What are the provisions framed under the Income-tax law in relation to carry forward and set off of loss from speculative business?
There are detailed provisions relating to this topic in the IT Act. But mainly,
- Loss from speculative business transactions in a year can be set off ONLY against profit from speculative business transactions/activity in that year;
- Losses that cannot be set off in the same year can be carried forward for the next 4 assessment years, but to be set off against income from speculative transactions ONLY.
One need to clearly understand what is a speculative business transaction for this purpose.
Normally, trading in shares/commodities without taking delivery, to be closed/settled at a future time/date, on a net (profit or loss) basis is speculative business.
However, contrary to a general notion, trading/hedging in derivatives (forwards, futures and options in shares, currency, commodities and indices) has been classified as not speculative transactions, but are treated as trading business.
If loss of any speculative business cannot be fully adjusted in the year in which it is incurred, then the unadjusted loss can be carried forward for making adjustment in the next year. In the subsequent year(s) such loss can be adjusted only against income from speculative business (may be same or any other speculative business).
Loss from speculative business can be carried forward only if the return of income/loss of the year in which loss is incurred is furnished on or before the due date of furnishing the return, as prescribed under section 139(1).
Such loss can be carried forward for four years immediately succeeding the year in which the loss is incurred.
Above provisions are not applicable in case of unabsorbed depreciation of speculative business.
Hope this helps.