Indian Income Tax Law | Specified Business Losses

Section 73A of the Income-tax Act, 1961: Set-Off and Carry-Forward of Specified Business Losses

Section 73A ring-fences losses from a specified business referred to in Section 35AD. Such losses may be adjusted only against profits and gains of another eligible specified business, with the unadjusted balance carried forward subject to the applicable statutory conditions.

What is Section 73A?

Section 73A, titled "Carry forward and set off of losses by specified business", governs losses computed for a specified business covered by Section 35AD. A specified business is not simply any business chosen by a taxpayer: it is a business meeting the description and conditions laid down in Section 35AD for the relevant year. Set-off means adjusting a permissible loss against eligible taxable profits. Carry-forward means preserving the unadjusted loss for potential adjustment in later years.

Section 73A(1) and (2): statutory rule

Sub-section (1): restriction on set-off

Any loss, computed in respect of any specified business referred to in section 35AD shall not be set off except against profits and gains, if any, of any other specified business.

Thus, an eligible specified-business loss cannot ordinarily be set off against salary, house-property income, capital gains, income from other sources or profits of an ordinary business that is not an eligible specified business. Profits of a different eligible specified business can be considered for set-off, subject to the law.

Sub-section (2): carry-forward

Where for any assessment year any loss computed in respect of the specified business referred to in sub-section (1) has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee has no income from any other specified business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and-
(i) it shall be set off against the profits and gains, if any, of any specified business carried on by him assessable for that assessment year; and
(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on.

The provision does not itself prescribe an eight-year or four-year outer limit, unlike certain other loss provisions. However, the right to claim carry-forward remains subject to other applicable provisions, return-filing requirements and any later legislative changes.

Legislative history: Section 73A was inserted by the Finance (No. 2) Act, 2009 (Act 33 of 2009), section 28, with effect from 1 April 2010. The statutory text above follows the original uploaded webpage; always consult the law applicable to the relevant assessment year.

What is a specified business under Section 35AD?

Section 35AD provides a special investment-linked deduction, subject to eligibility conditions, for specified businesses. Its statutory list and commencement conditions have been amended over time. Examples of activities that have been covered, subject to statutory dates and requirements, include:

• Setting up and operating a cold-chain facility or a warehousing facility for agricultural produce.
• Building and operating a qualifying hospital or hotel.
• Developing and building certain housing projects under specified government schemes.
• Operating qualifying inland container depots or container freight stations.
• Setting up and operating certain infrastructure facilities, such as slurry pipelines or semiconductor wafer fabrication units, where statutory conditions are satisfied.

These are illustrative categories, not an assurance that every project qualifies. Eligibility depends on the particular clause of Section 35AD, prescribed commencement date, ownership, business use and other requirements. The definition of a specified business for this purpose is contained in Section 35AD(8)(c) of the 1961 Act.

Example: how specified-business losses are adjusted

The remaining Rs. 9,00,000 cannot be absorbed merely because the assessee has Rs. 9,00,000 profit from an ordinary business. It remains restricted to eligible specified-business profits in a subsequent year, subject to the applicable law. This example assumes the loss is otherwise valid and all statutory conditions are met.

How Section 73A differs from other loss provisions

• Section 72: General carry-forward and set-off of non-speculative business losses, ordinarily subject to its separate eight-assessment-year limit.
• Section 73: Restricts losses from speculation business to eligible speculation-business profits and provides a separate four-assessment-year carry-forward rule for relevant years.
• Section 73A: Restricts losses of eligible Section 35AD specified businesses to profits from eligible specified businesses. The section itself does not state a fixed carry-forward limit.
• Section 80 read with Section 139(3): Return-filing conditions for carry-forward of specified categories of loss may affect the claim. Check the relevant statutory text and filing deadlines.

Frequently asked questions

Can a specified-business loss be set off against ordinary business profits?

No. Section 73A(1) restricts the set-off to profits and gains of eligible specified businesses referred to in Section 35AD.

Can the loss be adjusted against profits of a different specified business?

Yes, subject to the applicable conditions. The wording permits set-off against profits and gains of any other specified business.

Does Section 73A prescribe an eight-year carry-forward limit?

No fixed eight-year period appears in Section 73A itself. The availability of the loss nevertheless depends on other applicable provisions and the relevant tax year.

Is every infrastructure or warehousing business automatically a specified business?

No. The precise activity, commencement date and other conditions in Section 35AD must be satisfied.

Official legislation and resources

For the authoritative statutory wording, amendments and rules, consult the Income Tax Department, the Income-tax Act, 1961 on the Income Tax Department portal, and India Code. For the newer legislation, refer to the Income Tax Department's current Acts and Rules resources. Confirm the provision applicable to the tax year concerned before relying on any claim.

This article is general legal and tax information, not a substitute for advice on a particular return, business or assessment.