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

Kabir Traders, a proprietorship, has the following results for tax year 2026-27: profit from its textile business Rs 5,00,000, and a loss of Rs 80,000 from speculative transactions in commodity derivatives that are not eligible derivative trades. Which statement about the Rs 80,000 loss is correct?

A speculative business loss can be set off only against income from speculative business. Kabir has no speculative profit, so the Rs 80,000 cannot reduce the textile profit. It is carried forward for up to four subsequent tax years and can be set off only against speculative business income.

  1. AIt can be set off against the textile profit, so business income becomes Rs 4,20,000
  2. BIt cannot be set off against the textile profit; it is carried forward for up to 4 tax years for set-off only against speculative business incomeCorrect
  3. CIt cannot be set off against the textile profit; it is carried forward for up to 8 tax years against any business income
  4. DIt can be set off against the textile profit, and the balance of any loss is carried forward for 4 years

Explanation

A speculative business loss can be set off in the same year only against profits of a speculative business. Kabir has no speculative profit, so the whole Rs 80,000 is carried forward for a maximum of 4 subsequent tax years and set off only against speculative business income. The 8-year period applies to non-speculative business losses, so the option giving 8 years is wrong.

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