Losses Chapter- 14
The loss attributable to deductions allowed depreciation, initial depreciation, first year allowance,
accelerated depreciation and amortisation allowed that has not been set off against income, the loss
not set off shall be set off against 50% of the person's balance income chargeable under the head
"income from business" after setting off loss under sub-section (1), in the following tax year and so on
until completely set off.
Provided that such loss shall be set off against 100% of the said balance income if the taxable
income for the year is less than Rs. 10 million.Example: Mr. Hanif has provided you the following information and asked you to compute his tax
liability for tax year 20 23.
Rs.
Income from non-speculation business 1 360,000
Loss from non-speculation business 2 (50,000)
Loss from speculation business 3 (50,000)Solution:
Mr. Hanif
Computation of taxable income and tax liability: Rs.
Income from business:
Income from business 1 360,000
Loss from business 2 (50,000)
Taxable income 310,0 00
Computation of tax liability:
Tax on Rs. 310,000 x 0% Nil
Note: Loss from speculation business cannot be set off against any other head of income. Therefore,
loss from speculation business shall be carried forward for adjustment against speculation gains of
next six succeeding tax years.Example: Following is the profit and loss account of Zia Enterprises for year 1. Compute losses to be
carried forward.
Rs.
Sales 240,000
Cost of sales 140,000
Gross profit 100,000
Administrative and selling expenses 120,000
Loss (20,000)Note: Administrative expenses include depreciation of Rs.10,000. Tax depreciation is Rs. 30,000.
Solution:
Zia Enterprises
Computation of taxable income and tax liability: Year 1
Rs.
Loss before tax (20,000)
Add: accounting depreciation 10,000
Business loss before tax depreciation (10,000)
(1) (As there is loss before tax depreciation, tax depreciation shall not be deducted from this loss.
This loss of Rs.10,000 shall be carried forward for next six years for adjustments against
income under the head “income from business” only. Whereas unabsorbed tax depreciation of
Rs. 30,000 shall be carried forward for indefinite period and shall also be set off at last.)
(2) Where a person has a loss carried forward for more than one tax year and depreciation
allowance, the loss of the earliest tax year shall be set off first and depreciation shall be taken
into account last [Section 57(3)].