Carry forward of losses: Losses which cannot be set off in the year of loss can be carried forward for set off in the subsequent years to some terms and conditions.
When losses under a head are not possible to set off wholly against same year’s income from same or some other allowable head(s), it is allowed to transfer such unadjusted amount of losses to next year(s) of set off. This types of transfer of losses for set off against next year’s income is known as carrying forward of losses. 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.
As per the provisions of the ITO, 1984, the losses from the flowing heads can be carried forward for the next six years:
- Losses under the head “income from business and profession.”
- A loss in Speculation Business.
- Loss under the head “Capital Gain”, and,
- Loss under the head “Agricultural income”.