Carry forward and set off of loss in the case of change in the constitution of firm:
Section 78, provides that where there is a change in the contribution of the firm on account of death/ retirement, the firm shall not be entitled to carry forward losses (case of retirement, death or goes out of the firm) as is attributable to such partner.
Carry forward of house property loss, business loss, capital loss and loss from the activity of owning and maintaining of horse races-
There loss can be set off and carried forward by a firm in the case of change in the constitution of the firm, as follows, as per the modified provision of section 78:
- Compute the share of outgoing partners in the profit or loss of the firm in the year of change in the constitution of the firm.
- Compute the share of loss of outgoing partner in the brought forward loss.
- The difference between the two is cannot be allowed to be carried forward and set off.
Carry forward of unabsorbed depreciation –
As section 78 is not applicable in case of unabsorbed depreciation, the entire unabsorbed depreciation (Without deducting share of outgoing partner) will be carried forward by the reconstituted firm.