This chapter-wise practice test covers Taxation - DT Ch 08: Clubbing Setoff - Test 3 for CA Intermediate Group 1 students preparing for the May 2027 examination attempt. It carries 40 marks across 20 questions in case scenarios and standalone practical MCQs with a time limit of 45 minutes and no negative marking.
20 questions across 1 chapter, 40 marks and 45 minutes in the timed paper. Every answer below is shown with the working behind it and the authority it rests on.
Law and standards used: Income-tax Act, 2025 (as incorporated in ICAI Study Material for May 2027); Income-tax Act, 1961 as amended by Finance Act applicable for May 2027; ICAI CA Intermediate Study Material (May 2027 Examination).
Questions
20
Marks
40
Time limit
45 minutes
Attempt
May 2027
Group
Group 1
Law basis
Income-tax Act, 2025 (as incorporated in ICAI Study Material for May 2027); Income-tax Act, 1961 as amended by Finance Act applicable for May 2027; ICAI CA Intermediate Study Material (May 2027 Examination)
Content as of
2026-10-31
Chapters covered
Taxation - DT Ch 08: Clubbing Setoff (20 Q)
Questions, answers and explanations
Question 1 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard
Scenario. Mr. Aditya Vardhan, a resident individual aged 45, furnishes the following particulars for FY 2026-27. He has salary income (computed) of ₹8,50,000. He owns two let-out house properties: House A generates income of ₹1,20,000, while House B suffers a loss of ₹(3,40,000). He operates two non-speculative businesses: Business X earns ₹2,00,000, while Business Y incurs a loss of ₹(1,50,000). He also deals in speculative transactions: Speculative business P suffers a loss of ₹(80,000), while Speculative business Q earns ₹30,000. His capital transactions include a long-term capital gain on sale of land of ₹1,50,000, a long-term capital loss on sale of shares (STT not paid) of ₹(2,20,000), and a short-term capital loss on sale of listed shares (STT paid) of ₹(60,000). He earns interest income of ₹40,000. He has brought forward business loss of FY 2024-25 of ₹(70,000), brought forward house property loss of FY 2025-26 of ₹(50,000), brought forward long-term capital loss of FY 2024-25 of ₹(40,000), and brought forward speculative business loss of FY 2025-26 of ₹(25,000). He has opted out of the default tax regime under section 115BAC and seeks your advice on the computation of total income and the amounts eligible for carry forward.
What is the income or loss under the head 'Income from house property' after intra-head set-off for Mr. Vardhan?
₹1,20,000
₹(2,20,000) (correct answer)
₹(3,40,000)
₹(1,00,000)
Answer: B — ₹(2,20,000)
Explanation. Section 70 permits intra-head set-off of loss from one house property against income from another house property. House A income is ₹1,20,000 and House B loss is ₹(3,40,000). Net result = ₹1,20,000 - ₹3,40,000 = ₹(2,20,000). This is a loss under the head 'Income from house property'.
Where it goes wrong. Students may set off the house property loss against salary or business income, or incorrectly compute the net figure.
Authority. Section 70 of the Income-tax Act, 1961
Question 2 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard
What is the amount of non-speculative business loss to be carried forward to FY 2027-28?
₹20,000 (correct answer)
₹50,000
₹70,000
₹95,000
Answer: A — ₹20,000
Explanation. Non-speculative business X ₹2,00,000 less business Y ₹(1,50,000) = net ₹50,000. Brought forward business loss of ₹70,000 is set off to the extent of ₹50,000. Balance ₹20,000 is carried forward under section 72. Speculative loss is computed separately and does not affect this figure.
Where it goes wrong. Students may set off the brought forward business loss against speculative income or fail to compute the net non-speculative figure.
Authority. Section 70 of the Income-tax Act, 1961; Section 72 of the Income-tax Act, 1961
Question 3 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium
What is the amount of taxable capital gains after intra-head set-off for Mr. Vardhan?
₹1,50,000
₹90,000
Nil (correct answer)
₹(1,10,000)
Answer: C — Nil
Explanation. LTCG ₹1,50,000 is set off against LTCL ₹2,20,000, resulting in net LTCL of ₹70,000. STCL of ₹60,000 cannot be set off against anything because there is no STCG. Brought forward LTCL of ₹40,000 remains. Total LTCL to be carried forward = ₹70,000 + ₹40,000 = ₹1,10,000. Taxable capital gains = Nil.
Where it goes wrong. Students may set off LTCL against STCL, or set off STCL against LTCG in the wrong order.
Authority. Section 70 of the Income-tax Act, 1961
Question 4 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard
What is the total income of Mr. Vardhan for FY 2026-27?
₹8,90,000
₹6,50,000
₹7,10,000
₹6,90,000 (correct answer)
Answer: D — ₹6,90,000
Explanation. Salary ₹8,50,000 less house property loss set off (capped at ₹2,00,000) = ₹6,50,000. Add other sources ₹40,000 = ₹6,90,000. Business income is nil after set-off of brought forward loss. The unabsorbed house property loss of ₹20,000, business loss of ₹20,000, speculative loss of ₹75,000, STCL of ₹60,000, and LTCL of ₹1,10,000 are carried forward.
Where it goes wrong. Students may set off the entire house property loss of ₹2,20,000 or set off business loss against salary.
Authority. Section 71 of the Income-tax Act, 1961
Question 5 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium
Scenario. Ms. Meera Nair, a resident individual aged 38, has the following income and losses for FY 2026-27. She earns salary income (computed) of ₹6,00,000. She suffers a loss from a let-out house property of ₹(2,80,000). She operates proprietary business A, which earns ₹1,50,000, and proprietary business B, which was discontinued during the year and suffered a loss of ₹(4,00,000). She has a long-term capital gain on sale of property of ₹2,00,000 and a short-term capital loss on sale of shares of ₹(1,20,000). She earns income from other sources of ₹30,000. She has brought forward business loss of FY 2023-24 of ₹(1,00,000) and brought forward long-term capital loss of FY 2024-25 of ₹(80,000). She filed her return of income for FY 2026-27 on 31 December 2026, while the due date under section 139(1) was 31 July 2026. The delay was due to her accountant's oversight, and she has no other income. She has opted out of the default tax regime and seeks to determine the set-off of losses and the amounts that can be carried forward, considering the delay in filing the return.
How much of the house property loss of ₹2,80,000 can Ms. Nair set off against other heads under section 71?
₹2,80,000
₹2,00,000 (correct answer)
₹80,000
Nil
Answer: B — ₹2,00,000
Explanation. Under the optional regime, section 71 permits set-off of house property loss against income under other heads up to ₹2,00,000. Since the loss is ₹2,80,000, only ₹2,00,000 can be set off. The balance ₹80,000 is carried forward under section 71B for up to 8 years.
Where it goes wrong. Students may set off the entire loss of ₹2,80,000 or forget the ₹2,00,000 cap under the optional regime.
Authority. Section 71 of the Income-tax Act, 1961
Question 6 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard
What amount of business loss can Ms. Nair set off against other heads of income for FY 2026-27?
₹1,10,000 (correct answer)
₹1,50,000
₹2,50,000
₹80,000
Answer: A — ₹1,10,000
Explanation. Net business loss = ₹4,00,000 - ₹1,50,000 = ₹(2,50,000). Business loss cannot be set off against salary. It can be set off against LTCG of ₹80,000 (after STCL set-off) and other sources of ₹30,000, totalling ₹1,10,000. The remaining ₹1,40,000 is carried forward, but late filing affects its carry forward under section 80.
Where it goes wrong. Students may set off business loss against salary or set off the entire loss against capital gains without considering STCL.
Authority. Section 71 of the Income-tax Act, 1961
Question 7 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard
What is the amount of capital loss that can be carried forward to FY 2027-28 by Ms. Nair?
₹1,20,000
₹80,000
₹2,00,000
Nil (correct answer)
Answer: D — Nil
Explanation. STCL ₹1,20,000 is set off against LTCG ₹2,00,000, leaving net LTCG of ₹80,000. Brought forward LTCL of ₹80,000 is set off against this ₹80,000, resulting in Nil capital gains. Since no capital loss remains, nothing is carried forward.
Where it goes wrong. Students may carry forward the STCL or LTCL without first setting them off, or set off LTCL against STCL.
Authority. Section 70 of the Income-tax Act, 1961; Section 74 of the Income-tax Act, 1961
Question 8 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard
What is the total income of Ms. Nair for FY 2026-27, considering the late filing of return?
₹6,00,000
₹2,00,000
₹4,00,000 (correct answer)
₹5,00,000
Answer: C — ₹4,00,000
Explanation. Salary ₹6,00,000 less house property loss set off ₹2,00,000 = ₹4,00,000. Business loss is set off against LTCG and other sources, leaving no other income. Total income = ₹4,00,000. The current year business loss of ₹1,40,000 cannot be carried forward due to late filing. House property loss of ₹80,000 and brought forward business loss of ₹1,00,000 can be carried forward.
Where it goes wrong. Students may allow carry forward of current year business loss despite late filing, or forget to set off house property loss against salary.
Authority. Section 71 of the Income-tax Act, 1961; Section 80 of the Income-tax Act, 1961
Question 9 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium
Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.
Mr. Ravi has speculative business income of ₹50,000 and speculative business loss of ₹80,000. He also has non-speculative business income of ₹1,00,000. What is the amount of loss to be carried forward?
₹30,000 (correct answer)
₹80,000
₹50,000
Nil
Answer: A — ₹30,000
Explanation. Speculative loss of ₹80,000 can be set off only against speculative income of ₹50,000. Balance ₹30,000 is carried forward for up to 4 years. Non-speculative business income of ₹1,00,000 cannot be used to set off speculative loss.
Where it goes wrong. Students may set off speculative loss against non-speculative business income or carry forward the entire ₹80,000.
Authority. Section 70 of the Income-tax Act, 1961; Section 73 of the Income-tax Act, 1961
Question 10 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard
Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.
Mr. Suresh has a loss from a specified business under section 35AD of ₹5,00,000 and income from another specified business of ₹2,00,000. He also has income from a non-specified business of ₹3,00,000. What is the amount of loss to be carried forward?
₹5,00,000
₹3,00,000 (correct answer)
₹2,00,000
Nil
Answer: B — ₹3,00,000
Explanation. Loss from a specified business under section 35AD can be set off only against income from another specified business. ₹5,00,000 loss is set off against ₹2,00,000 specified business income, leaving ₹3,00,000 to be carried forward indefinitely. Non-specified business income of ₹3,00,000 cannot be used.
Where it goes wrong. Students may set off specified business loss against non-specified business income or carry forward the entire ₹5,00,000.
Authority. Section 70 of the Income-tax Act, 1961; Section 35AD of the Income-tax Act, 1961
Question 11 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium
Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.
Mr. Anil has a house property loss of ₹3,00,000 and salary income of ₹10,00,000. He pays tax under the default tax regime. What is the treatment of the house property loss?
Can be set off up to ₹2,00,000
Can be carried forward for 8 years
Cannot be set off or carried forward (correct answer)
Can be set off against salary
Answer: C — Cannot be set off or carried forward
Explanation. Under the default tax regime, house property loss cannot be set off against income under any other head. It also cannot be carried forward to subsequent years. This is a key distinction from the optional regime, where a cap of ₹2,00,000 applies and the balance can be carried forward.
Where it goes wrong. Students may apply the ₹2,00,000 cap or allow carry forward even under the default regime.
Authority. Section 71 of the Income-tax Act, 1961; Section 115BAC of the Income-tax Act, 1961
Question 12 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard
Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.
Mr. Joshi has brought forward business loss, unabsorbed depreciation, and current year depreciation. What is the correct order of set-off under the Income-tax Act, 1961?
B/f business loss, unabsorbed depreciation, current depreciation
Unabsorbed depreciation, b/f business loss, current depreciation
Current depreciation, unabsorbed depreciation, b/f business loss
Current depreciation, b/f business loss, unabsorbed depreciation (correct answer)
Answer: D — Current depreciation, b/f business loss, unabsorbed depreciation
Explanation. The statutory order of set-off is: current year depreciation first, then brought forward business loss, then unabsorbed depreciation. This order is prescribed to ensure that current year allowances are exhausted before brought forward losses, and business losses are set off before unabsorbed depreciation.
Where it goes wrong. Students may place unabsorbed depreciation before brought forward business loss, or current depreciation last.
Authority. Section 33 of the Income-tax Act, 1961; Section 72 of the Income-tax Act, 1961
Question 13 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium
Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.
Mr. Rahul has a business loss of ₹1,00,000 and salary income of ₹5,00,000. Can he set off the business loss against salary?
No, cannot be set off against salary (correct answer)
Yes, up to ₹2,00,000
Yes, full amount
Can be set off against house property
Answer: A — No, cannot be set off against salary
Explanation. Section 71 expressly prohibits set-off of business loss against salary income. The business loss of ₹1,00,000 must be carried forward under section 72 for set-off against future business income. Salary income remains fully taxable.
Where it goes wrong. Students may allow set-off against salary because inter-head set-off is generally permitted, forgetting the specific prohibition.
Authority. Section 71 of the Income-tax Act, 1961
Question 14 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard
Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.
Mr. Sameer has a business loss of ₹2,00,000, salary income of ₹3,00,000, long-term capital gain of ₹1,50,000, and short-term capital gain of ₹50,000. What is the correct set-off?
Business loss set off against salary
Business loss set off against capital gains ₹2,00,000 (correct answer)
Business loss c/f ₹2,00,000
Business loss set off against salary up to ₹2,00,000
Answer: B — Business loss set off against capital gains ₹2,00,000
Explanation. Business loss cannot be set off against salary. It can be set off against capital gains, both long-term and short-term. Total capital gains = ₹1,50,000 + ₹50,000 = ₹2,00,000. The entire business loss of ₹2,00,000 is set off against capital gains, leaving Nil capital gains.
Where it goes wrong. Students may set off business loss against salary or restrict set-off to long-term capital gains only.
Authority. Section 71 of the Income-tax Act, 1961
Question 15 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium
Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.
Mr. Prakash incurred a loss of ₹50,000 from betting and has income from lottery of ₹30,000. Can he set off the loss?
Yes, up to ₹30,000
Yes, full ₹50,000
No, cannot be set off (correct answer)
Can be carried forward
Answer: C — No, cannot be set off
Explanation. Loss from gambling or betting cannot be set off against any income, including casual income such as lottery winnings. It also cannot be carried forward to future years. The loss of ₹50,000 is ignored for tax purposes.
Where it goes wrong. Students may set off the betting loss against lottery income because both are casual incomes, or carry it forward.
Authority. Section 70 of the Income-tax Act, 1961
Question 16 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard
Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.
Mr. Anil has a house property loss of ₹3,00,000 and salary income of ₹10,00,000. He pays tax under the default tax regime. What is the treatment of the house property loss?
Set off ₹2,00,000, c/f ₹1,00,000
Set off ₹3,00,000
C/f ₹3,00,000 for 8 years
Neither set off nor carried forward (correct answer)
Answer: D — Neither set off nor carried forward
Explanation. Under the default tax regime, house property loss cannot be set off against income under any other head. It also cannot be carried forward to subsequent years. Therefore, neither set-off nor carry forward is permitted. This is a complete disallowance under the default regime.
Where it goes wrong. Students may apply the optional regime cap of ₹2,00,000 and carry forward the balance.
Authority. Section 71 of the Income-tax Act, 1961; Section 115BAC of the Income-tax Act, 1961
Question 17 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium
Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.
Mr. Kiran filed his return for FY 2026-27 on 15 December 2026, while the due date under section 139(1) was 31 July 2026. He has a business loss of ₹5,00,000. Can he carry forward the loss?
No, cannot be carried forward (correct answer)
Yes, can be carried forward
Yes, but only for 4 years
Can be set off against salary
Answer: A — No, cannot be carried forward
Explanation. Section 80 requires that for carry forward of business loss under section 72, the return must be filed under section 139(3) within the time allowed. Since Mr. Kiran filed late, the business loss of ₹5,00,000 cannot be carried forward. It also cannot be set off against salary.
Where it goes wrong. Students may allow carry forward because the loss is genuine, ignoring the timely filing condition.
Authority. Section 80 of the Income-tax Act, 1961; Section 139(3) of the Income-tax Act, 1961
Question 18 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard
Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.
Mr. Arun filed his return late. He has a house property loss of ₹2,00,000. Can he carry forward the loss?
No, late filing
Yes, can be carried forward for 8 years (correct answer)
Yes, but only for 4 years
Can be set off against salary
Answer: B — Yes, can be carried forward for 8 years
Explanation. The proviso to section 80 excludes house property loss from the requirement of timely filing under section 139(3). Therefore, even though the return was filed late, the house property loss of ₹2,00,000 can be carried forward for up to 8 years under section 71B.
Where it goes wrong. Students may deny carry forward due to late filing, not realizing house property loss is an exception.
Authority. Section 71B of the Income-tax Act, 1961; Section 80 of the Income-tax Act, 1961
Question 19 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium
Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.
Ms. Divya has a speculative loss of ₹1,00,000 and non-speculative business income of ₹2,00,000. Can she set off the speculative loss?
Yes, full amount
Yes, up to ₹1,00,000
No, cannot be set off (correct answer)
Can be carried forward for 8 years
Answer: C — No, cannot be set off
Explanation. Speculative business loss can be set off only against speculative business income. Non-speculative business income of ₹2,00,000 cannot be used. The speculative loss of ₹1,00,000 must be carried forward for up to 4 years under section 73.
Where it goes wrong. Students may set off speculative loss against non-speculative business income because both are business incomes.
Authority. Section 73 of the Income-tax Act, 1961
Question 20 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard
Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.
Mr. Raghav has a long-term capital loss of ₹5,00,000 in FY 2026-27 and no long-term capital gains. Can he set off this loss against short-term capital gains?
Yes, against STCG
No, but can be set off against business income
Yes, against both LTCG and STCG
No, can only be set off against LTCG in future (correct answer)
Answer: D — No, can only be set off against LTCG in future
Explanation. Long-term capital loss can be set off only against long-term capital gains. It cannot be set off against short-term capital gains or any other head of income. The loss of ₹5,00,000 must be carried forward for up to 8 years to be set off against future long-term capital gains.
Where it goes wrong. Students may set off LTCL against STCG because both are capital gains, or against business income.
Authority. Section 70 of the Income-tax Act, 1961; Section 74 of the Income-tax Act, 1961
Authorities cited in this paper
Section 70 of the Income-tax Act, 1961 · Section 72 of the Income-tax Act, 1961 · Section 71 of the Income-tax Act, 1961 · Section 74 of the Income-tax Act, 1961 · Section 80 of the Income-tax Act, 1961 · Section 73 of the Income-tax Act, 1961 · Section 35AD of the Income-tax Act, 1961 · Section 115BAC of the Income-tax Act, 1961 · Section 33 of the Income-tax Act, 1961 · Section 139(3) of the Income-tax Act, 1961 · Section 71B of the Income-tax Act, 1961
Questions people ask
What does this Taxation - DT Ch 08: Clubbing Setoff - Test 3 practice test cover?
This practice test carries 40 marks across 20 questions covering statutory provisions, computation rules, and case scenarios.
How many questions are there and what is the time limit?
There are 20 questions carrying 2 marks each, giving a maximum score of 40 marks in 45 minutes with no negative marking.
Which statutory provisions are tested?
Questions strictly reflect the Income-tax provisions applicable for the May 2027 examination attempt following the ICAI Study Material.
Is this test affiliated with ICAI?
No. This is an independent practice paper prepared for CA Intermediate students. It is not issued by or affiliated with ICAI.
