Inter head adjustment [Section 71] :

Loss under one head of income can be adjusted or set off against income under another head. However, the following points should be considered:

(i) Where the net result of the computation under any head of income (other than „Capital Gains‟) is a loss, the assessee can set-off such loss against his income assessable for that assessment year under any other head, including „Capital Gains‟.

(ii) Where the net result of the computation under the head “Profits and gains of business or profession” is a loss, such loss cannot be set off against income under the head “Salaries”.

(iii) Where the net result of computation under the head „Capital Gains‟ is a loss, such capital loss cannot be set-off against income under any other head.

(iv) Speculation loss and loss from the activity of owning and maintaining race horses cannot be set off against income under any other head.

Illustration
Mr. A submits the following particulars pertaining to the A.Y.2016-17:

Particulars	Rs
Income from salary	4,00,000
Loss from self-occupied property	(-)70,000
Business loss	(-)1,00,000
Bank interest (FD) received	80,000

Compute the taxable income of Mr. A for the A.Y.2016-17.

Solution
Computation of taxable income of Mr. A for the A.Y.2016-17

Particulars	Amount (Rs)	Amount (Rs)
Income from salary	4,00,000
Income from house property	(-) 70,000	3,30,000
Business income	(-)1,00,000
Income from other sources (interest on fixed deposit with bank)	80,000
Business loss to be carried forward	(-) 20,000	–
Gross total income [See Note below]		3,30,000
Less: Deduction under Chapter VIA		Nil
Taxable income		3,30,000

Note: Gross Total Income includes salary income of Rs 3,30,000 after adjusting house property loss. Business loss of Rs 1,00,000 is set off against bank interest of Rs 80,000 and remaining business loss of Rs 20,000 will be carried forward as it cannot be set off against salary income.