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CMA Intermediate · Direct and Indirect Taxation · Set off and Carry Forward of Losses

Anita Stables Ltd. owns race horses. For tax year 2026-27, its stake money was Rs 2,00,000 and its revenue expenditure wholly and exclusively for maintaining the horses was Rs 3,50,000. The company also has business profit of Rs 5,00,000 from another activity. What is the treatment of the loss under the Income-tax Act, 2025?

The loss is Rs 1,50,000 (expenses Rs 3,50,000 less stake money Rs 2,00,000). It cannot be set off against other business profit. It is carried forward and set off only against income from owning and maintaining race horses, for at most four succeeding tax years.

  1. ARs 1,50,000 is set off against the Rs 5,00,000 business profit
  2. BRs 1,50,000 is carried forward and set off only against income from owning and maintaining race horses, for up to four succeeding tax yearsCorrect
  3. CRs 3,50,000 is carried forward for eight tax years
  4. DRs 1,50,000 is lost entirely since no carry forward is allowed

Explanation

Loss in the specified activity = Rs 3,50,000 - Rs 2,00,000 = Rs 1,50,000. It can be set off only against income from the same activity and carried forward for no more than four succeeding tax years. It cannot reduce the other business profit.

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