Can you carry forward losses if filing income tax return (ITR) late? Know how to do it
The income tax law allows you to carry forward certain losses for up to 8 years and then offset the loss with specified incomes such as house property, capital gains, etc. This helps reduce your total taxable income, ultimately resulting in a lower tax payment. To benefit from offsetting the loss in the future, you need to ensure that the losses are carried forward until you have relevant income to offset against. However, the deadline for filing ITR for individual taxpayers with no audit requirement has passed. So, the important question is whether you can still benefit from this if you file your ITR late. Read on to find out.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} In order to determine the exact amount of losses incurred for the current financial year that has been accepted by the tax department, you should refer to section 143(1) or 154 intimation order. This intimation order is issued after the tax department has successfully processed your income tax return (ITR) and will only display losses related to the current financial year. If you have losses from the previous financial year, you should verify their status in the respective earlier financial year intimation 143(1)/154 orders. This information about losses is crucial for accurate tax planning and tax loss harvesting purposes.
“In order to be able to carry forward current year losses, the taxpayer must ensure that the income tax return is submitted within the due date as per section 139 (1) and that necessary verification of the return has been completed in a time bound manner. Carry forward of current year losses is not permissible if the return was submitted after the due date specified in section 139(1) of the Act. Further, the intimation order u/s 143(1)/154 provides an amount of loss arising from the current assessment year only. For amounts of carry forward loss pertaining to earlier assessment year, kindly check the intimation order u/s 143(1)/154 for the relevant AY,” said the Income tax department.
CA (Dr.) Suresh Surana explains what the tax department means by the above explanation. “This means that the intimation order will reflect losses that have arisen in the current assessment year only. This means that if a taxpayer has incurred a loss in the financial year relevant to the current AY, it will be acknowledged in this present order.”
What happens to losses not mentioned in the current financial year’s intimation order?
According to Surana, the losses from previous years are mentioned in that respective year’s intimation orders and are considered carry-forward losses.
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“For losses carried forward from earlier assessment years, the taxpayer needs to refer to the specific intimation orders for those years. These losses can be carried forward to subsequent years and set off against future income, subject to certain conditions. The statement from the tax department indicates that the intimation order received will only reflect losses from the current assessment year,” says Surana.
Which types of losses can you carry forward for set-off in future years?
According to chartered accountant Abhishek Soni, co-founder, Tax2Win, here are the eligible losses that you can carry forward for set-off in future assessment years:Losses under Income from house property
If losses under house property are not fully adjusted in the same financial year in which losses were incurred, they can be carried forward to the next 8 years. Such losses can be adjusted only against income from house property and can be carried forward even though ITR is filed after the due date specified under section 139(1).Table 1: Losses that can be carried forward for set-off against income in future assessment years
SectionLosses can be carried forwardSet off against Income fromTime limitation for carry forward71BLoss from House propertyHouse property8 Years72Business and professionBusiness and profession8 Years73Loss from speculative businessSpeculative business4 Years73ALoss from specified businessSpecified businessNo time limit74Short term capital lossShort term capital gain and long-term capital gain8 Years74Long term capital lossLong term capital Gain8 Years74ALoss from owning and maintaining horse racesOwning and maintaining horse races4 YearsSource: Tax2Win
Losses from non-speculative business
If losses under business or profession (non-speculative business) are not fully adjusted in the same financial year in which losses were incurred, they can be carried forward to the next 8 assessment years. Such losses can be adjusted only against income from business or profession and can only be carried forward if the ITR is filed on or before the due date as per section 139(1). The business from which such loss is incurred doesn't need to be in continuance to carry forward losses.Losses under specified business (section 35AD)
If losses under specified business are not fully adjusted in the financial year in which losses were incurred, they can be carried forward to infinite numbers of years. Such losses can be adjusted only against income from the specified business under 35AD and can only be carried forward if the ITR is filed on or before the due date specified under section 139(1).Losses from capital gains
If not fully adjusted in the financial year in which losses were incurred, capital losses can be carried forward to the next 8 assessment years.● LTCG: Long-term capital losses can only be adjusted against income from the LTCG. i.e., long-term capital gains.
● STCG: Short-term capital losses can be adjusted against both LTCG and STCG, i.e., long-term capital gains and Short-term capital gains.
“These losses can only be carried forward if the ITR is filed on or before the due date specified under section 139(1),” says Soni.
Losses from speculative business
If losses under speculative business are not fully adjusted in the same financial year in which losses were incurred, they can be carried forward to the next four assessment years. Such losses can be adjusted only against income from the speculative business and can only be carried forward if the ITR is filed on or before the due date under section 139(1). It is not necessary that the business from which such loss is incurred should be in continuance to carry forward losses. You can only carry forward these losses if you file the ITR on or before the specified deadline.loss from Racehorse activity
Losses from owning and maintaining racehorses can be carried forward for the next 4 financial years if not fully adjusted in the previous year in which losses were incurred. “Such losses can be adjusted against income from owning and maintaining racehorses and can only be carried forward if the ITR is filed on or before the due date under section 139(1),” says Soni.Can you carry forward losses for set-off if ITR is filed belated?
Once the ITR filing deadline has passed, you can only file a belated ITR, for which some individuals have to pay a penalty. The deadline for filing ITR was July 31, 2024, for individuals not liable for tax audit and October 31, 2024 for individuals not liable for income tax audit. According to experts, the tax department only allows certain types of losses to be carried forward if the tax return is filed after the deadline.
Surana explains: “Section 80 provides that no losses except loss under the head ‘House Property’ and unabsorbed depreciation can be carried forward for the purpose of set off if the ITR is filed belatedly. As such any other losses such as business loss (excluding unabsorbed depreciation) or speculative loss or capital losses or loss from income from other sources have to be claimed by filing the tax return within the specified due date under section 139(1). It is pertinent to note that such restriction on carry forward is only applicable for the year in which such loss was incurred and not for the year in which such loss was claimed. The said provision would apply irrespective of the applicability of tax audit.”
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This story originally appeared on: India Times - Author:Faqs of Insurances
