Understanding Set-off of Losses in Income Tax

Set-off of losses in income tax allows taxpayers to reduce their taxable income by offsetting losses from one source against income from another source. This process helps in minimizing tax liability and optimizing tax planning strategies. There are specific rules and exceptions regarding the set-off of losses within the same head of income and against different heads of income. Losses cannot be set off against certain income sources such as winnings from lotteries, speculative activities, illegal businesses, and exempted income. Understanding these rules is crucial for efficient tax management.

• Set-off of losses
• Income tax
• Tax planning
• Exceptions
• Tax liability

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1. SET OFF OF LOSSES

2. Set off of losses against the income of the same year, following are the options. Set off of losses within the same head(sec 70) ex; a) lose from one house can be set off against income from another house. b) lose from one business can be set off against income from another business. Exception; Loss from speculation can not be set-off against income from non- speculative business Long term capital loss can be set-off against LTCG. Loss from the activity of owning and maintaining race hours can be set-off only against income from such business. 1.

3. Loss can not be set off against winnings from lotteries, crossword puzzles, horse race, betting of any sort etc. Loss from an exempted source od income cannot be set off. Loss from illegal business cannot be set off. 2. Set off of losses of one head against other heads of income (sec 71); if an assessee has loss from one head and there is no income under the same head, the said loss can be set off against the profits under other head or heads but this provision does not apply to the following losses Loss under the head profits and gains of business or profession can not be set off against income under the head Salaries . Loss from speculation (sec 75(i)) Loss under the head capital gains

4. loss from the activities of owning and maintaining race horses(sec. 74 A(3). Loss from illegal business Losses from lottery, crossword puzzle, gambling, card games or betting etc cannot be setoff against any income.