The Income Tax Act in India allows taxpayers to carry forward and set off losses incurred in previous years against current taxable income. These losses can be set off in the following ways:
Table of contents [Show]
Losses Under the Same Head of Income
If you have losses from a particular source of income, such as business or profession, salary, house property, or capital gains, you can set off those losses against income from the same head. For example, if you have losses from a business in a previous year, you can set off those losses against income from the same business in subsequent years.
Inter-Head Adjustment of Losses
If you have losses that cannot be set off against income within the same head, you can adjust them against income from other heads. However, there are specific rules and restrictions for setting off losses across different heads of income.
Carry Forward of Unadjusted Losses
The unadjusted loss may be carried forward to succeeding years for a limited time if you are unable to offset the entire loss in a given year, typically up to eight consecutive years. It's essential to file your tax returns within the due date to be eligible for carrying forward losses.
Tax Filing Process
To set off losses from previous years, you need to follow these steps during the tax filing process:
- While filing your tax returns, report the losses under the appropriate heads of income and provide the necessary details.
- File your tax returns well before the due date, which is generally July 31st of the assessment year. Filing after the due date may restrict the option to carry forward losses.
Maintain proper documentation of the losses incurred, including supporting documents such as financial statements, balance sheets, and tax computation details. These documents may be required for future reference or scrutiny. Understanding the provisions for setting off losses and following the correct tax filing process is essential.
Look up more articles here for a smooth first time tax-filing process. All the best!
