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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, Meera owns race horses. In a tax year her stake money is ₹2,00,000 and her revenue expenditure incurred wholly and exclusively for maintaining the horses is ₹3,50,000. She also earns ₹6,00,000 from a cloth business. What is the correct treatment?

The race horse loss is ₹1,50,000, being maintenance expenditure of ₹3,50,000 less stake money of ₹2,00,000. It can be set off only against income from owning and maintaining race horses, so it is carried forward for up to four succeeding tax years.

  1. ASet off ₹1,50,000 against the cloth business profit
  2. BSet off ₹1,50,000 against salary income only
  3. CCarry forward ₹1,50,000 for set off against income from owning and maintaining race horses, up to four succeeding tax yearsCorrect
  4. DCarry forward ₹3,50,000 without any time limit

Explanation

Loss in specified activity is the shortfall of stake money over non-capital expenditure for maintaining race horses: 3,50,000 − 2,00,000 = ₹1,50,000. Section 115(1) allows set off only against income from the specified activity, and section 115(3) limits carry forward to four succeeding tax years. The cloth business profit cannot absorb it.

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