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CA Final · Direct Tax Laws & International Taxation · Aggregation of Income, Set Off or Carry Forward of Losses

For tax year 2026-27, Ravi Textiles Pvt Ltd, a manufacturing company, earned Rs 6,00,000 from its regular manufacturing business. It also incurred a loss of Rs 2,00,000 from speculation business, and it has no other speculation business or brought-forward speculation profits. How should the speculation loss be treated?

The speculation loss cannot be set off against manufacturing profit. It is set off only against profits of speculation business, so it is carried forward to later years for that purpose alone, and the manufacturing profit of Rs 6,00,000 remains fully taxable in the current year.

  1. ASet off against the manufacturing profit, leaving Rs 4,00,000 taxable
  2. BCarried forward, and set off only against profits of speculation business in later yearsCorrect
  3. CCarried forward indefinitely and set off against any business income
  4. DAllowed to be set off only against capital gains of the same year

Explanation

Under section 113, a speculation business loss can be set off only against profits of another speculation business. As there is none in the year, the whole Rs 2,00,000 is carried forward. The manufacturing profit stays Rs 6,00,000. Option A is wrong because it ignores the restriction in section 113(1).

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