Losses Chapter- 14
Income before setting of losses 400,000
Required: Compute the tax payable by the amalgamated company, rate of tax for companies is 29 %.
Solution:
Rs.
Income before setting off of losses 400,000
Less:
Un-adjusted business loss of B Ltd. of tax year 20 17 100,000
Taxable income 300,000
Tax payable @ 29 % 87 ,000- Carry forward of speculation business and capital losses [Section 58 and 59]
Where a person sustains a speculation business loss for a tax year carried on by the person, the loss
shall be set off only against the income of the person from any other speculation business of the
person chargeable to tax for that year.
Where a person sustains a capital loss for a tax year, the loss shall be set off only against the income
of the person from any other capital gain of the person chargeable to tax for that year.Example: In the light of the following facts for tax year 20 23 , work out total income of Mr. Tanveer
Butt after making inter-head adjustment of losses and incomes:
Rs.- Income from business 300,000
- Loss from speculation business (200,000)
- Loss from Capital Gains (70,000)
- Income from Salary 100,000
- Loss from 'Income from Other Sources' (50,000)
Solution: Rs.
Income from business 300,000
Loss from ' Income from other sources' (50,000)
Taxable Income for the year (without salary
income) 2 50,000
Add salary income (separately added as no
loss can be adjusted against salary income) 100,000
Total taxable income 3 50,000
Notes:
N- 1 Loss on 'Income from capital gains' cannot be set off other than Income from Capital Gains' so it
will be carried forward up to six succeeding tax years.
N- 2 Loss on 'Income from Speculation Business' cannot be set off other than Income from
Speculation Business so it will also be carried forward up to six succeeding tax years.- Limitations on set off and carry forward of losses [Section 59A]
An AOP can set off and carry forward its losses according to the general provisions regarding set off
and carry forward of losses. As the share received by a member out of the incomes of AOP is exempt
from tax, the member is not allowed to set off and carry forward his respective share in losses of the
association of person.
Subject to sub-section (4) of section 57, sub-section (12) of section 22 and sub-section (6), where in
computing the taxable income for any tax year, full effect cannot be given to the loss relating to
deductions under section 22, 23, 24 or 25 owing to there being no profits or gains chargeable for that
year or such profits or gains as mentioned in sub-section (4) of section 57, being less than the said
loss, the loss or part of the loss, as the case may be, shall be set off against fifty percent of the
person’s income chargeable under the head “income from business” for the following year or if there