Set off losses: Losses of one head of income are allowed to set off against the income from other heads. But the rule for such setting off of losses is not common for all types of assesses and business. Finance Act, 2005 provided that losses are arising to an assessee from tax-free or tax exempted source will not be eligible for set off from the heads of income chargeable to tax. Again Finance Act, 2007 provided that loss arising from a business cannot be set off against income from house property. Further, it is to be noted that naturally there cannot be loss undo; the head salary income. Set off means adjusting the losses against the profit of that Financial year. In case if there are no adequate profits to set off the entire loss it can be carried forward to next Assessment Years subject to the conditions stated in the Act.
Set off of losses: Set off of losses means adjustment of losses from some heads with income of some other head (s) to get net tax payable income.
According to the ITO, 1984, where, in respect of any assessment year, the net result of computation of income under any head is a loss, the assessee shall, subject to some provisions of the Ordinance, be entitled to set off the losses his income, if any, assessable for that assessment year under any other head.