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

Sundaram Traders Ltd had a loss of Rs 5,00,000 from its speculation business in the tax year 1, which was the first year of loss. It earned no speculation profit in tax years 2 to 5, but earned speculation profit of Rs 8,00,000 in tax year 6. Under the Income-tax Act, 2025, what amount can be set off in tax year 6?

Nothing can be set off in tax year 6. A speculation loss may be carried forward only for four tax years immediately succeeding the year in which it was first computed, which are years 2 to 5. By year 6 the loss has lapsed and cannot be set off.

  1. ARs 5,00,000
  2. BRs 2,00,000
  3. CNil, because the loss can be carried forward for only four tax years immediately succeeding the loss yearCorrect
  4. DRs 8,00,000

Explanation

A speculation loss can be carried forward for no more than four tax years immediately succeeding the year it was first computed. These are years 2 to 5. Year 6 is the fifth succeeding year, so the loss has lapsed and nothing can be set off. Rs 5,00,000 would apply only if the period were longer.

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