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CU -BCOM-Sem VI -Tax assessment and procedure

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BACHELOR OF COMMERCE SEMESTER-VI TAX ASSESSMENT & PROCEDURES


First Published in 2022 All rights reserved. No Part of this book may be reproduced or transmitted, in any form or by any means, without permission in writing from Chandigarh University. Any person who does any unauthorized act in relation to this book may be liable to criminal prosecution and civil claims for damages. This book is meant for educational and learning purpose. The authors of the book has/have taken all reasonable care to ensure that the contents of the book do not violate any existing copyright or other intellectual property rights of any person in any manner whatsoever. In the event the Authors has/ have been unable to track any source and if any copyright has been inadvertently infringed, please notify the publisher in writing for corrective action. 2 CU IDOL SELF LEARNING MATERIAL (SLM)


CONTENT Unit - 1 Clubbing Provisions ................................................................................................. 4 Unit - 2 Set Off And Carry Forward Of Losses.................................................................... 27 Unit - 3 Deductions Under Section 80 ................................................................................. 55 Unit - 4 Filing Of Returns ................................................................................................... 75 Unit - 5 Verification Of Return............................................................................................ 94 Unit - 6 Pan Provisions...................................................................................................... 105 Unit - 7 TRP ..................................................................................................................... 119 Unit - 8 Assessment Rules................................................................................................. 141 Unit - 9 Income Tax Assessment Procedures..................................................................... 156 Unit - 10 Types Of Assessment ......................................................................................... 171 Unit - 11 Audit .................................................................................................................. 187 Unit - 12 Provisions .......................................................................................................... 206 Unit - 13 Calculation Of Interest ....................................................................................... 222 Unit - 14 Online Filing ...................................................................................................... 235 3 CU IDOL SELF LEARNING MATERIAL (SLM)


UNIT - 1 CLUBBING PROVISIONS STRUCTURE 1.0 Learning Objectives 1.1 Introduction 1.2 Clubbing of income of Minor Child 1.3 Spouse and others 1.4 Summary 1.5 Keywords 1.6 Learning Activity 1.7 Unit End Questions 1.8 References 1.0LEARNING OBJECTIVES After studying this unit, you will be able to:  Understand circumstances when income of some other person is included in the income of assesse  Understand Provisions when these sections will be applicable  Understand under what head and in whose income, it will be included  Understand What is the purpose of clubbing of income? 1.1INTRODUCTION The word \"clubbing of income\" refers to adding or combining another person's income to one's own, often family members. Section 64 of the IT Act permits this. To discourage this behavior, certain limitations relating to certain individuals and situations are required. Individuals to club their income 4 CU IDOL SELF LEARNING MATERIAL (SLM)


When calculating an individual's total income, revenue from any and all individuals cannot be combined at random, nor can income from a specific person's sources be combined. Only a limited number of defined incomes from specified individuals may be combined for determining an individual's total income, according to Section 64. 5 CU IDOL SELF LEARNING MATERIAL (SLM)


*A person is considered to have a considerable interest in the issue if 6 CU IDOL SELF LEARNING MATERIAL (SLM)


 In the case of a firm, a person beneficially holds shares with 20% or more voting power either by himself or together with one or more of his relatives (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits)  In any other circumstance, that person is entitled to 20% or more of the total earnings made by that business at any point during the preceding year, whether alone or in conjunction with one or more of his relatives. The income from a spouse's reinvested clubbed income is not clubbed in the hands of the person. Explanation 1 Mr. P is the owner of a store that rents for Rs. 12,000 per month. He keeps ownership of the store but transfers the rent to his buddy Mr. Q. Because Mr. P did not transfer the asset in this instance, just the income was transferred. As a result, Mr. P must include the rental income when calculating his total income in accordance with section 60 of the Income Tax Act. A second example Mr. Jay beneficially owns 21% of the stock of PTK Pvt. Ltd. Mrs. Jay works at PTK Pvt. Ltd. as a financial manager. The amount of money I am paid each month by Mrs. PTK Pvt. Ltd. is Rs. 40,000. Mrs. Jay lacks any financial training, expertise, or information. With a 21% ownership, Mr. Jay in this case holds a significant stake in PTK Pvt. Ltd. However, Mrs. Jay works without a degree or any technical understanding of money. Therefore, in accordance with section 64(1)(ii) of the income tax act, any salary or other payment received by Mrs. Jay from PTK Pvt. Ltd. shall be combined with Mr. Jay's income. 7 CU IDOL SELF LEARNING MATERIAL (SLM)


If Mrs. Jay possessed the credentials and experience necessary for the position of finance manager at PTK Pvt. Ltd. in the aforementioned situation, her salary would not have been included in Mr. Jay's income. Indicator 3 Mr. Lucky has given his wife a present of Rs. 6,000,000. The same sum was thereafter put into the fixed deposit by Mrs. Lucky. Mrs. Lucky earns interest on this fixed deposit in the amount of 5,000 per year. Due to Mr. Lucky's ill-considered transfer of Cash (an asset), Mrs. Lucky changed it into another asset. As a result, in accordance with section 64(1)(iv) of the income tax act, interest of Rs. 5,000 received from the converted asset (fixed deposit) would be included in Mr. Lucky's income. Note: 1. Clubbing provisions will not apply if Mr. Lucky transfers the money in the aforementioned example as a divorce settlement. 2. Additionally, no income will be combined in Mr. Lucky's hands if the money was transferred before to marriage and interest began to accrue thereafter. Therefore, the husband-wife connection should continue at the time of asset transfer as well as at the period of income accrual.  The clubbing provision is applicable to both profit and loss.  The capital gain on any further transfers of the asset by the transferee will be treated as income and added to the transferor's income.  The transferor will get a lump sum of the revenue generated by the transformed form of the asset. 8 CU IDOL SELF LEARNING MATERIAL (SLM)


 If just part of the consideration is due or received, the transferor will only get the insufficient consideration.  The income resulting from the clubbed income will not be subject to the clubbing rules. For instance: If a bond worth Rs. 5 lakh is transferred to the husband or daughter-in-law without sufficient consideration and Rs. 20,000 in interest on such bond is combined in the transferor's hands. However, no clubbing requirements will apply to any additional Rs. 20,000 of income earned from such interest by the husband or daughter-in-law. Cross transfers or indirect transfers are also subject to the clubbing rules. As an example, suppose Mr. K gives Mrs. N 8,000 and Mr. N gives Mrs. K 15,000 as presents. Say that neither present was accepted in exchange for anything. Then, the transferors will get a lump sum of Rs. 8,000 for the overlapped amount. A person is required to pay taxes on all taxable income received within a financial year in accordance with the provisions of the Income Tax Act. When the income of any additional family members is taken into account when calculating gross total income, this is known as \"clubbing of income.\" Income pooling is covered under Section 64 of the Income Tax Act of 1961. People may avoid paying taxes by moving assets and earnings within the family. We shall examine the definition of clubbing of income, its consequences, and prevention strategies in this post. What is income clubbing? Income clubbing was implemented to combat this tactic and guarantee that no taxes were evaded when assets or income sources were shifted within the family. \"Clubbing of Income\" refers to combining the earnings of two or more family members. The whole money is totaled together and handled as if it came from a single source. The 1961 Income Tax Act is then used to tax the total income. 9 CU IDOL SELF LEARNING MATERIAL (SLM)


Things to keep in mind while clubbing your income  The clubbing of income rule is applicable to both profits and losses.  The transferor's income will be increased by the capital gain realised when the transferee subsequently sold the asset.  The revenue generated by the asset's modified form must be combined in the transferor's possession.  If just a portion of the consideration is due or paid, the transferor will only get the shortfall in compensation.  The money earned by clubbing is exempt from the laws banning it. There are many situations when the Clubbing of Income requirements apply.  Offering to Combine a Minor Child's Income Any money a minor child makes is merged into the income of one of their parents, whose income (excluding that of a minor child) is larger. If a minor kid has a fixed deposit, for instance, the interest earned will be added to the income of the parent with the highest income. However, according to Income Tax laws, there are specific situations when the Clubbing of Income limits do not apply. The following situations are exempt from the Clubbing of Income provision: when a kid under the age of 18 has a disability under Section 80U. When a minor kid works for pay doing physical labor, the income cannot be combined. when a young kid makes money using his or her abilities, expertise, etc. 10 CU IDOL SELF LEARNING MATERIAL (SLM)


 Hindu Undivided Family (HUF) Income Clubbing The Hindu Undivided Family has been around for thousands of years. The Income Tax Act also recognizes HUF as an assessee. A HUF is also needed to submit a tax return, to put it simply. It is obvious that clubbing around income provision is likewise attractive in the case of HUF. Any income earned by any of your personal assets that were carelessly transferred to the HUF would be subject to your personal tax obligations. If your HUF (Hindu Undivided Family) is ever split, the allocated property in your spouse's possession will be added to your income.  Income Transferring Without Asset Transfer when a person transfers money without simultaneously transferring ownership of the asset that produced it. Then, this income will be taxed in the transferor's hands. The situation when a landlord requests a tenant to make rent payments on behalf of his or her parents, wife, or children is the most typical instance we come across. By initially drafting an agreement for the transfer of income without the formal transfer of assets, people regularly execute tax planning by receiving rental checks in their family's name. 11 CU IDOL SELF LEARNING MATERIAL (SLM)


Techniques for \"How to Prevent Income Clubbing?\"  invest in the name of a spouse who isn't employed The income received on that income is not clubbed, but the income earned on the funds invested or transferred to your spouse is. For instance, if you purchase a home in your wife's name, the rental income from that property—say let's INR 30,000—will be combined. The extra income produced by investing the INR 30,000 in rental revenues, however, will be tax- free if the residence is in your wife's name. 12 CU IDOL SELF LEARNING MATERIAL (SLM)


 Pay your rent and put money aside. You may pay the rent and qualify for a housing rent allowance exemption if you live with your parents and the property is theirs. If your parents don't have any other income, they may also be eligible for further compensation. Due to the fact that they will fall below the basic exemption ceiling, they won't be required to pay income tax.  income received as a gift before marriage and handed to your wife or a future daughter-in-law You may save aside up to INR 250,000 and give it to your wife or daughter-in-law before the wedding if she is jobless and has no other source of income. It's important to remember, however, that this is only possible before marriage. If you make a financial contribution after getting married, clubbing rules apply.  Purchasing investments such as the PPF (Public Provident Fund) You may create tax-free income by investing in products like PPF (Public Provident Fund) in the name of your spouse or minor kid since the maturity profits of PPF are tax-free. For stock assets, the same is true. Additionally, funds may be given to older persons, minor children, or a spouse who pays less in taxes so they can invest them in PPFs to generate bigger tax-free returns. Conclusion The income tax legislation's clubbing regulations have a direct impact on people's income, thus knowing them completely is crucial. The income of each and every person cannot be arbitrarily mixed, nor can the income of any one person be blended with the revenue of any other. In accordance with Clubbing of Income under Section 64 of the Income Tax Act, only specific defined income of specific people may be clubbed when determining an individual's total income. 13 CU IDOL SELF LEARNING MATERIAL (SLM)


1.2CLUBBING OF INCOME OF MINOR CHILD The income of the minor kid will be combined with the income of the parent (mother/father) whose combined income is larger, omitting the minor child's income under section 64(1A). If the income of the minor child has previously been included in the total income of either parent, the A.O. (Assessing Officer) shall not club any such income arising in any subsequent year in the total income of the other parent unless the A.O. (Assessing Officer) is satisfied, after giving the other parent an opportunity to be heard, that it is necessary to do so. If the parents' marriage does not continue, the minor kid's income will be included in the income of the parent (mother/father) who maintained the minor child (the minor child's guardian) in the relevant prior year. The income of a minor kid cannot be determined by any other family members, including grandparents, or even by a minor when both of the child's parents are deceased. When a minor kid's income is included in the parent's overall income, the parent is eligible for an exemption up to that amount, or Rs. 1,500, whichever is less, for each minor child whose income is thus included. Example: Amitabh and Mrs. Jaya's minor kid is Abhishek. Abhishek earned Rs. 2,500 in the prior fiscal year 2019–20. (this is the first income earned by Abhishek during his lifetime). Amitabh's income in the preceding fiscal year 2019–20 is more than Mrs. Jaya's. As a result, the income of Abhishek, or Rs. 2,500, would be included in Amitabh's income for the prior fiscal year 2019–20. Even if Mrs. Jaya's salary rises beyond Mr. Amitabh's in any of the years to follow, Mr. Abhishek's income will be combined with Mr. Amitabh's income in the next years (during his minority). This clause does have one exemption, however. If the A.O. (Assessing Officer) wants to include the income of the minor child (Abhishek) in Mrs. Jaya's hands in the following year, it can only be done if it is necessary to do so (not just due to a change in the Assessing Officer's opinion), and that too after giving Mrs. Jaya a chance to be heard. Certain revenues are solely taxable in the minor child's hands: A minor child's income from the following sources cannot be combined in the hands of his or her parents but is subject to tax in the hands of the minor. Any income received by a juvenile kid who has a handicap listed in section 80U of the Income Tax Act, such as being physically incapable of working, being entirely blind, etc. whatever revenue a small kid receives as a result of physical labor they have performed. whatever money the underage kid makes via jobs or side hustles that require them to use their talents, abilities, or specialized training. When a person's income is combined with the income of each of his or her minor children under section 64(1A) of the Income Tax Act, the individual is entitled to an exemption of Rupees 1,500 for each minor kid. This exemption is provided for in Section 10(32). The aforementioned exemption, however, will be limited to the revenue thus included in the individual's total income in cases where any minor's income is less than Rupees 1500. 14 CU IDOL SELF LEARNING MATERIAL (SLM)


Income Clubbing - Income Tax A person is required to pay taxes on all taxable income generated within a financial year in accordance with the provisions of the Income Tax Act. If the income of any more family members is taken into account when calculating the gross total income, this inclusion is known as \"clubbing of income.\" The Income Tax Act of 1961's Section 64 addresses income clubbing. By shifting assets and income inside the family, taxpayers cannot avoid paying taxes by clubbing their income. In this article, we provide a quick overview of the Act's provisions pertaining to the idea of income clubbing. Having Income Clubs According to the Income Tax Act, everyone is required to pay taxes on their taxable income. No one is permitted to shift their money to family members in order to pay less taxes. Clubbing of income refers to adding another person's income to the taxpayer's overall income when calculating the amount of income tax due. Income Source for Clubbing In India, a large number of taxpayers have tried to lower their income tax obligations by shifting their assets and income to family members, so that the majority of the income is taxable. Such activities are stopped thanks to the clubbing of income restrictions. Examples of Income Clubbing  It is necessary to pool money under the following situation:  investing money in a fixed deposit in the names of the kids. 15  acquiring assets under relatives' names (wife or child).  opening savings accounts in the names of dependents.  For the kid, mutual funds.  shares held in a spouse's or child's name. CU IDOL SELF LEARNING MATERIAL (SLM)


 Family savings at the post office. Additionally, under the regulations governing the clubbing of income, a taxpayer's income will continue to be increased if they transfer ownership of an asset and the associated income to a dependent. The example below will help you understand: If someone buys a house in a family member's name and that person then rents it out, the rental income that person receives in that family member's name is taxed. The income would be combined with the individual buying the apartment in accordance with section 64 of the Income Tax. income from a child under 18 Any income of the minor kid must be combined with that of the parent with the greater income. If a minor kid's natural parent is absent, the parent who supported the minor child in the preceding year would be responsible for paying taxes on the minor child's income. The kid would also include any adoptive children as well as stepchildren. The minor kid must submit an income tax return via his legal guardian since, in the event of the death of both the mother and the father, the income received by the minor cannot be combined. It should be emphasized that income that has previously been included in either parent's total income will continue to be included in that parent's hands in future years unless the assessing officer determines that it is essential to exclude it after giving the parent a chance to be heard. Additionally, if a kid reached majority in the prior year, the parents would get a portion of the money the child earned while still a minor. The parent whose income is combined would be entitled to a deduction of Rs. 1500 per minor kid from the total income. Clubbing is prohibited under Section 80U of the Income Tax Act when a juvenile kid with a handicap earns money via physical labor, the use of his skills, or through the application of his specialized knowledge and expertise. Any cash earned by the minor kid as a result of any physical labor performed by him. Such revenue as the young kid receives from any endeavor that depends on his abilities, talents, or specialized training and experience Last but not least, clubbing of income is relevant if a person passed an asset to a son's wife or daughter-in-law without giving it enough thought. Any income derived from such an asset would be regarded as the transferor's income. When a child's income is ineligible for clubs Minor kid income will not be forced into the parent's hand in the following circumstances: 16 CU IDOL SELF LEARNING MATERIAL (SLM)


The minor does manual labor. a task requiring the use of his ability, skill, or specialized knowledge and expertise. The kid has one of the disabilities listed in section 80U. Money invested in minors' names If a minor's income, which is not combined in the hands of the parents, is invested elsewhere and income is obtained from it, then the parent would get a combined share of the revenue obtained from the investment. For instance, suppose a young artist earns a salary of INR 50,000,000. Since the youngster earned the money using his own abilities, it will not be combined in his parents' pockets. Additionally, if a kid earns INR 50,00,000 and invests it in a fixed deposit, earning INR 50,000 in interest, the interest income would be combined and sent to the parent(s) with the greater income. Self-acquired property income that has been converted to joint property The income received by the joint family on account of such property would be included in the overall income received by the joint family on account of such self-acquired property if an individual's self-acquired property is transformed into joint family property without due consideration. Whenever a person who belongs to the Hindu Undivided Family (HUF) who, When a person transfers his individual property to the family without providing adequate consideration, converts his separate property to the HUF, throws it into the family's common stock, or converts his separate property to the HUF, the income from that property is added to the person's overall income. Relevance in situations involving further partition If the converted property was the subject of a family division, the spouse's income from the converted property would be considered to have been acquired through an indirect transfer of assets from the individual to the spouse, and the transferor would receive a combined distribution of the income from the portion that was received by the spouse. Even though the Act stipulates that the notice of demand in relation to tax on such income would also be served upon the person to whom such asset has been transferred, the income from an asset held by the assessee is transferred to certain specified persons under the clubbing of income provisions and is therefore includible in the transferor total income. The transferee would be 17 CU IDOL SELF LEARNING MATERIAL (SLM)


responsible for paying the percentage of the tax assessed against the transferor that is related to the income contained upon delivery of such notification. 1.3 SPOUSE AND OTHERS In a marriage, a spouse is a significant other (in certain contexts, it can also apply to a civil union or common-law marriage). Although a significant other is a kind of spouse, the phrase also refers to non-marital partners who fill a comparable social function to a spouse but do not have the legal rights and obligations that a spouse is entitled to. This translation of \"épouse\" from French is insufficient. The majority of the time, couples have the same kids. Married Additional details: Covert action and domestic power The rights and duties that come with a spouse's unique legal status and throughout the world's countries vary greatly. Family law legislation often include descriptions of these rules. However, customary marriage, which is often governed unofficially by the community, exists in many regions of the globe where legal marriage is less common. Spousal rights and responsibilities are often tied to the payment of a bride price, dowry, or dower. In many countries throughout history, male married partners have been granted sets of rights and duties that are quite unlike from the sets of rights and obligations provided to female marital partners. In particular, male married partners have traditionally been granted power over marital property, inheritance rights, and the authority to choose what the offspring of the marriage do. The twentieth century saw a significant reduction in this practice in many nations, and more recent regulations often outline a spouse's rights and obligations without taking gender into account. Switzerland was one of the last nations in Europe to fully legalese gender equality in marriage. A vote in 1985 gave women legal parity with males in marriage. In January 1988, the new changes went into effect. Spain, Greece, and France. Although married women in France were given the freedom to work without their husbands' consent in 1965 and the paternal authority of a man over his family was abolished in 1970 (prior to that, the father was solely responsible for parenting and had the authority to make all legal decisions involving the children), the requirement that the husband had the sole authority to manage the children's property was only abolished in 1985 as a result of a legal reform. about 1980. The husband still retains power under a number of marriage laws across the globe, as 18 CU IDOL SELF LEARNING MATERIAL (SLM)


stated in Article 1105 of the Iranian Civil Code: \"In interactions between husband and wife, the position of the head of the household is the sole privilege of the husband.\" The failure or incapacity of a spouse to fulfil marital responsibilities may be a basis for divorce, legal separation, or annulment depending on the jurisdiction. The latter two possibilities are more common in nations where Roman Catholicism is the predominant faith, some of which just recently legalized divorce (i.e. Italy in 1970, Portugal in 1975, Brazil in 1977, Spain in 1981, Argentina in 1987, Paraguay in 1991, Colombia in 1991, Ireland in 1996, Chile in 2004 and Malta in 2011). Many Western nations have implemented no-fault divorce in recent years. The cash and products transferred between families in several regions of the globe make it difficult to dissolve a marriage formally (this is common where marriages are arranged). Because of this, it can be challenging to end a marriage, especially for women. In some parts of Africa, the wife is seen as belonging to the husband and his family once the bride price has been paid; if she wishes to leave, the husband might demand the bride price that he had paid to the girl's family be returned. Frequently, the girl's family is unable or unwilling to repay it. Regardless of the law, regional culture and religion may have an impact on a couple's personal relationships. lowest age There is often a minimum legal age for marriage. According to the United Nations Population Fund: \"The minimum legal age for women to marry without parental permission or official sanction was 18 years old in 158 nations as of 2010. However, official or customary law in 146 nations permits females under the age of 18 to marry with the approval of their parents or other authorities; in 52 countries, girls under the age of 15 are also permitted to marry with parental approval. Contrarily, in 180 nations, men cannot marry without their permission until they are 18 years old. In addition, males under the age of 15 are permitted to wed with parental authorization in 23 countries, and they may do so in 105 other nations as well.\" Procreation 19 CU IDOL SELF LEARNING MATERIAL (SLM)


Spouses in Western nations may decide against having children. There are higher expectations that heterosexual couples will have children in several other places of the globe. It is required in several cultures and faiths. For instance, in northern Ghana, paying the bride price denotes a woman's obligation to have children, and there is a possibility that women who use birth control would face threats and intimidation. selecting a partner Choosing a partner may be done in a variety of methods that differ from country to country and include love marriage, planned marriage, and forced marriage. The latter is a void marriage or a marriage that may be declared invalid in certain countries. In certain nations, forcing someone into marriage is also illegal. important other The phrase is sometimes used in invites in the United States, such as those to weddings and workplace parties. In letters from hospitals in the UK, this phrase is often used, as in \"you may be accompanied for your appointment by a significant other.\" Its application in psychology and sociology is significantly unlike from how it is used in everyday speech. A significant other is any person who is very important to a person's life or wellbeing, according to psychology. In sociology, it refers to any person or people who have a significant impact on how someone perceives themselves. Although the impact of important others on people has long been postulated, Archie O. Haller, Edward L. Fink, and Joseph Woelfel at the University of Wisconsin conducted the first assessments of this impact. Associate members of the Wisconsin model of status attained include Haller, Fink, and Woelfel. They polled 100 teenagers in Wisconsin, assessed their goals for school and employment, and identified a group of people who interacted with the kids and functioned as role models for them. They next made direct contact with the close family members to gauge their expectations for the adolescent's scholastic and professional success and to determine how these expectations would affect the kids' goals. The study's findings demonstrated that the students' personal goals were most strongly influenced by the expectations of important ones. This use is also known as \"relevant others\" or \"significant others,\" depending on the context. 20 CU IDOL SELF LEARNING MATERIAL (SLM)


An \"insulating person,\" also known as an uncle or aunt, grandmother, guardian, or teacher in social psychology, is someone who looks out for and nurtures a kid during primary socialization. [Reference required] The kid is protected, rewarded, and disciplined by the significant other in order to promote the child's growth. This typically takes six to seven years, at which point the significant other is no longer required and the kid goes on to a generic \"other,\" who is neither a real person nor an abstract idea of what society considers to be good or evil. Its application in psychology and sociology is significantly unlike from how it is used in everyday speech. A significant other is any person who is very important to a person's life or wellbeing, according to psychology. In sociology, it refers to any person or people who have a significant impact on how someone perceives themselves. Although the impact of important others on people has long been postulated, Archie O. Haller, Edward L. Fink, and Joseph Woelfel at the University of Wisconsin conducted the first assessments of this impact. Associate members of the Wisconsin model of status attained include Haller, Fink, and Woelfel. They polled 100 teenagers in Wisconsin, assessed their goals for school and employment, and identified a group of people who interacted with the kids and functioned as role models for them. They next made direct contact with the close family members to gauge their expectations for the adolescent's scholastic and professional success and to determine how these expectations would affect the kids' goals. The study's findings demonstrated that the students' personal goals were most strongly influenced by the expectations of important ones. This use is also known as \"relevant others\" or \"significant others,\" depending on the context. An \"insulating person,\" also known as an uncle or aunt, grandmother, guardian, or teacher in social psychology, is someone who looks out for and nurtures a kid during primary socialization. [Reference required] The kid is protected, rewarded, and disciplined by the significant other in order to promote the child's growth. This typically takes six to seven years, at which point the significant other is no longer required and the kid goes on to a generic \"other,\" who is neither a real person nor an abstract idea of what society considers to be good or evil. 21 CU IDOL SELF LEARNING MATERIAL (SLM)


1.4SUMMARY  The clubbing provision applies to Income and loss both.  Capital gain on further transfer of the asset by the transferee will be considered as income and it shall be clubbed in the income of transferor.  The income derived from the converted form of asset shall be clubbed in the hands of transferor.  If part consideration is payable or paid, then only the inadequate consideration will be clubbed in the hands of the transferor  The clubbing provisions will not apply on the income derived from the clubbed income. 1.5 KEYWORD  Clubbing of income- means Income of other person included in assessee’s total income, for example: Income of husband which is shown to be the income of his wife is clubbed in the income of Husband and is taxable in the hands of the husband. Under the Income Tax Act, a person has to pay taxes on his income.  Income- Income refers to the money that a person or entity receives in exchange for their labour or products. Income may have different definitions depending on the context—for example, taxation, financial accounting, or economic analysis.  spouse- A spouse who’s a man is often called a husband, while a spouse who’s a woman is often called a wife. The word partner is a gender-neutral way to refer to one’s spouse. People most commonly use one of these terms when talking about or introducing their spouse, as opposed to using the word spouse. The word spouse is more commonly used in formal or official contexts, such as on forms that require family relations to be specified.  Income Tax- The term income tax refers to a type of tax that governments impose on income generated by businesses and individuals within their jurisdiction. By law, taxpayers must file an income tax return annually to determine their tax obligations.  HINDU UNDIVIDED FAMILY (HUF)- 22 CU IDOL SELF LEARNING MATERIAL (SLM)


Hindu Undivided Family (‘HUF’) is treated as a ‘person’ under section 2(31) of the Income-tax Act, 1961 (herein after referred to as ‘the Act’). HUF is a separate entity for the purpose of assessment under the Act. 1.6LEARNING ACTIVITY 1. Explain clubbing provisions ___________________________________________________________________________ ___________________________________________________________________________ 2. Define spouse ___________________________________________________________________________ ___________________________________________________________________________ 1.7UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is the meaning of clubbing of income? 2. Do any clubbing provisions exist in case of transfer of income without transfer of asset? 3. Do any clubbing provisions exist in case of a revocable transfer? 4. Can remuneration received by spouse of an individual be clubbed with his/her income? 5. Can income from assets transferred to spouse without adequate consideration be clubbed with the income of transferor-spouse? Long Questions 1. Are there any situations in which the clubbing provisions do not apply in case of income from assets transferred to spouse? 2. Can income from assets transferred to son’s wife without adequate consideration be clubbed with the income of transferor, i.e., father-in-law/mother-in-law? 23 CU IDOL SELF LEARNING MATERIAL (SLM)


3. Is minor child’s income clubbed with the income of parent? |How can parent claim TDS have deducted on his minor’s child income? 4. Will any clubbing provision apply in case of transfer of asset to Hindu Undivided Family (HUF) by its member? 5. Explain clubbing income in brief? B. Multiple Choice Questions 1. Shyam transferred 2,000 shares of X Ltd. to Ms. Babita without any consideration. Later, Shyam and Ms. Babita got married to each other. The dividend income from the shares transferred would be a. Taxable in the hands of Shyam both before and after marriage b. Taxable in the hands of Shyam before marriage but not after marriage c. Taxable in the hands of Shyam after marriage but not before marriage d. Never taxable in the hands of Shyam [June 2015] 2. Rohit (a Chartered Accountant) is working as Accounts Officer in Raj (P) Ltd. on a salary of ₹ 20,000 p.m. He got married to Ms. Pooja who holds 25% shares of this company. What will be the impact of salary paid to Rohit by the company in the hands of Ms. Pooja a. 100% salary to be clubbed b. 50% salary to be clubbed c. No amount be clubbed d. 25% salary be clubbed [Dec. 2015] 3. Mr. Shiva gifted a let-out building that fetches rental income of ₹ 10,500 per month to his son’s wife on 1-11-2020. The municipal tax of ₹ 6,000 on the property was paid on 10-1-2021. The total income from all other sources (computed) amounts to ₹ 2,60,000 except income from the above-said property. His total income chargeable to tax is: a. ₹ 3,11,450 b. ₹ 3,44,000 c. ₹ 3,80,000 d. ₹ 3,33,500 [June 2017] 24 CU IDOL SELF LEARNING MATERIAL (SLM)


4. Baby Meena (age 12) a child artist acted in feature films and earned ₹ 3,50,000. The total income of her father is ₹ 5,20,000 and her mother is ₹ 4,80,000. The minor’s income would be: a. Chargeable to tax in the hands of father b. Chargeable to tax in the hands of mother c. Chargeable to tax in her own hands d. Fully exempt from tax [Dec. 2017] 5. Ram has gifted an amount of ₹ 10,00,000 to his wife Sita without consideration (but not to live apart), which was invested by his wife in interest-bearing security. She earned an interest of ₹ 1,00,000. The interest of ₹ 1,00,000 was further invested by her in the business from which she earned a profit of ₹ 15,000. The income which is to be included out of this gifted amount in the hands of Ram is: a. ₹ 1,15,000 b. ₹ 15,000 c. ₹ 1,00,000 d. Nil, because the gift is too relative [June 2018] Answers 1-d, 2-c, 3-b. 4-c, 5-c 1.8REFERENCES Reference books  \"7th ESB Det. Deploys to Afghanistan\". DVIDS. 25 October 2009. Retrieved 4 August 2022.  Haller, A. &Woelfel, J. (1972) Significant others and their expectations: Concepts and instruments to measure interpersonal influence on status aspirations Rural Sociology, 37(4), 591–622  Woelfel, J. & Haller, A. (1971) Significant others: The self-reflexive act and the attitude formation process American Sociological Review Archived 19 January 2012 at the Wayback Machine American Sociological Association: 36(1), 74–87 Textbooks  Cryer, Max (1 October 2011). Who Said That First?: The Curious Origins of Common Words and Phrases. Summersdale Publishers. ISBN 9781849531917. Retrieved 1 April 2014 25 CU IDOL SELF LEARNING MATERIAL (SLM)


 Sullivan, Harry Stack (1940). Conceptions of Modern Psychiatry: The First William Alanson White Memorial Lectures, Volume 3, Issue 1 of Psychiatry, journal of the biology and pathology of interpersonal relations. William Alanson White Psychiatric Foundation. p. 10.  Guide to Income Tax on Salaries (Inclusive of Taxation of Income from House Property, Capital Gains, Other sources, Clubbing of Income, set-off and Carry Forward of Losses, Fling of Returns etc.,) As amended by The Finance Act, 2022 Assessment Year 2022-23 & 2023-24 (Paperback, TVS Satya Prasad) Website  https://cleartax.in/s/section-64-clubbing-income  https://taxguru.in/income-tax/clubbing-of-income-under-the-income-tax-act- 1961.html  https://tax2win.in/guide/section-64-clubbing-income  https://www.bcasonline.org/referencer2015- 16/Taxation/Income%20Tax/clubbing_provisions.html 26 CU IDOL SELF LEARNING MATERIAL (SLM)


UNIT - 2SET OFF AND CARRY FORWARD OF LOSSES STRUCTURE 2.0 Learning Objectives 2.1 Introduction 2.2 Concept 2.3 Section 70 & 80 of Set off carry forward of losses. 2.4 Summary 2.5 Keywords 2.6 Learning Activity 2.7 Unit End Questions 2.8 References 2.0LEARNING OBJECTIVES After studying this unit, you will be able to:  Understand what is meant by set off of losses  State the need and importance of Section 80 of Set off carry forward of losses  State the need and importance of Section 70 of Set off carry forward of losses  Understand the importance of carry forward 2.1INTRODUCTION This Article covers Income Tax Act Provisions that are related to carry forward and set off of losses. All Losses arising from exempted sources of income cannot be adjusted against taxable income. If an income source is exempt, then the loss cannot be set off against any income that is taxable. Let’s look at an example: Agricultural income is exempted from tax. This means that if the taxpayer suffers loss due to agricultural activity, such loss cannot be applied against any other taxable income. The Income-tax law of India provides some benefits to taxpayers for sustaining losses. This article explains in detail the provisions in the law regarding set-off and Losses and gains are two sides of the same coin. Losses are difficult to accept, of course. The Indian Income Tax Act does, however, provide taxpayers certain advantages when they suffer 27 CU IDOL SELF LEARNING MATERIAL (SLM)


losses. This page goes into depth about the law's provisions for set-off and carry-forward of losses. Set aside losses To set off losses is to compare the losses to the revenue or profit for that specific year. Losses that aren't offset against revenue in the current year might be carried over to the following years to be offset against income in those years. An inter-head set-off or an intra-head set-off may occur during a set-off. Intra-head Set Off Losses from one source of income may be offset against gains from another source of income falling under the same heading. For instance, if Business A is one source of revenue and Business B is another, the loss from Business A may be offset by the profit from Business B, and the common head of income is \"Business.\" An intra-head set off has certain exceptions: 1. Losses from a speculative firm will only be offset against that business's earnings. Losses from speculative business cannot be offset by earnings from any other business or profession. 2. Only the earnings from an activity involving the ownership and maintenance of racehorses will be used to offset losses from such an activity. 3. Only long-term capital gains will be offset by long-term capital losses. However, both long-term and short-term capital gains might be offset by a short-term capital loss. 28 CU IDOL SELF LEARNING MATERIAL (SLM)


4. Only the profits of defined firms will be used to offset losses from a specified company. However, the revenues from the above enterprises might be offset by losses from any other businesses or professions. Heads-internal Set Off The taxpayers may offset any residual losses against revenue from other heads after the intra- head adjustments. For instance, a loss on real estate might be offset against income from wages. More examples of this kind of inter-head set off of losses are shown below: 1. Any head of income may be used to offset losses from House property. 2. Any head of revenue, except income from pay, may be offset against company losses other than speculative losses. Additionally, it should be noted that the losses listed below cannot be offset against any other source of income: a. Loss from speculative business. b. Specificated loss to business capital Losses d. Losses from owning and caring for racehorses as a business carrying over losses 29 CU IDOL SELF LEARNING MATERIAL (SLM)


There may still be uncorrected losses even after applying the necessary and legal intra-head and inter-head adjustments. For adjustments against the revenue of these years, these unadjusted losses may be carried over to subsequent years. For various categories of income, there are somewhat varied restrictions regarding carryover. Here, they have been covered: Household Property Losses: 1. may be carried forward from the assessment year in which the loss was incurred for up to the next 8 assessment years. 2. may only be adjusted against income from real estate. 3. even if the return of income for the lost year is submitted after the fact, may be carried forward. Non-Speculative Business Losses (Regular Business) Loss 1. may be carried forward from the assessment year in which the loss was incurred for up to the next 8 assessment years. 2. only income from a profession or company may be modified 3. It is not required to carry on the business as usual at the beginning of subsequent years. 4. if the return is not submitted before the first due date, it cannot be carried forward. Loss from Speculative Business 30 CU IDOL SELF LEARNING MATERIAL (SLM)


1. may be carried forward from the assessment year in which the loss was incurred for up to the next four assessment years. 2. only against Speculative Business Income may be adjusted 3. if the return is not submitted before the first due date, it cannot be carried forward. 4. It is not required to carry on the business as usual at the beginning of subsequent years. Under 35AD for Specified Business Loss 1. There is no time restriction on how long losses from the designated firm may be carried forward under 35AD. 2. It is not required to carry on the business as usual at the beginning of subsequent years. 3. cannot be carried forward in the event that the return is not submitted by the first deadline. 4. Only income from a specific firm under 35 ADS may be adjusted monetary losses 1. may be carried forward from the assessment year in which the loss was incurred for up to the next 8 assessment years. 2. Only long-term capital gains may be used to offset long-term capital losses. 3. Both long-term and short-term capital gains may be offset by short-term capital losses. 31 CU IDOL SELF LEARNING MATERIAL (SLM)


4. cannot be carried forward in the event that the return is not submitted by the first deadline. 2.2CONCEPT WHAT SET OFF LOSSES ARE The term \"set off\" refers to the comparison of losses against profits in a given year. Losses that are not offset against income may be carried over and offset against income in later years. You may either launch an intra-head or an inter-head attack on revenue. Losses may be triggered. How to set off intra-head losses and inter-head losses INTRA HEAD ADJUSTMENT'S IMPORTANCE The taxpayer may offset any loss he has incurred against income from any other source in any year in which it was incurred, regardless of the source or head of income. identical head. The technique of balancing a loss from one source against revenue from another source under the same heading is known as intra-head adjustment. converting a business's earnings from venture A into its loss from venture B. There are various constraints on how intra-head modifications to loss may be made. WHAT DOES INTER HEAD ADJUSTMENT MEAN? Making an inter-head adjustment comes after any intra-head adjustments have been made. If a taxpayer has revenue under one item of income but a loss under another in a given year, he may transfer the loss to the other head. The following limitations must be kept in mind prior to performing any inter-head adjustments. The taxpayer must first make an intra-head adjustment before making an inter-head adjustment. Income from speculative businesses cannot be offset against losses. Business losses that are not related to speculation may be 32 CU IDOL SELF LEARNING MATERIAL (SLM)


compensated by earnings from speculation. Losses under the category \"Capital gains\" cannot be offset by income from other income headings. Losses cannot be offset by gains from the lottery, crossword puzzles, races (including horse races), or any other games or forms of gambling. Losses from owning or caring for racehorses cannot be offset with any other income. A business loss as described in section 35AD cannot be used to offset other revenue. Certain firms, including those that establish cold-chain facilities, run warehouses for the storage of agricultural products, and plan and construct housing projects, are subject to Section 35AD. Losses from enterprises and professions cannot be offset against income liable to tax under the category \"Salaries.\" Losses under the category \"home property\" will only be permitted to be adjusted against any other income source up to Rs. 2,000,001 as of the 2018– 19 assessment year. According to section 71B, an unabsorbed loss may be carried over to the following years to be offset. (Discussion of the provisions relating to the carry-forward of loss from property follows. REMEMBER THE RESTRICTIONS PRIOR TO MAKING ANY INTRA HEAD ADJUSTMENT. Loss: 1) Losses cannot offset any profits from speculative enterprises. revenue from speculative enterprises. Additionally, non-speculative company losses might occur. Set aside profits from speculative ventures. 2) Long-term capital losses from long-term capital gains cannot be used to offset any other kind of income. However, a brief loss of money is conceivable. against both long-term and short-term financial gains. 3) Income cannot be used to offset losses from lotteries or crossword puzzles. Games of many kinds, including puzzles, card games, and horse races. Avoid playing any form of game of chance. 4) The horse racing industry cannot fail. any revenue other that derived from owning or caring for racing horses as a business. 5) The business loss described in section 35AD cannot be offset against any other losses. FORWARDING OF LOSSES 33 CU IDOL SELF LEARNING MATERIAL (SLM)


Even after completing the required and allowed intra- and inter-head adjustments, there may still be unadjusted loss. To account for revenue, these unadjusted losses may be rolled over to subsequent years. There are various carry forward policies for different types of income. LOSSES ON RESIDENCES After the year of the assessment, you have up to 8 years to carry the loss forward. Only income from real estate holdings is adjustable. BUSINESS LOSSES IN NON-SPECULATIVE SECTORS (REGULAR BUSINESS) Only relevant to income from a company or profession, you may carry the loss forward for up to 8 years from the assessment year it was earned. Future expansion of the company is not essential. The return cannot be carried forward if it is not received by the deadline. SUSPICIOUS BUSINESS LOSS Only applies to revenue from speculative firms Losses may be carried forward for up to 4 years from the assessment year in which they were earned. The return cannot be carried forward if it is not received by the deadline. Future expansion of the company is not essential. COMPLEX BUSINESS LOSSES UNDER 35AD There is no limit on how many losses from the relevant firm may be carried forward under 35AD. Future expansion of the company is not essential. The return cannot be carried forward if it is not received by the deadline. applied only to earnings from the businesses listed below CAPITAL LOSSES IN 35 AD After the assessment year in which the loss occurred, you have up to 8 years to carry it forward. 34 CU IDOL SELF LEARNING MATERIAL (SLM)


Capital losses can only be compensated by long-term capital gains. Short-term capital losses may be adjusted against long-term capital profits. 2.3SECTION 70 & 80 OF SET OFF CARRY FORWARD OF LOSSES. Sections 70 to 80: Set Off or Carry Forward and Set Off of Losses If the losses could not be offset against the revenue of the same assessment year under the same head or under separate headings, they may be carried forward and offset against the income of the following assessments. No losses may be carried forward in full. Only the following losses may be carried forward and offset in the evaluation years that follow: Loss of residential property; loss of business; loss from speculation; loss from owning and caring for racing horses. Loss from a particular business as defined in section 35AD; capital loss. Loss return filing requirements [Section 80]: Although the aforementioned losses are permitted to be carried forward, this is only the case if the loss was calculated in accordance with a report of loss filed by the assessee on or before the deadline for submitting the returns required by section 139. (1). However, even if the return is not submitted by the required date specified in Section 139, a loss under the heading Income from House Property may still be carried forward (1). Although carrying forward the losses listed in clauses (b) through (f) above requires the filing of a return of loss on or before the deadline specified in section 139(1), this provision does not apply to carrying forward unabsorbed depreciation, which is handled by section 32. (2). Before a loss is permitted to be carried forward, two requirements must be met. First, the return of loss must be filed on or before the deadline, and second, the Assessing Officer has determined this loss. Sections 70 to 80: Set Off or Carry Forward and Set Off of Losses 35 CU IDOL SELF LEARNING MATERIAL (SLM)


1. Carry forward and set off losses from real estate [Section 71B] If a loss incurred under the heading \"House Property\" could not be offset against other sources of income in the same assessment year or could not be offset completely, it may be carried forward for a period of eight assessment years in order to be offset against future years' income from house property claims. As a result, if the loss of real estate from the prior year 2016–2017 that could not be offset— not having any revenue under another heading, or greater than Rs. 2,000,00,000 in losses under the category dwelling property in the preceding year, or inadequate income from another head of state, It may be carried over for 8 assessment years (i.e., assessment years 2018-19 to 2025-26) after assessment year 2017–18 to be deducted from income derived from the head home property. Because section 71B is exempt from the provisions of sections 80 and 139(3), losses incurred under the heading \"Income from House Property\" may be carried forward even if a return is not filed under section 139. (1). Although the loss may be carried forward for up to 8 assessment years, it must be offset if there is revenue under the head home property in the next assessment year, with the remaining amount in the immediately following subsequent assessment year, and so on. 2. Carry Forward and Set Off of Other Business Losses Except Losses from Speculation (Section 72) When a loss under the heading \"profits and gains of business or profession,\" other than a loss from a speculation business or loss from a specified business, cannot be offset in the same assessment year because the assessee has no income under any other heading or because the income is less than the loss, the loss can be carried forward to the following assessment years and offset against the profit and gains of business or profession. 36 CU IDOL SELF LEARNING MATERIAL (SLM)


1. Only business income may be used to offset a loss: It's important to keep in mind the following: (A). Loss Can only be offset by business income - Losses reported under the category of \"Earnings and gains of business or profession\" may be offset by profits from any kind of business1 the following year. Profits from a business activity that can be assessed under a heading other than \"Profits and gains of business or profession\" are also considered business profits for this purpose. For instance, if an assessee owns shares as part of his trading assets, the dividend received from a foreign company on those shares would be considered business income, and as a result, he would be eligible to claim a set-off of business losses carried forward from prior years against the dividend received this year. Losses may be offset against any other business (not necessarily the same business) (B). It is not essential to offset a business loss from year one with profits from the same company in year two. In other words, the profit of Firm A or another business in Year 2 might be offset by the loss of Business A in Year 1. Set-Off of Losses from a Particular Business (C) Only the revenue from the business mentioned in section 35AD may be used to offset brought-forward losses of a firm in a future year. Only the Assessee who has suffered the loss may set off losses [Section 78(2)]. The loss may be carried over and offset against the assessee's earnings that caused the loss. But these guidelines include the following exclusions: 37 CU IDOL SELF LEARNING MATERIAL (SLM)


(A) Passing on: when another person inherits a company that was previously owned by another individual. For instance: In the course of operating a firm, X has incurred losses of Rs. 5,00,000, which may be carried forward and deducted from future earnings. When X passes away, his son S inherits the business. The profits from a commercial activity that S is engaged in may be offset by the losses sustained by X. However, the son may carry forward the loss for the remaining number of years that the father might have done so The legal successor, however, cannot carry the unabsorbed depreciation forward since inheritance is not covered by section 32. (2). (B) Combination If the merger falls within the purview of section 72A/72AA of the Income-tax Act, business losses and unabsorbed depreciation of the merging firm may be offset against the earnings of the merging company. The business loss and unabsorbed depreciation of the amalgamating firm cannot be carried forward by the merged company if the merger is not of the kind described in section 72A/72AA. Similar to this, if an amalgamation falls within the purview of section 72AB, business losses and unabsorbed depreciation of an amalgamating co- operative bank may be offset against the revenue of the succeeding co-operative bank, or the merged co-operative bank. The accumulated business loss and unabsorbed depreciation of the merging firm will be considered business loss/depreciation of the combined company for the prior year in which the merger is completed if the following criteria are met: It has been— 38 CU IDOL SELF LEARNING MATERIAL (SLM)


a public sector airline joining forces with another public sector airline; a firm holding an industrial venture, a ship, or a hotel joining forces with another company; a banking company joining forces with SBI or any affiliate of SBI. The merging firm has been active in the line of business where the cumulative loss occurred or where depreciation has not been recouped for three years or more. At least three-fourths of the book value of the fixed assets that the amalgamating firm had owned two years previous to the date of merger were still in its possession as of that date. For five years after the merger's effective date, the merged business continues to own at least three-fourths of the book value of the fixed assets that the combining firm has acquired. For a minimum of five years after the merger, the combined firm continues the operations of the merging company. Before the end of 4 years from the date of the amalgamation, the amalgamated company, which has acquired an industrial undertaking from the amalgamating company through amalgamation, shall produce at least 50% of the installed capacity of the said undertaking, and shall continue to produce at the said minimum level until the end of 5 years from the date of the amalgamation. On a request from the combined firm, the Central Government, however, may reduce the requirement. A certificate in Form No. 62, from a chartered accountant, with reference to the books of account and other documents demonstrating details of production, must be electronically submitted by the combined firm to the Assessing Officer. Along with the return of income for the assessment year pertinent to the prior year during which the required level of production is achieved and for any succeeding assessment years pertinent to the prior years that fall within five years of the date of amalgamation, this certificate must be submitted. If the aforementioned requirements are met, then the accumulated business loss and unabsorbed depreciation of the merging company (along with unabsorbed capital expenditures on scientific research/family planning) shall be deemed to be loss and depreciation of the merged company for the prior year in which the merger is affected. 39 CU IDOL SELF LEARNING MATERIAL (SLM)


(C) Transfer of a Firm or a Proprietary Concern to a Company [Section 72A(4)]: The accumulated business loss and unabsorbed depreciation (including unadjusted capital expenditure on scientific research) of the predecessor firm or proprietary concern, as applicable, shall be deemed to be the business loss in cases of business succession where a firm is succeeded by a company fulfilling the conditions set forth in section 47(xiii) or a proprietary concern is succeeded by a company fulfilling the conditions set forth in section 47(xiv). (D) Succession of a Limited Liability Partnership by a Private Company or Unlisted Public Company [Section 72A(6A)]: When a private limited company or unlisted public limited company is succeeded by a limited liability partnership that meets the requirements of section 47(xiiib), the accumulated business loss and unabsorbed depreciation (including unadjusted capital expenditure on scientific research) of the predecessor company are deemed to be the business loss or, as the case may be, allowance for depreciation, respectively. (e) Demerger The accumulated business loss and unabsorbed depreciation of the demerged firm will be permitted to be carried over and set off in the hands of the resultant company in the event of a demerger. To guarantee that the demerger is for legitimate commercial objectives, the Central Government may, for this purpose, by announcement in the Official Gazette, establish any criteria that it deems appropriate. 3. Business losses are reportable for 8 years. There is a maximum eight evaluation years during which the loss may be carried forward. 40 CU IDOL SELF LEARNING MATERIAL (SLM)


Every year's loss is distinct, and no loss may be carried over for more than eight assessment years after the assessment year for which it was initially calculated. A loss from the previous year 2017–18, or the assessment year 2018–19, may thus be carried over to the assessment year 2026–27. Along with the aforementioned, the following losses—even though they are not considered business losses under income-tax law—may also be carried forward indefinitely: unrecognized depreciation unpaid capital expenses for science research; unrecognized cost of family planning. Loss of a \"specified business\" as defined by section 35AD may be carried over indefinitely. 4. The Return of Loss must be submitted by the deadline (Section 80) to be carried forward and offset against business losses. If the return of income (for the year in which the loss is incurred) is not filed by the required date [of filing of return as provided in section 139(1)], the following losses cannot be carried forward. loss of a business, whether speculative or not (excluding unabsorbed depreciation, etc.); capital loss either short-term or long-term; and loss (not unabsorbed depreciation, etc.) resulting from the ownership and maintenance of racing horses. If a few requirements are met, the return of loss submission delay may be excused. If a return is submitted late and a claim for carry forward of losses is made, the CBDT may excuse the delay under section 119(2). 41 CU IDOL SELF LEARNING MATERIAL (SLM)


5. The continuation of the business is not required to carry over and offset business losses. The assessee may or may not continue to operate the company or profession in which the loss was first experienced during the year in which the brought-forward loss is requested to be set off 6. Carry Forward of Unabsorbed Depreciation, Capital Expenditures on Scientific Research, and Expenditures for Family Planning Depreciation, capital expenditures for scientific research, and family planning that have not yet been recouped are not considered company losses and may be carried forward as well. Nevertheless, in accordance with section 72(2), the business loss must be offset before unabsorbed depreciation, etc. Only when current year depreciation, current capital expenditures for scientific research, and current expenditures for family planning have been claimed would such carried forward business loss be written off against business head. Consequently, the following will be the order of set off: Depreciation for the current year [Section 32(1)]; yearly capital investment in scientific research and, to the degree permitted, yearly family planning expenditures; brought forth losses in a trade or profession [Section 72(1)]; depreciation not yet absorbed [Section 32(2)]; unreimbursed capital investment in research [Section 35(4)]; Unreimbursed family planning expense [Section 36(1)(ix)]. 42 CU IDOL SELF LEARNING MATERIAL (SLM)


3. Continue and initiate Speculation Loss (Section 73) Only the profits and gains of another speculation business in the same assessment year may be used to offset the loss of a speculation business for any given assessment year. However, if a loss from one speculation company could not be offset against the revenue of another speculation business in the same assessment year, it may be carried forward and offset against any speculation business's income in the next year. For four assessment years that immediately follow the assessment year for which the loss was initially computed, such a loss may be carried forward. It should be noted that the continuation of the same speculative activity in the assessment year in which the loss is set off is not required. As was previously mentioned, in order to carry forward such a loss, a return must be filed prior to the deadline. Companies engaged in the Business of Buying and Selling Shares - (Explanation to Section 73) If the requirements listed below are met, this provision is applicable: A business is the taxpayer. It is not a company whose gross total income is primarily made up of income that is deductible as \"Interest on Securities,\" \"Income from House Property,\" \"Capital Gains,\" and \"Income from Other Sources.\" Alternately, it might be a firm whose main activity is distinct from stock trading, banking, or the provision of loans and advances. The company's activity is the acquisition and disposal of stock in other businesses. If the aforementioned requirements are met, the corporation will be considered to be operating a speculative business to the extent that it involves the acquisition and selling of such shares. Even if the assessee does not dodge taxes, this provision still applies. The following businesses will not be covered by this explanation: 43 CU IDOL SELF LEARNING MATERIAL (SLM)


Corporations that primarily get their gross total revenue from \"Income from House Property,\" \"Capital Gains,\" and \"Income from Other Sources\" are considered investment companies. a business whose main line of business is lending money or providing advances. an organization whose primary activity is the trading of shares. It should be emphasized that the aforementioned explanation only pertains to businesses. A person, HUF, firm, AOP, etc. are not covered. Additionally, this explanation solely pertains to share buy and sell transactions. This Explanation does not apply to Debentures, Unit Trust of India units, or Mutual Fund units. So the section 73 explanation is not relevant if— the corporation buys shares for investment purposes rather than as stock in trade; or an organization whose primary activity is the trading of shares. 2. Only speculative income may be used to offset speculative losses (Section 73) Only the earnings of a speculation business operated in that year may be used to offset a loss from a previous year's speculation company. 3. Speculative losses are transferable for a period of four years. In the four assessment years that immediately follow the assessment year for which the loss was first estimated, such a loss may be carried forward. 4. Business Continuity Not required for the continuation and offset of speculation losses 44 CU IDOL SELF LEARNING MATERIAL (SLM)


Although the assessee must remain the same, it is not required that the speculating business in which the loss was incurred continue to be operated in the year in which the assessee seeks to set off the loss. 5. In order to carry over and offset speculation losses, the Return of Loss must be submitted by the deadline (Section 80). If the return of income (for the year in which the loss is incurred) is not filed by the required date [of filing of return as provided in section 139(1)], the following losses cannot be carried forward. loss of a business, whether speculative or not (excluding unabsorbed depreciation, etc.); capital loss either short-term or long-term; and loss (not unabsorbed depreciation, etc.) resulting from the ownership and maintenance of racing horses. If a few requirements are met, the return of loss submission delay may be excused. If a return is submitted late and a claim for carry forward of losses is made, the CBDT may excuse the delay under section 119(2). 6. Additional Points to Advance and Kick Off Speculation Loss Losses from speculation in prohibited goods cannot be carried over to the next year. Loss in a speculative deal made for the principal is not a speculative loss for the agent. Income from forward trades made on behalf of constituents does not derive from the assessee's speculative activity. 4. Carry Forward and Set-Off of Losses Resulting from the Activity of Owning and Keeping Race Horses (Section 74A) 45 CU IDOL SELF LEARNING MATERIAL (SLM)


Any loss from the activity of owning and keeping racing horses in a given assessment year must be offset by any revenue from the same activity in that assessment year. However, any loss from the activity of owning and caring for racing horses that could not be offset in the same assessment year must be carried forward and offset only against the revenue from that activity in the succeeding assessment years. However, this set off is only allowed if the assessee engaged in the business of owning and caring for racing horses in the prior year that was relevant to the assessment year for which the loss is being sought to be adjusted. For a maximum of four assessment years that immediately follow the assessment year for which the loss was first estimated, the loss may be carried forward. The following details must to be kept in mind: Only if the assessee engaged in the business of owning and caring for racing horses in the year before to the one in which the brought-forward loss is being sought to be set off. For four assessment years that immediately follow the assessment year in which the loss was originally estimated, it may be carried over. If a return isn't submitted by the deadline outlined in section 139(1), the loss cannot be carried forward [see para 135.1-4]. Loss will be determined as follows for this purpose: Amount of the stake Less: The taxpayer's revenue-related expenditures that are made only to keep these horses in good condition 46 CU IDOL SELF LEARNING MATERIAL (SLM)


Balance (if it is negative, it is taken as loss from the activity of owning and maintaining race horses) The aforementioned Section 74A requirements only apply to losses resulting from the ownership and upkeep of racing horses. Loss resulting from owning and caring for animals of another race is handled by section 72 and not by section 74A. 5. Capital Loss Carry Forward and Set-Off Under the Head \"Capital Gains\" (Section 74) The whole of the loss will be carried forward to the subsequent assessment year in the following manner if the net result of the calculation under the category \"Capital gains\" is a loss: Only long-term capital gains may be offset by long-term capital losses. Long-term or short-term capital gains may be offset by a short-term capital loss. For 8 (eight) assessment years after the assessment year in which the loss was first estimated, such loss may be carried forward. If a return is not submitted by the deadline set out in Section 139, such loss cannot be carried forward (1) 6. Referred to in Section 45AD, Carry Forward and Set Off of Loss of a \"Specified Business\" (Section 73A) Only the earnings and profits, if any, of any other designated businesses may be used to offset the \"Loss of a Specified Business\" mentioned in section 35AD of any assessment year. However, subject to the other provisions of this Chapter, if such loss of a specified business has not been fully offset, then the portion of the loss that has not been offset or the entire loss in cases where the assessee has no income from any other specified business shall be carried forward to the subsequent assessment year, and— 47 CU IDOL SELF LEARNING MATERIAL (SLM)


It will be offset by any income and gains from the designated business that he is operating that are taxable for that assessment year, if any; and If the loss cannot be fully offset in this manner, the amount of the loss that cannot be fully offset will be carried over to the subsequent assessment year, and so on. In other words, unless it is set off, a loss of a certain kind of company may be carried over forever. For the purpose of carrying forward and offsetting losses from a specific business, a Return of Loss must be submitted on time (Section 80). If the return of loss has not been submitted by the required date outlined in Section 139, then the loss under Section 73A cannot be carried forward (1). 2.4 SUMMARY  A tax loss carries forward allows taxpayers to use a taxable loss in the current period and apply it to a future tax period.  Capital losses that exceed capital gains in a year may be used to offset ordinary taxable income up to $3,000 in any future tax year, indefinitely, until exhausted.  Net operating losses (NOLs), losses incurred in business pursuits, can be carried forward indefinitely as a result of the Tax Cuts and Jobs Act (TCJA); however, they are limited to 80% of the taxable income in the year the carry forward is used.  Prior to the TCJA, NOLs could be carried forward 20 years or back two years with no dollar limitation, up to the amount of taxable income in the year the carry forward or carry back was used.  The CARES Act in 2020 further modified the rules around NOLs for tax years 2018 to 2020. 48 CU IDOL SELF LEARNING MATERIAL (SLM)


2.5 KEYWORDS  Speculator - anyone who buys or shorts a security with the expectation of a favourable price change is a speculator.  Amalgamation - In business, an amalgamation is defined as the merger of two or more companies.  Unlisted Public Company - An unlisted public company was a public company that is not listed on any stock exchange. Though the criteria vary somewhat between jurisdictions, a public company is a company that is registered as such and generally has a minimum share capital and a minimum number of shareholders.  LLP - A limited liability partnership is a partnership in which some or all partners have limited liabilities. It therefore can exhibit elements of partnerships and corporations.  Demerger - A demerger is a form of corporate restructuring in which the entity's business operations are segregated into one or more components.  Unabsorbed Depreciation - It is that portion of the depreciation which has not been taken into consideration in the books of accounts, which is made for tax purposes  CBDT - The Central Board of Direct Taxes is a statutory authority functioning under the Central Board of Revenue Act, 1963. The officials of the Board in them ex-officio capacity also functions as a Division of the Ministry dealing with matters relating to levy and collection of direct taxes. 2.6 LEARNING ACTIVITY 1. Define carry forward of losses ___________________________________________________________________________ ___________________________________________________________________________ 2. State the principles of section 70 and 80 49 CU IDOL SELF LEARNING MATERIAL (SLM)


___________________________________________________________________________ ___________________________________________________________________________ 2.7 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. How to Set off & Carry Forward Capital Losses 2. How to Add Previous Years’ Losses to your Income Tax Return on Clear Tax 3. Meaning of Taxability, Exceptions 4. Define carry forward of losses 5. Explain section 70 and 80 of Set off carry forward of losses Long Questions 1. Mr. A furnishes you the following information for the year ended 31.03.2017: Compute taxable income of Mr. A and his tax liability for the assessment year 2018-19with reasons for your computation. 2. Mr. Aditya furnishes the following details for the year ended 31-03-2018 Following are the brought forward losses: 50 CU IDOL SELF LEARNING MATERIAL (SLM)


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