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Drumbeat: Ad Buzzaar
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Tuesday, June 23, 1998
Recoup your business losses with the tax angle firmly in mind
B S Jindal & Akhil Jindal
Losses in business is a bad word. But in a long-term business, sometimes it is essential to face business losses on account of capitalisation and initial teething trouble of the business. Some times losses are incurred due to changes in circumstances and wrong planning. As a prudent businessman, one has to ensure that such losses are recouped in the later years and also from the tax angle all these are adjustable against the business income which accrues in future years. There are certain conditions and limitations which one should keep in mind while planning for the profitability of the business. To be allowed as admissible business loss, the income tax laws provide certain restrictions which are: Business losses can be allowed as deduction only if they are: Revenue in nature
Incurred during the financial year
Are incidental and for the purposeof businessBusiness loss would be allowed to be carried forward and set off against future year's profits and gains only after thecommencement of business. Such losses can be carried forward for a maximum period of eight assessment years in which such loss is computed. The admissibility of carry forward losses is further subject to the fulfillment of the following conditions: q The loss can't be carried forward unless it is determined in pursuance of the return filed by the assessee. It is therefore, to be ensured that the return in respect of which loss is to be claimed is filed within the stipulated time as per the tax laws. It is further provided that business in respect of which set off of losses is claimed must be carried on in the assessment year in which such set off is to be given. The loss can be carried forward and set off against the profits of the same assessee who incurs the loss. There are certain limitations provided under the tax laws in respect of set off of carry forward of losses of closely held companies. In order to ensure that the benefit of carried forward losses of earlier years is not lostthe shareholding pattern in the year which the loss is incurred should be retained to the extent of 51 per cent of the existing shareholding till the year in which the set offof loss is claimed. Loss in a speculative business can be carried forward for subsequent assessment years and can be set off against profit of speculative business. -- The Jindals are Delhi based chartered accountants Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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