Section 71 of ITA, 1961 : Section 71: Set Off Of Loss From One Head Against Income From Another

Explanation using Example

Example of Section 71 of The Income-tax Act, 1961:

Rahul, a software developer, has two sources of income in the financial year - his salary of INR 1,000,000 and a rental property that incurs a loss of INR 300,000. According to Section 71(1), he can set off the loss from the rental property against his salary income. Therefore, his taxable income for the year would be INR 700,000 (1,000,000 salary - 300,000 loss from house property).

However, if Rahul's loss from the rental property was INR 400,000 instead, due to Section 71(3A), he could only set off INR 200,000 of this loss against his salary, leaving him with a taxable income of INR 800,000 (1,000,000 salary - 200,000 set off loss) and a carry forward loss of INR 200,000 which can be set off in subsequent years.