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CS Executive · Tax Laws and Practice · Clubbing Provisions and Set Off and Carry Forward of Losses

Under the Income-tax Act, 2025 (applicable from the June 2027 session), Rahul Traders has a loss of ₹3,00,000 from a speculation business and a profit of ₹5,00,000 from a non-speculation business in the same tax year. What is the correct treatment of the speculation loss?

A speculation business loss can be set off only against profits of another speculation business. Since Rahul Traders has no speculation profit, the loss cannot reduce its ordinary business profit and is carried forward to later years for set off against speculation profits.

  1. ASet it off against the non-speculation business profit, leaving ₹2,00,000 taxable
  2. BSet it off only against profits of another speculation business; otherwise carry it forwardCorrect
  3. CSet it off against the non-speculation profit and carry forward nothing
  4. DIgnore it permanently because speculation losses are never allowed to be carried forward

Explanation

Section 113(1) allows a speculation business loss to be set off only against profits and gains of another speculation business. Under section 113(2), the unabsorbed loss is carried forward to the following tax year. Setting it off against ordinary business profit is wrong because the set off is restricted to speculation profits.

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