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CMA Intermediate · Direct and Indirect Taxation · Salaries

Mr. Sanjay Gupta has the following for a tax year: salary income Rs. 7,00,000, and a loss of Rs. 3,00,000 under the head Profits and gains of business or profession. What can be done with the business loss in that tax year?

A business or profession loss cannot be set off against income under the head Salaries. Mr. Gupta's salary of Rs. 7,00,000 remains fully taxable, and the Rs. 3,00,000 business loss cannot reduce it in that tax year.

  1. AIt can be set off fully against the salary, leaving Rs. 4,00,000
  2. BIt can be set off up to Rs. 2,00,000 against the salary
  3. CIt cannot be set off against salary incomeCorrect
  4. DIt can be set off only against salary if the employer agrees

Explanation

Section 109(1)(a) says a loss under the head business or profession shall not be set off against income under the head Salaries. Hence salary remains Rs. 7,00,000 and the business loss cannot reduce it. The Rs. 2,00,000 limit applies to house property loss, not to business loss.

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