The provisions of filing of income tax returns in case of Loss are governed by Section 139(3) of the Income Tax Act which states that in case a taxpayer has incurred a loss in the previous year, it is not mandatory for him to file an income tax return for the same. However, this does not apply to Firms and Companies as they are required to file an income tax return even in case of loss.
Provisions of Section 139(3) in case of Loss
- If there is a loss arising under head Capital Gains or under head “Profits and Gains of Business and Profession”, filing of return would be mandatory if this loss is to be carried forward to the next year and set-off against future income. The Income Tax Return showing the loss should be filed on or before the due date if this loss is to be carried forward to the next year and set-off against future income.
- However, in case there is loss arising under head House Property it would be allowed to be carried forward even if the income tax return is filed after the due date of filing of return.
- However, in case the loss is to be set-off against some other income arising in the same year, it is allowed to be set-off even if the return is filed after the due date of filing of returns.
- In case the taxpayer has submitted return of loss in response to a notice under Section 142(1), such loss cannot be carried forward unless it is a loss under head income from house property. However, the unabsorbed depreciation can be carried forward in this case.
- Although the loss of the current year cannot be carried forward unless the return of loss is submitted before the due date but the loss of earlier years can be carried forward if the return of loss of that year(s) was submitted within the due date and such loss has been assessed.
Benefit of Filing Income Tax Return in case of Loss
The most important benefit of filing income tax returns in case of loss is that it the loss can be carried forward to the future years and can be set-off against income arising in the future years. This will reduce the taxable income of the future years leading a reduction in the tax payable in future years.
Therefore it is highly recommended to file income tax returns even in case of Loss.