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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Direct Tax Laws & International Taxation

Case: Sundaram Infra Ltd (domestic company, opted for no concessional regime) has a total income of Rs 10,00,000 before set off. Its brought forward business loss of Rs 4,00,000 from AY 2 years ago and unabsorbed depreciation of Rs 3,00,000 from an earlier year are available. Current year business income is Rs 10,00,000 after current-year depreciation. Assuming the right order of set-off, what is the total income after setting off the brought forward items, and which item is set off first?

Total income is Rs 3,00,000. Brought forward business loss of Rs 4,00,000 is set off first, then unabsorbed depreciation of Rs 3,00,000, reducing Rs 10,00,000 to Rs 3,00,000.

  1. ARs 3,00,000; business loss first, then unabsorbed depreciationCorrect
  2. BRs 3,00,000; unabsorbed depreciation first, then business loss
  3. CRs 6,00,000; only business loss is set off
  4. DRs 7,00,000; only unabsorbed depreciation is set off

Explanation

Brought forward business loss is set off first, then unabsorbed depreciation, which is treated as current-year depreciation only after the loss. 10,00,000 - 4,00,000 - 3,00,000 = 3,00,000. The second option reverses the order, though the total is the same, so the sequence is the point being tested.

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