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CMA Intermediate · Direct and Indirect Taxation · Set off and Carry Forward of Losses

Mehta Traders carries on two speculation businesses. In tax year 2026-27, Business X incurred a loss of Rs 80,000 and Business Y earned a profit of Rs 1,10,000. Mehta also has a business profit of Rs 3,00,000 from non-speculative trading. Under the Income-tax Act, 2025, what is the income from speculation businesses for 2026-27 after set off, and what happens to the Rs 3,00,000?

Speculation income is Rs 30,000 because the Rs 80,000 loss is set off against the Rs 1,10,000 profit of the other speculation business. A speculation loss cannot reduce non-speculative business profit, so the Rs 3,00,000 remains fully taxable.

  1. ASpeculation income Rs 30,000; the Rs 3,00,000 is not reduced by the speculation lossCorrect
  2. BSpeculation income Rs 1,10,000; the loss of Rs 80,000 is set off against the Rs 3,00,000
  3. CSpeculation income nil; the loss of Rs 80,000 is carried forward
  4. DSpeculation income Rs 30,000; the Rs 3,00,000 is reduced to Rs 2,20,000

Explanation

A speculation loss can be set off only against profits of another speculation business. Rs 1,10,000 - Rs 80,000 = Rs 30,000. The non-speculative profit of Rs 3,00,000 stays untouched, so the options that apply the loss against it are wrong.

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