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

Kiran Traders Ltd computes a speculation loss of Rs 1,50,000 for tax year 2026-27 and carries it forward. Speculation profits in later years: 2027-28 Rs 40,000; 2028-29 Nil; 2029-30 Rs 30,000; 2030-31 Rs 25,000; 2031-32 Rs 60,000. Considering the four-year limit in section 113, how much of the loss is finally set off, and how much lapses?

Only Rs 95,000 is set off, because the loss can be carried forward for just four succeeding tax years, 2027-28 to 2030-31, absorbing 40,000, nil, 30,000 and 25,000. The balance of Rs 55,000 lapses, since the 2031-32 profit falls outside the four-year limit.

  1. ASet off Rs 95,000; lapse Rs 55,000Correct
  2. BSet off Rs 1,50,000; lapse nil
  3. CSet off Rs 70,000; lapse Rs 80,000
  4. DSet off Rs 1,55,000; lapse nil

Explanation

The loss can be carried to the four tax years immediately succeeding 2026-27, namely 2027-28 to 2030-31. Set off: 40,000 + 0 + 30,000 + 25,000 = Rs 95,000. The 2031-32 profit falls outside the window, so Rs 55,000 lapses. Option B wrongly uses the fifth year.

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