Tag: PGBP Loss

Section 114 of the Income-tax Act, 2025 provides special rules for the set-off and carry forward of losses from specified business. These businesses receive separate treatment because losses arising from them are subject to a ring-fencing rule and cannot generally be adjusted against ordinary business income or income under other heads. Where a loss from a specified business cannot be completely set off during the relevant tax year, the unabsorbed amount may be carried forward to subsequent tax years. The provision ensures that such losses are adjusted only against profits and gains arising from an eligible specified business, subject to statutory conditions.

1. Meaning of Loss from Specified Business

A specified business loss arises where the allowable expenditure and deductions of a business classified as a specified business under the Act exceed the income earned from that business during the tax year. Such businesses are given special tax treatment and their losses are governed separately from ordinary business losses. The loss is first determined according to the applicable provisions for computing profits and gains of the specified business. Once determined, it cannot generally be freely adjusted against income from ordinary business, salary, house property, capital gains or other sources. Section 114 therefore creates a separate mechanism for adjustment of such specified-business losses.

2. Set-off of Specified Business Loss

Under Section 114, a loss arising from a specified business can be set off only against profits and gains of another specified business carried on by the assessee. It cannot be adjusted against profits from an ordinary non-specified business merely because both incomes fall under the broad head Profits and Gains of Business or Profession. Similarly, the loss cannot ordinarily be set off against income chargeable under other heads. This restriction is commonly described as ring-fencing of losses. If the assessee carries on more than one specified business, a loss from one eligible specified business may be adjusted against profits from another specified business, subject to statutory conditions.

3. Carry Forward of Specified Business Loss

Where the loss from a specified business cannot be wholly set off during the relevant tax year, the unabsorbed loss may be carried forward to subsequent tax years in accordance with Section 114. In a subsequent year, the brought-forward loss can be adjusted only against profits and gains arising from a specified business. It does not become an ordinary business loss merely because it has been carried forward. If sufficient specified-business profit is unavailable in a particular subsequent year, the remaining eligible loss may continue to be carried forward according to the Act. Thus, the special character of the loss is maintained until it is absorbed.

4. Period of Carry Forward

A significant feature of the provisions relating to specified-business loss is the treatment of the period for which an eligible loss may be carried forward. Unlike an ordinary business loss, which is subject to a prescribed limited carry-forward period, specified-business loss is governed by the special rules contained in Section 114. Subject to satisfaction of the applicable statutory conditions, the loss may continue to be carried forward until it can be absorbed against eligible profits of a specified business. Therefore, maintaining proper records of the year of loss, amount carried forward and subsequent set-off is important for determining the remaining loss available for adjustment.

5. Restriction on Inter-Head Adjustment

Loss from a specified business is subject to a strict restriction regarding inter-head adjustment. Such loss cannot ordinarily be set off against salary income, income from house property, capital gains or income from other sources. It also cannot generally be adjusted against profit from an ordinary business that does not qualify as a specified business. The purpose of this restriction is to ensure that special deductions and benefits associated with specified businesses do not reduce unrelated taxable income. Consequently, the loss remains attached to the specified-business category and is available for adjustment only against eligible specified-business profits, whether arising in the same year or subsequent years.

illustration

Suppose an assessee has the following income and loss:

The ₹3,00,000 balance loss cannot be adjusted against the ₹6,00,000 profit from the ordinary business. It remains available for set-off against eligible specified-business profits in subsequent tax years, subject to Section 114.