Carry forward business loss

Completing your income tax returns by the due dates of July 31st for non-audit cases and September 30th for audit cases can provide you with the ability to transfer any business loss ahead into future years.

Speculative losses can be carried forward for a period of 4 years and may only be used to offset any profits made from a speculative activity in that same time frame.

Non-speculative losses can only be used to offset other business income in the same tax year, with the exception of salary. This means that bank interest, rental revenue and capital gains can all be taken into account when working out taxable profits for that particular year.

You may carry non-speculative losses forward for up to 8 years; however, bear in mind that set-offs can only be made against any non-speculative gains in the same time frame.

my interest income of Rs. 250,000/-. Additionally, I have incurred a non-speculative loss of Rs. 800,000/-. Taking these figures into account, I need to calculate my tax liability for the year.

The total income from my business and interest is Rs. 2,250,000/-. However, I can offset my non-speculative loss of Rs. 800,000/- against these gains, effectively reducing my taxable income.

Taxable income = Total income – Non-speculative loss

Taxable income = Rs. 2,250,000 – Rs. 800,000

Taxable income = Rs. 1,450,000/-

Now, I need to determine my tax liability based on the applicable tax slabs:

0 – Rs. 250,000: 0% tax – Nil

250,000 – Rs. 500,000: 5% tax – Rs. 12,500/-

500,000 – Rs. 1,000,000: 20% tax – Rs. 100,000/-

1,000,000 – Rs. 1,450,000: 30% tax – Rs. 135,000/-

Therefore, the tax liability would amount to: Rs. 12,500 + Rs. 100,000 + Rs. 135,000 = Rs. 247,500/-

In this example, the taxable income is determined by considering the income from the hotel business, interest, and offsetting the non-speculative loss. The resulting tax liability is calculated based on the applicable tax slabs.

– Offsetting Speculative and non-speculative business income

F&O gains cannot offset intraday equity losses, but non-speculative losses can be set off against speculative profits.

If you incur a speculative loss of Rs. 150,000/- from intraday equity trading in a given year and earn a non-speculative profit of the same amount, you cannot nullify each other and declare no overall profit. You will still need to pay taxes on the 

non-speculative gain while carrying forward the speculative loss for future offsetting.

For instance, let’s consider the following scenario:

Income from Salary: Rs. 600,000/-

Non-Speculative profit: Rs. 150,000/-

Speculative loss: Rs. 150,000/-

To calculate my tax liability, I need to determine the total income, which includes income from salary and gains from non-speculative business income:

Total income = Income from Salary + Gains from Non-Speculative Business income

Total income = Rs. 600,000 + Rs. 150,000 = Rs. 750,000/-

I am required to pay tax on Rs. 750,000/- based on the applicable tax slab rates:

0 – Rs. 250,000: 0% tax – Nil

250,000 – Rs. 500,000: 5% tax – Rs. 12,500/-

500,000 – Rs. 750,000: 20% tax – Rs. 50,000/-

Hence, the total tax liability would be Rs. 12,500 + Rs. 50,000 = Rs. 62,500/-

I can carry forward the speculative business loss of Rs. 150,000/- and set it off against any speculative gains I may make in the future for up to 8 years. It’s important to note that these losses can only be adjusted against other speculative gains and not against other business profits.

If I had a speculative gain of Rs. 150,000/- and a non-speculative loss of the same amount, they would cancel each other out, resulting in the tax being imposed only on the salary income of Rs. 600,000/-