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

Meenakshi Textiles Pvt Ltd, a company, has a speculation business that incurred a loss of Rs 6,00,000 in the tax year, which was the first year of the loss. It also earned Rs 9,00,000 from its manufacturing business and Rs 2,00,000 from another speculation business during the same year. Under the Income-tax Act, 2025, what is the treatment of the speculation loss?

Rs 2,00,000 of the loss is set off against the profit of the other speculation business, and the remaining Rs 4,00,000 is carried forward. A speculation loss can be set off only against speculation profits, so manufacturing profit cannot absorb any part of it.

  1. ASet off Rs 6,00,000 against manufacturing profit, leaving Rs 3,00,000 of manufacturing profit
  2. BSet off Rs 2,00,000 against the other speculation profit and carry forward Rs 4,00,000Correct
  3. CCarry forward the whole Rs 6,00,000 and set off nothing in the current year
  4. DSet off Rs 2,00,000 against the other speculation profit and set off Rs 4,00,000 against manufacturing profit

Explanation

A speculation loss may be set off only against profits of another speculation business. Rs 2,00,000 is absorbed by the other speculation profit. The balance of Rs 4,00,000 is carried forward and cannot be set off against manufacturing profit. Setting off the whole loss against manufacturing profit is wrong because that is not permitted.

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