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What is Negative Income Tax?/ Do I Have to Pay Tax if I’m Suffering Losses

dateKnowledge Centre Team dateNovember 6, 2020 views123 Views 4 Minute Read

What is Negative Income Tax?/ Do I Have to Pay Tax if I’m Suffering Losses

Income tax is defined as the taxes paid on the income earned by individuals and entities such as companies or partnerships. The Indian taxation system is defined as progressive, which means that the higher the amount of income you earn; the higher is the tax you are liable to pay.

There are several tax brackets, which increase in accordance with increasing income. However, the taxation system for salaried employees differs quite significantly from the taxes levied on self-employed individuals or those running their own personal business.

If you have ever wondered what is negative income tax, and whether it applies to you, you should continue reading below. Negative income tax comes into mention in a year when you have suffered losses, and not earned any income. This is applicable only to self-employed individuals, since if salaried individuals do not earn any income in a particular year, they fall into the 0 tax bracket which implies they are not liable to pay any taxes.

However, income can stem not only from one’s salary but also through their investments, whether on property or equity or even metals such as gold. If you are concerned about your investment instruments and the returns you are earning on them, you should consider investing in the Invest4G Plan available on Canara HSBC Oriental Bank of Commerce Life Insurance. This Unit Linked Insurance Plan (ULIP) not only offers both coverage and returns, but also enables you to invest across 7 different funds with the option to choose from 4 different investment strategies.

The Income Tax Act, 1961 lists different provisions, deductions and exemptions applicable to individuals and entities who are liable to pay taxes in India. Section 139(3) of the Act refers to the negative income tax provisions, and states that companies, firms and self-employed persons are required to file income tax returns (ITR) even if losses have been suffered by them in the year under purview.

Filing an ITR in the year you suffer losses allows you to offset those losses in the future years. This can be done by adjusting profits in the following years with losses in the current year, and furthermore, this ensures that your profits in the following year do not significantly increase your tax burden.

There are several provisions with regard to filing ITRs under Section 139(3) of the Income Tax Act, 1961. Read on below to learn about what is negative income tax, and whether you need to file ITR if you have suffered a loss this year.

1. ITRs have to be filed for losses that have been incurred as Capital Gains or as Profits and Gains of Business and Profession, if you wish to offset the loss of the current year and profits from the following years

2. It is important to file ITRs within the due date if you wish to offset those losses. However, even if you have failed to file ITR for losses in the current year within the due date, it is possible for you to carry forward the losses of previous years if the ITRs filed in previous years were before the due date, and have already been assessed by the relevant authority.

3. If the losses sustained in your capacity as a self-employed individual or a legal entity can be set off against any income earned in the same accounting year, that will be allowed even if the ITR is filed later than the due date. That is why, even if you have a business, it is advisable to invest a certain sum towards ULIPs such as the Invest4G Plan, available on Canara HSBC Oriental Bank of Commerce. The fund allows you to flexibly choose between 7 different funds and utilise 4 different portfolio strategies to take complete advantage of the prevailing market situation as well as align with your changing risk preference.

4. An ITR need not be filed if the losses have incurred under the head of “House Property”. Losses suffered under this head can be carried forward even with the returns being filed post the due date. This allows individuals with housing loans to continue reaping the benefit of earning deduction on their interest payment of the loan, even if they file the ITR late, owing to Section 24 under the Income Tax Act, 1961.

Filing of ITRs is an essential duty of every Indian citizen. It allows you to maintain your taxation records in an organised way, and allows you to reap benefits in the future. However, if you are currently facing losses owing to your business, it is best to look for benefits early and invest in ULIPs such as the Invest4G Plan, available on Canara HSBC Oriental Bank of Commerce. This plan not only gives you coverage for your life and ensures your dependents are taken care of, but also allows you to make partial withdrawals in the near future to meet any unexpected financial emergencies.


Hi, I am Prince Doshi, I am a qualified chartered accountant and practicing for over 9 years and provide advisory services in the field of Direct and Indirect taxes, Audits, GST implementation, MIS, and more... As a practicing CA, I have at various points come across the term Negative Income Tax. I've found people equally confused and intrigued by this term. In today's video as a part of the tax video series initiative by Canara HSBC Oriental bank of commerce life Insurance Company, let's tackle this concept of Negative Income Tax.

There is nothing like negative income tax. So, in case a taxpayer is suffering losses, he need not pay any tax on the same.

On the contrary, the taxpayer is eligible to carry forward the said loss to subsequent years and set off the same against the subsequent year's income. For example, if a taxpayer has a loss of rupees 5 lakh in the financial year 2018-19 and earned profit of rupees 2 lakhs in the financial year 2019-20, then in the financial year 2019-20 the taxpayer can set off his income of rupees 2 lakh against previous year loss and can further carry forward balance 3 lakhs to subsequent years. In that case provisions of set-off and carry forward loss need to be complied by the taxpayer and income tax return needs to be file within specified timelines notified by the act.

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