.jpeg "Meaning and Features of Set off and carry forward as defined in income Tax Act, 1961 of Tax Planning and Management")
Meaning of Set off and Carry Forward
In the Income Tax Act 1961, Set off and carry forward are two methods of adjusting losses against taxable income. The term "Set off" refers to the adjustment of losses in a particular year against the income earned in the same year, while "Carry forward" means carrying forward the losses to future years for adjustment against income earned in those years.
Features of Set off and carry forward:
- Set off and carry forward apply only to losses under the head "profits and gains of business or profession" and "capital gains."
- Set off can be done only against income earned under the same head in that financial year. For example, business losses can be set off against business income only.
- If there is any unadjusted loss after Set off, it can be carried forward for up to eight years from the year in which the loss was incurred.
- The loss can be carried forward only if the income tax return for that year was filed on time.
- The loss can be carried forward only if the same business or profession is continued in the subsequent year.
- The loss can be carried forward only if the taxpayer furnishes a declaration in the prescribed form to that effect along with the income tax return.
Summary
| Feature | Set off | Carry forward |
|---|---|---|
| Applicable to | Losses under "profits and gains of business or profession" and "capital gains" | Losses under "profits and gains of business or profession" and "capital gains" |
| Adjustment | Only against income earned under the same head in that financial year | Can be carried forward for up to eight years from the year in which the loss was incurred. |
| Time limit | Must be done in the same financial year | Can be carried forward only if the income tax return for that year was filed on time. |
| Continuation of business/profession | Not necessary for Set off | Must continue the same business or profession in the subsequent year. |
| Declaration required | Not required for Set off | Must furnish a declaration in the prescribed form along with the income tax return. |
Conclusion
In conclusion, set off and carry forward are important provisions in the Income Tax Act that help taxpayers to adjust losses against their income and reduce their tax liability. Set off allows taxpayers to adjust losses against income earned in the same year, while carry forward allows them to carry forward any unadjusted loss for up to eight years from the year in which the loss was incurred. However, there are certain conditions and restrictions for availing these provisions, such as the need to file income tax returns on time and continue the same business or profession in the subsequent year. Overall, these provisions provide relief to taxpayers facing temporary losses and promote the growth of businesses and professions.
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