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Section 73 of the Income Tax Act, 1961, is crucial for handling losses from speculative businesses. Speculation businesses involve risky bets on prices of commodities or stocks. This section explains how to carry forward and set off those losses.
Understanding Section 73
Carry Forward of Losses:
If you incur losses in a speculation business within a financial year, you can carry forward these losses to set against profits in upcoming years, following specific conditions:
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You must file your income return for the loss year by the due date under Section 139(1).
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Losses can be carried forward for up to four years after the loss year.
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Losses can only offset profits from future speculation business activities.
Set-Off of Losses:
Speculation business losses can only be set off against future profits from the same type of business. You can't use these losses against profits from other business activities or income types. However, you can offset other business losses against speculation business profits.
Example
Suppose Mr. X had a Rs. 1,00,000 loss in speculation business for 2022-23 and filed his return on time. In 2023-24, he earned Rs. 1,50,000 from the same business. He can carry forward his Rs. 1,00,000 loss and set it off against the 2023-24 profit, making his taxable income Rs. 50,000 (Rs. 1,50,000 - Rs. 1,00,000).
Important Points
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Who Can Benefit? Anyone in a speculation business, whether individuals, firms, or companies.
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Speculation Business Definition: Activities in shares, securities, or commodities intended for profit from price differences.
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File On Time: Losses are only eligible for carry forward if you file your income tax return by the due date.
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Proper Documentation: Maintain records like purchase/sale bills and bank statements, as tax authorities may verify claims.
Conclusion
Section 73 allows those in speculation businesses to handle losses over time, provided they comply with specific rules. Accurate record-keeping and timely filing are essential to take advantage of this provision.
