Carry Forward & Set-off of losses - Section 78 - Income Tax - Ready Reckoner - Income Tax

Carry Forward Set-off of losses - Section 78 (1) The losses and unabsorbed depreciation can be carried forward by a firm only. (2) Section 78(1) provides that where a change in constitution of firm takes place on account of retirement of partner or death of the partner then, the firm shall not carry forward and set off so much of the loss proportionate to the share of a retired or deceased partner as exceeds his share of profits, if any, in the firm in respect of the previous year. In other words, it does not apply when there is a change in the profit sharing ration or change in the constitution because of induction of a new partner. The loss for the purpose of section 78(1) and (2) above does not only mean loss under the head profit or gains from business or profession, it means loss under any head of income. Notes: Section 78(1) does not apply if change in constitution takes place on admission of a new partner or if all partners remain with a change in profit sharing ratio. Section 78(1) does not apply to unabsorbed depreciation shall be carried forward by the firm even if a partner retires or dies in the previous year.