QS Study

Set off losses: Losses of one head of income are allowed to set off against the income from other heads. But the rule for such setting off of losses is not common for all types of assesses and business.

Carry forward of losses: Losses which cannot be set off in the year of loss can be carried forward for set off in the subsequent years to some terms and conditions.

Set off and carry forward of unabsorbed depreciation:

According to the ITO, 1984, it is not possible to charge allowable depreciation allowance against income if it results in the loss of a business or profession. But such allowance can be charged against income until the result is not a loss.

That portion of allowable depreciation which is not possible to charge against income is known as unabsorbed depreciation.

Followings are the key points that explain features of unabsorbed depreciation:

  1. Because of allowable depreciation allowance, one cannot show a negative profit in his/her business or profession.
  2. When there is a profit before depreciation, one can only charged that much of allowable depreciation allowance against such profit which does not result in a loss for the business or profession.
  3. Unabsorbed depreciation can be carried forward for an unlimited time period
  4. After any forward effects shall first be given for business losses and losses from speculation business before giving an effect of unabsorbed depreciation.
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