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      Income Tax

      Comparison of Section 115 "Set off and carry forward of losses from specified activity." between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

      2 September, 2025

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      Section 115 Set off and carry forward of losses from specified activity.

      Income-tax Act, 2025

      At a Glance

      This document is the old version of Clause 115 of the Income Tax Bill, 2025 (entitled "Set off and carry forward of losses from specified activity") as compared to Section 115 of the Income-tax Act, 2025. It governs the manner in which losses arising from the activity of owning and maintaining race horses may be set off and carried forward. The rule primarily affects taxpayers engaged in the specified activity (owners/maintainers of race horses) and the tax administration. Effective date or decision date: Not stated in the document.

      Background & Scope

      Statutory hooks: Clause 115 of the Income Tax Bill, 2025 (Old Version) addresses "set off, or carry forward and set off of losses" specifically for the "specified activity" defined as owning and maintaining race horses. The provision establishes the scope of set off (against income from the same specified activity only), the carry forward regime for unabsorbed losses, the temporal limit for carry forward (four succeeding tax years), and specific definitions related to stake money, loss computation, and race horses. The text provides definitions for key terms (see clause sub-section (4)).

      Statutory Provision Mode

      Text & Scope

      Clause 115 governs losses from a narrowly defined activity: owning and maintaining race horses. Key elements: (1) prohibition on setting off such losses against income other than income from the specified activity in the same tax year; (2) carry forward of unabsorbed loss to subsequent year(s), available only to be set off against income from the specified activity in the year(s) when that activity is carried on by the assessee; (3) carry forward limited to four tax years immediately succeeding the year in which the loss was first computed; (4) definitions of "income by way of stake money", "loss incurred by the assessee in the specified activity", "race horse", "specified activity", and "unabsorbed loss from the specified activity".

      Interpretation

      The text evidences a legislative intent to ring-fence losses arising from race-horse ownership - preventing cross-subsidy of other income streams with losses from this activity. Interpretive principle indicated: losses attributable to the specified activity are to be matched to income from the same activity and may be deferred for a limited period only. The clause's explicit definitions constrain the scope of losses and the class of horses/activities covered.

      Exceptions/Provisos

      No express exceptions beyond the stated rule are contained in Clause 115. The clause does not provide any proviso allowing cross-set off, nor any alternative treatment for amalgamations, transfer of business, or change in ownership. "Only when the specified activity is carried on by the assessee in that tax year" conditions availability of set off - effectively an operational proviso. Other exceptions: Not stated in the document.

      Illustrations

      • Example 1: An assessee incurs a loss of X in tax year N from owning race horses and has no stake money income in year N. Under Clause 115, the loss cannot be set off against other incomes in year N and will be carried forward as an "unabsorbed loss" to year N+1 and may be set off only against stake-money income of the specified activity in N+1, and only if the assessee carries on that activity in N+1.
      • Example 2: If the assessee carries forward the loss for four succeeding tax years and by the end of the fourth succeeding year there remains an unabsorbed amount, that unabsorbed loss cannot be further carried forward (i.e., it expires after four years).

      Interplay

      Clause 115 operates as a specific rule for race-horse activity; the document does not state how it interacts with other provisions, such as general set-off/carry-forward rules, clubbing provisions, transfer pricing, or provisions applicable on change of ownership. Interplay with rules, notifications, or circulars: Not stated in the document.

      Differences between Section 115 of the Income-tax Act, 2025 and Clause 115 of the Income Tax Bill, 2025 - (Old Version) and Practical Impact

      • Placement and Wording of Prohibition on Cross-set off: - Bill (Old Version) Clause 115(1) states expressly that loss from specified activity "shall not be set off against the income, if any, from any source other than specified activity for the said tax year." - Act Section 115(1) states the converse positive rule: "Any loss incurred by the assessee in specified activity in any tax year shall be set off only against income from specified activity."
        • Practical impact: Substantively both formulations express the same limitation (losses cannot be set off against other income). The Act's positive phrasing ("shall be set off only against") may be marginally clearer for computation language; the Bill's negative phrasing ("shall not be set off against") emphasises the prohibition. No substantive change in tax outcome is apparent from wording alone.
      • Carry Forward Mechanism and Language: - Bill Clause 115(2) uses "unabsorbed loss ... shall be carried forward to the subsequent tax year and shall be set off ... only against the income from specified activity" and additionally conditions set off "only when the specified activity is carried on by the assessee in that tax year." - Act Section 115(2) describes a stepwise carry forward: if loss cannot be wholly set off under sub-section (1), it "shall be carried forward ... and (i) be set off against the income, if any, of the specified activity carried on by him for such tax year; and (ii) if the loss cannot be wholly so set off, the amount ... shall be carried forward" iteratively.
        • Practical impact:The Act retains the Bill's substance but provides sequential mechanics (set off then carry forward) in enumerated sub-clauses. The Bill expressly conditions set off on the assessee carrying on the specified activity in that subsequent year; the Act mirrors that by requiring "income ... of the specified activity carried on by him for such tax year." Substance is equivalent; Act's structured wording clarifies operational sequence for practitioners preparing computations.
      • Temporal Limit on Carry Forward: - Both texts limit carry forward to four tax years following the year of computation (Clause 115(3) Bill and Section 115(3) Act). Wording is substantively identical.
        • Practical impact: No change; loss expiry remains the same period.
      • Definitions/Glossary Differences: - Both texts define "income by way of stake money", "loss incurred ...", "specified activity" and relate to race horses. Differences in phrasing: Bill defines "race horse" as "a horse upon which wagering or betting may be lawfully made in a horse race"; Act defines "horse race" and "race horses" separately and explicitly includes "horse race upon which wagering or betting may be lawfully made" and "horses owned and maintained by assessee for running in a horse race." - Bill includes an additional defined term "unabsorbed loss from the specified activity" absent from the Act text.
        • Practical impact: The Act breaks out terms slightly differently (introducing "horse race", "race horses") potentially aiding clarity on the subject-matter; the Bill's explicit definition of "unabsorbed loss" provides a specific label for losses carried forward in that clause. Functionally, definitions align closely; no substantive change to tax treatment is evident.
      • Stylistic and Structural Reordering: - The Act presents definitions under subsection (4) and enumerates subparagraphs (a)-(e) with slightly different ordering and labelling; the Bill uses similar subparagraphs (a)-(e).
        • Practical impact: Purely drafting/formatting differences without substantive divergence in tax consequences.

      Practical Implications

      • Compliance and risk areas: Taxpayers engaged in the specified activity must ensure losses from race-horse activity are identified separately and not set off against other income streams in the same year. Risk arises if losses are erroneously set off against other income sources or carried forward beyond four years.
      • Record-keeping/evidence points: The text implies the need to maintain distinct records showing stake money receipts, expenditure incurred wholly and exclusively for maintaining race horses (non-capital), and proof that the specified activity was carried on in subsequent years (to claim set off). The clause does not prescribe specific documentary norms or forms. Procedural requirements: Not stated in the document.

      Key Takeaways

      • Losses from owning and maintaining race horses are ring-fenced and may only be set off against income from the same specified activity in the relevant year.
      • Unabsorbed loss may be carried forward but only to be set off against future income from the specified activity and only when that activity is carried on by the assessee in the subsequent year(s).
      • Carry forward period is limited to four tax years immediately succeeding the year in which the loss was first computed.
      • Key definitions narrow scope: "income by way of stake money", "loss incurred", "race horse", and "specified activity".
      • The clause does not state exceptions, transitional rules, procedural formalities, or interactions with other tax provisions.

      Full Text:

      Section 115 Set off and carry forward of losses from specified activity.

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      ActsIncome Tax
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