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CA Intermediate · Taxation · Set-Off or Carry Forward and Set-off of Losses

Kabir Traders, a proprietary concern of Mr Kabir Sheikh, incurred a loss of ₹60,000 from speculative business in tax year 2026-27, while its non-speculative business earned a profit of ₹2,00,000. Which statement correctly describes the treatment of the speculative loss?

The speculative loss cannot be set off against the non-speculative business profit. It is carried forward for up to four subsequent tax years and can be set off only against income from speculative business, so the full ₹2,00,000 remains taxable.

  1. AIt can be set off against the non-speculative business profit, leaving ₹1,40,000 taxable
  2. BIt cannot be set off against non-speculative profit; it is carried forward for set-off only against speculative business income for up to 4 subsequent tax yearsCorrect
  3. CIt can be carried forward for 8 subsequent tax years and set off against any business income
  4. DIt lapses at the end of the tax year because speculative losses cannot be carried forward

Explanation

A speculation business loss can be set off only against profits of a speculative business in the same year. The unabsorbed loss is carried forward for up to 4 subsequent tax years, again only against speculative business income. Option A is wrong because non-speculative profit cannot absorb it, and 8 years applies to other losses such as non-speculative business loss.

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