Net operating loss

Net Operating Loss (NOL) happens when a business’s operating expenses are higher than its operating income in a given year. It shows that the company spent more on running its regular operations than it earned.

Calculation:

NOL = Operating Expenses – Operating Income

(Only includes normal business income and expenses, not investments or extraordinary items.)

Importance: Many tax systems allow businesses to carry forward or carry back NOLs, reducing future or past taxable income, which helps manage taxes during loss-making years.

Example: A trader earns ₹5,00,000 from sales but has ₹7,50,000 in operating expenses. The NOL is ₹7,50,000 – ₹5,00,000 = ₹2,50,000. This loss can be used to lower taxable income in future years if allowed by tax rules.