Clubbing, Set-off and Carry Forward of Losses
Clubbing u/s 60 to 64
Income arising to a spouse, minor child or son's wife from an asset transferred without adequate consideration is clubbed with the transferor. Exceptions: income of a minor from manual work or skill, income from assets transferred for adequate consideration, and income of a minor suffering from disability assessed in the minor's own hands. Cross-transfers between spouses are not clubbed. A revocable transfer of assets is clubbed u/s 61.
Set-off and carry forward
- Section 70: intra-head set-off; Section 71: inter-head set-off.
- Business loss cannot be set off against salary income u/s 71(2A).
- House property loss set off against other heads is capped at Rs.2,00,000; the balance is carried forward for 8 years against house property income only.
- Carry forward: business loss 8 years, speculative business loss 4 years, capital loss 8 years, unabsorbed depreciation indefinitely.
- Carry forward of business loss requires a return filed u/s 139(3) within the due date under 139(1). Sections 78 and 79 restrict carry forward on change in constitution or shareholding.
Worked example
Business loss Rs.5,00,000, salary Rs.6,00,000, house property income Rs.1,00,000. The loss is first set off against house property income of Rs.1,00,000; the remaining Rs.4,00,000 cannot be set off against salary and is carried forward for 8 years against business income.
Traps
- Setting off speculative loss against normal business income; only speculation profits are eligible.
- Setting off business loss against salary, which 71(2A) prohibits.
- Filing the return late and losing the right to carry forward the business loss.
- Ignoring that unabsorbed depreciation has no eight-year limit.