by The computation of Business Income may result in a loss instead of taxable profit. The Income-tax Act, 2025 provides rules for set-off and carry forward of business losses and unabsorbed depreciation. These provisions determine how losses and depreciation that cannot be adjusted in the current tax year may be utilised against eligible income in subsequent years. The relevant provisions ensure proper treatment of business losses, depreciation allowance and taxable income. The rules relating to set-off and carry forward are mainly governed by Sections 106 to 115, while unabsorbed depreciation is dealt with under Section 34 of the Act.
illustration 1: Set-off of Business Loss Against Other Business Income
A Ltd. has two businesses during the tax year:
| Particulars | Amount (₹) |
|---|---|
| Profit from Business A | 4,00,000 |
| Loss from Business B | (1,50,000) |
| Net Business Income | 2,50,000 |
Solution:
The loss from Business B can be set off against the profit from Business A, subject to the provisions of the Act.
₹4,00,000 − ₹1,50,000 = ₹2,50,000
Therefore, ₹2,50,000 is taxable business income before considering other deductions.
illustration 2: Carry Forward of Unadjusted Business Loss
Mr. A incurs a business loss of ₹3,00,000 in Tax Year 2026–27. He has no eligible income against which the loss can be fully set off.
| Particulars | Amount (₹) |
|---|---|
| Business Loss | 3,00,000 |
| Current-year set-off | Nil |
| Loss carried forward | 3,00,000 |
Solution:
The unadjusted business loss of ₹3,00,000 may be carried forward and set off against eligible business income in subsequent tax years, subject to the statutory conditions and time limit prescribed under the Income-tax Act, 2025.
illustration 3: Carry Forward and Set-off of Business Loss
Mr. B has a carried-forward business loss of ₹2,50,000. In the subsequent tax year, he earns business profit of ₹4,00,000.
| Particulars | Amount (₹) |
|---|---|
| Current-year business profit | 4,00,000 |
| Less: Carried-forward business loss | (2,50,000) |
| Taxable business income | 1,50,000 |
Solution:
The eligible carried-forward business loss is set off against the current-year business profit.
₹4,00,000 − ₹2,50,000 = ₹1,50,000
Thus, ₹1,50,000 remains as business income, before other applicable adjustments.
illustration 4: Unabsorbed Depreciation
A company has depreciation allowable under the Act of ₹5,00,000, but its business profit before depreciation is only ₹3,00,000.
| Particulars | Amount (₹) |
|---|---|
| Business profit before depreciation | 3,00,000 |
| Depreciation allowable | 5,00,000 |
| Depreciation absorbed | 3,00,000 |
| Unabsorbed depreciation | 2,00,000 |
Solution:
The depreciation of ₹3,00,000 can be absorbed against the available business profit. The remaining ₹2,00,000 becomes unabsorbed depreciation and may be carried forward and dealt with according to the provisions of Section 34.
illustration 5: Business Loss and Unabsorbed Depreciation Together
A Ltd. has the following figures:
| Particulars | Amount (₹) |
|---|---|
| Business profit before depreciation | 6,00,000 |
| Current depreciation | 8,00,000 |
| Unabsorbed depreciation | 2,00,000 |
Solution:
Current depreciation of ₹8,00,000 exceeds the business profit of ₹6,00,000. Therefore, ₹6,00,000 is absorbed and ₹2,00,000 becomes unabsorbed depreciation. This amount can be carried forward according to Section 34, subject to the applicable provisions.
illustration 6: Business Loss with Other Income
Mr. C has:
| Particulars | Amount (₹) |
|---|---|
| Business loss | (₹2,00,000) |
| Salary income | ₹5,00,000 |
| Income from other sources | ₹1,00,000 |
Solution:
A non-speculative business loss is subject to the inter-head set-off provisions. However, the Act contains restrictions on setting off business losses against certain heads of income. Therefore, the business loss must first be examined under the applicable set-off provisions before determining the amount that can be adjusted against other income.
