If you have suffered a loss in income in a particular year, you are not mandated to file an Income Tax Return (ITR) for that particular assessment year, under Section 139(3) of the Income Tax Act. But this can be done only if the assessee is an individual. Firms, companies and persons involved in business or self-employment have to file an ITR even if they have suffered losses.
Section 139(3) Of The Income Tax Act:
If you are incurring a loss and expect the loss to be offset in the future years, then you need to file an Income Tax Return. So if you intend to adjust the profits of the future years against the loss occurred in this year and reduce your tax burden in the next year, it is mandatory for you to file an ITR, or else you won’t be allowed to offset the loss and profit.
Under Section 139(3), an Income Tax Return has to be filed in the following circumstances:
- If the loss occurs under ‘Capital Gains’ or ‘Profits and Gains of Business and Profession’, then you must file a return if the loss is to be carried forward to the next year and be offset against future income.
- If the loss occurs under ‘House Property’, then an ITR need not be filed, and the loss can be carried forward even if the return is filed after the due date. So anyone with a housing loan who files their return late can still get the benefit of deduction on interest payment on the loan under Section 24 of the Income Tax Act.
- The loss of income in the current year cannot be carried forward if an ITR reporting the loss has not been filed within the due date. But the loss of earlier years can be carried forward if returns have been filed for those losses on time and has been assessed by the taxman.
- If the loss would be offset against an income within the same year, the setting off will be allowed even if the return is filed after the due date.
- Even if an ITR has been filed reporting loss after receiving a notice under Section 142(1), that loss cannot be carried forward to the next year unless it is under ‘House Property’. The unabsorbed depreciation, however, can be carried forward.
- Whatever loss is carried forward, can be offset only against similar heads in the next year. For example, a loss in Capital Gains can only be offset against another capital gain in the following years.
It is important to remember that if you have been filing ITR for a few years consistently, it is better to file your return even if your income is below the taxable limit or if you have incurred a loss. This is because the Income Tax department is likely to consider this as an aberration and send you a notice for non-filing of income tax return.