - Summary

Head of income Period Source Section Remarks

House Property

Losses:-

Same year Against house property

income

Section 70

(1)

Against any other head ofincome

Section 71(1)

Carried forward

(8 Yrs)

Against house propertyincome only

Section 71 B

Business Losses Same year Against Business income Section 70(1)

Speculation Businessincome/losses are notconsidered as businessincome/loss

And hence shall beexcluded for the purposeof these sections.

They have a separate

treatment as per Section 7

Against any other head ofincome

Section 71(1)

But Not against Salaryincome

Section 71(2A)

Carried forward

(8 Yrs)

Against Business incomeonly

(Section 72) Subject to filing of returnU/S 139(1)

Short Term CapitalLoss

Same year Against Short termCapital Profit & Long

Section 70(2)

U/s 71 - The Income canbe used to setoff the


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Term Capital profit losses of the other heads.

Carried forward

(8 Yrs) (Section74 (2))

Against Short termCapital Profit & Long

Term Capital profit

Section 74(1) (a)

Long Term CapitalLoss

Same year Against Long TermCapital profit only

Section 70(3)

U/s 71 - The Income canbe used to setoff thelosses of the other heads.

Carried forward

(8 Yrs) (Section

74 (2))

Against Long TermCapital profit only

Section 74(1) (b)

Owning andmaintaining of racehorses

Same year Against income ofowning and maintainingof race horses only

Section 74A U/s 71 - The Income canbe used to setoff thelosses of the other heads.

Carried forward

(4 Yrs)

Against income ofowning and maintainingof race horses only

(Section 74A(3))

Speculation Business Same year Against SpeculationBusiness income only

Section 73 U/s 71 - The Income canbe used to setoff thelosses of the other headsexcept business loss andcapital gain

Carried forward

(4 Yrs)

Against SpeculationBusiness income only

Section 73

Remarks:-

1. Unabsorbed depreciation can be carried forward for an unlimited period.2. Unabsorbed depreciation can be carried forward and set-off against any other head3. No loss can be set-off against casual income4. No expenses can be claimed against casual income5. Loss from an exempted source cannot be set off


16/16

(e.g. Agricultural losses, Share of loss of firm, cultivation expenses)

Order of Set-off

In case where profits are insufficient to absorb brought forward losses, current depreciation and currentbusiness losses, the same should be deducted in the following order

1. Current scientific research expenditure [Sec. 35(1)].2. Current depreciation [Sec. 32(1)].3. Brought forward business losses [Sec. 72(1)].4. Unabsorbed family planning promotion expenditure [Sec. 36(1)(ix)].5. Unabsorbed depreciation [Sec. 32(2)].6. Unabsorbed scientific research capital expenditure [Sec. 35(4)].7. Unabsorbed development allowance [Sec. 33A(2)(ii)].8. Unabsorbed investment allowance [Sec. 32A(3)(ii)].

TM Module IV Notes

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