Allowable Losses in income Tax

Following Losses are Deductible from Business Income

• Loss of stock-in-trade as a result of enemy action, or arising under similar circumstances.
• Loss of stock-in-trade due to destruction by an act of God.
• Loss arising on account of failure on the part of the assessee to accept delivery of goods.
• Depreciation in funds kept in foreign country for purchase of stock-in-trade.
• Loss due to exchange rate fluctuations of foreign currency held on revenue account.
• Loss arising from sale of securities held in the regular course of business.
• Loss of cash and securities in a banking company on account of dacoity (maybe after banking hours.) Loss incurred on realisation of amount advanced in connection with business.
• Loss of security deposited for the purposes of acquisition of stock-in-trade.
• Loss due to forfeiture of a deposit made by the assessee for properly carrying out of contract for supply of commodities.
• Loss on account of embezzlement by an employee.
• Loss incurred due to theft or burglary in factory premises during or after working hours.
• Loss of precious stones or watches of a dealer while bringing them from business premises to his house.
• Loss arising from negligence or dishonesty of employees.
• Loss incurred on account of insolvency of banker with which current account is maintained by the assessee.
• Loss incurred due to freezing of the stock-in-trade by enemy action.
• Loss incurred by a sugar manufacturing company by foregoing advance made to sugarcane growers who used to sell sugarcane crop exclusively to the company.
• Loss on account of non-recovery of advances given by the assessee-company (engaged in the business of financing its subsidiaries) to its 100 per cent subsidiary company.
• Loss incurred by a holding company which has guaranteed a loan taken by its subsidiary company.
• Loss arising as a result of seizure and confiscation of illegal stock-in-trade is allowable as a business loss against income from illegal business
• Loss arising as a result of rejection of goods by the importer (as goods are unfit for human consumption).

Following Losses are Not Deductible from Business Income

• Loss which is not incidental to trade or profession, carried on by the assessee.
• Loss incurred due to damage, destruction, etc., of capital assets.
• Loss incurred due to sale of shares held as investment.
• Loss of advances made for setting up of a new business which ultimately could not be started.
• Depreciation of funds kept in foreign currency for capital purposes.
• Loss arising from non-recovery of tax paid by an agent on behalf of the non-resident.
• Anticipated future losses.
• Provision made by assessee in respect of non-performing assets.
• Loss relating to any business or profession discontinued before the commencement of previous year.