Section 56 of Income Tax Ordinance, 2001 explained set off losses against income tax. It allowed a person, who sustained losses for any tax year under head of income, is allowed to set off losses against the income.
The Federal Board of Revenue (FBR) issued the Income Tax Ordinance, 2001 updated up to June 30, 2021. The Ordinance incorporated amendments brought through Finance Act, 2021.
Following is the text of Section 56 of the Income Tax Ordinance, 2001:
56. Set off of losses.— (1) Subject to sections 58 and 59, where a person sustains a loss for any tax year under any head of income specified in section 11, the person shall be entitled to have the amount of the loss set off against the person’s income, if any, chargeable to tax under any other head of income except income under the head salary for the year.
(2) Except as provided in this Part, where a person sustains a loss under a head of income for a tax year that cannot be set off under sub-section (1), the person shall not be permitted to carry the loss forward to the next tax year.
(3) Where, in a tax year, a person sustains a loss under the head “Income from Business” and a loss under another head of income, the loss under the head “Income from Business shall be set off last.
56A. Set off of losses of companies operating hotels.— Subject to sections 56 and 57, where a public company as defined in the Companies Act, 2017 and registered in Pakistan, Gilgit-Baltistan or Azad Jammu and Kashmir (AJ&K), operating hotels in Pakistan ,Gilgit-Baltistan or AJ&K, sustains a loss in Pakistan ,Gilgit-Baltistan or AJ&K for any tax year under the head “income from business” shall be entitled to have the amount of the loss set off against the company’s income in Pakistan, Gilgit-Baltistan or AJ&K, as the case may be, from the tax year 2007 onward.
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