Loss relief

Loss relief refers to the provision in tax laws that allows a taxpayer to reduce their taxable income by offsetting business or investment losses against profits, either from the same year, previous years, or future years. The objective is to ensure that tax is levied on the net income over time, rather than on profits from profitable periods alone.

Key Forms of Loss Relief:

1. Carry-Forward of Losses: Losses incurred in one year can be carried forward and set off against profits in future years.

Example: A business has a ₹5 lakh loss in FY 2023–24 and a ₹7 lakh profit in FY 2024–25. It can carry forward the ₹5 lakh loss and pay tax only on the remaining ₹2 lakh profit in FY 2024–25.

1. Set-Off in the Same Year: A loss can be set off against other sources of income within the same year. Example: A taxpayer has a ₹2 lakh business loss but ₹3 lakh rental income in the same year. The loss can be set off, and tax will apply only to the ₹1 lakh net income.