Set-Off & Carry Forward of Losses – A Sure-Shot Strategy to Score High in CA Exams
Introduction
Understanding Set-Off & Carry Forward of Losses is crucial for CA exams, especially for Direct Taxation. This topic frequently appears in MCQs, case studies, and computation-based questions. Many students make avoidable mistakes due to lack of clarity. This article provides a structured approach to mastering this chapter efficiently.
1. Concept Overview (Easy to Remember Format)
Set-Off: Adjusting a loss against profit within the same assessment year.
Carry Forward: If a loss cannot be fully set off in the same year, it is carried forward to future years.
Inter-Source vs. Inter-Head Set-Off
| Type | Meaning | Example |
|---|---|---|
| Inter-Source Set-Off (Sec 70) | Loss from one source can be adjusted against income from another source under the same head | Loss from Textile Business set off against profit from Printing Business |
| Inter-Head Set-Off (Sec 71) | Loss under one head can be set off against income under another head | Business loss set off against House Property income |
? Memory Trick: “Same head, direct set-off. Different heads, with conditions!”
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2. Exam-Focused Shortcuts & Tricks
? Trick to Remember Loss Set-Off Restrictions
- SPLR (Speculation, Presumptive, Lottery, Racehorse) losses cannot be set off against normal income.
- Capital Loss can only be set off against Capital Gain.
- House Property Loss can be set off against any income (max ?2L), else carried forward.
? Shortcut Formulae:
- Short-Term Capital Loss (STCL) = Set off against STCG & LTCG
- Long-Term Capital Loss (LTCL) = Set off against LTCG only
- Speculation Business Loss = Set off only against Speculation Profit
? Example-Based Learning: 1?? Q: Mr. X has a loss of ?1,00,000 from Business A and profit of ?80,000 from Business B. Can he set it off?
- A: Yes, as both are under Profits & Gains from Business & Profession (Sec 70).
2?? Q: Can a loss from House Property be set off against Salary?
- A: Yes, up to ?2,00,000, rest is carried forward (Sec 71).
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3. Most Important Sections & Their Tricks
? Mnemonic for Quick Recall
“In 70’s, I Had (71) a Big (72) Speculative (73) Business, But My Capital (74) Was Lost (74A) After Choosing 115BAC.”
| Section | Type of Loss | Set-Off Rules | Carry Forward |
| 70 | Inter-Source Set-Off | Allowed (except SPLR) | NA |
| 71 | Inter-Head Set-Off | Allowed (with restrictions) | NA |
| 72 | Business Loss | Set off against Business Income | 8 years |
| 73 | Speculation Loss | Set off against Speculation Income | 4 years |
| 74 | Capital Loss | STCL: Against STCG/LTCG, LTCL: Only against LTCG | 8 years |
| 74A | Racehorse Loss | Only against Racehorse Income | 4 years |
| 115BAC | Impact of New Tax Regime | No House Property Loss Set-Off | NA |
? Memory Trick: Picture an old businessman in the 70s, saying, “I had a big speculative business, but my capital was lost after choosing the wrong tax regime!” ?
4. Interlinking Strategy for Conceptual Clarity ?
? Set-Off Rules Simplified:
- Inter-Source (70) ? Same Head? Adjust directly!
- Inter-Head (71) ? Different Head? Be careful! Some losses have restrictions.
- Business Loss (72) ? Can go across businesses, but not outside “Profits & Gains”
- Speculation Loss (73) ? Only with Speculation Profits!
- Capital Loss (74) ? STCL can go anywhere in Capital Gains, LTCL only with LTCG
- Racehorse Loss (74A) ? Exclusive club! Only racehorse earnings can cover this loss!
? Tip: Visualize an IPL-like tournament where each type of loss plays in its own team! ?
5. Rhyming Formula ?
? “70 Same, 71 Shift, 72 Business Won’t Drift
73 Games, 74 Stays, 74A Racehorses Plays!”* ?
? This rhythmic pattern helps in last-minute recall!
6. Must-Practice MCQs & Case Studies
1?? Which loss cannot be set off against any income?
- (A) Speculation Business Loss
- (B) Capital Loss
- (C) Racehorse Activity Loss
- (D) Gambling Loss ?
2?? A long-term capital loss of ?50,000 can be set off against:
- (A) Short-Term Capital Gain
- (B) Salary Income
- (C) Business Profit
- (D) Long-Term Capital Gain ?
7. Last-Minute Revision Plan (Scoring Strategy)
? 1 Day Before Exam:
- Step 1: Revise the summary table (10 min)
- Step 2: Practice 10 MCQs & 2 Case Studies (30 Minute)
- Step 3: Write down key sections (10 min)
- Step 4: Revise formulae & restrictions (10 min)
Conclusion
Mastering Set-Off & Carry Forward of Losses can significantly boost your CA exam scores. By using memory tricks, formulas, and case-based learning, you can solve questions quickly and accurately.
? Final Tip: Keep practicing MCQs & numerical problems for full confidence on exam day!
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