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

Rohan, a resident trader, has the following for tax year 2026-27: profit from his non-speculative cloth business ₹3,00,000; profit from speculative trading in commodity derivatives (not eligible trading) ₹40,000; and a speculation loss of ₹1,10,000 brought forward from three tax years ago, with all returns filed on time. What speculation loss will be carried forward to the next tax year?

₹70,000 will be carried forward. A brought-forward speculation loss can be set off only against profit from speculative business, here ₹40,000. It cannot be adjusted against the non-speculative cloth business profit, so the remaining ₹70,000 goes forward.

  1. A₹70,000Correct
  2. B₹1,10,000
  3. CNil
  4. D₹40,000

Explanation

A speculation business loss can be set off only against speculative business profit. The current speculative profit is ₹40,000, so ₹40,000 of the brought-forward loss is absorbed. The balance ₹1,10,000 − ₹40,000 = ₹70,000 is carried forward (allowed up to four tax years). Setting it against the ₹3,00,000 cloth profit to get nil is wrong, as that is not speculative income.

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