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

Meera Textiles, a proprietary business of Meera Iyer, earned a profit of Rs 3,50,000 from its regular manufacturing business in tax year 2026-27. In the same year, her small share-trading activity, which is a speculative business, incurred a loss of Rs 80,000. She has no other income. What is her business income for the year after the permitted set-off?

Her business income stays at Rs 3,50,000. A loss from speculative business can be set off only against speculative business income, and she has none this year. The Rs 80,000 loss is carried forward to be set off against future speculative income.

  1. ARs 3,50,000, because the speculative loss cannot be set off against non-speculative business incomeCorrect
  2. BRs 2,70,000, because business losses can be set off against any business income
  3. CRs 4,30,000, because the speculative loss is added to the profit
  4. DRs 3,10,000, because only half of the speculative loss can be set off

Explanation

A speculative business loss can be set off only against income from speculative business. Meera has no speculative income this year, so the Rs 80,000 loss cannot reduce the Rs 3,50,000 manufacturing profit. The loss is carried forward for set-off against speculative income in later years. Rs 2,70,000 wrongly treats it as an ordinary business loss.

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