Income Tax Act, 1961 includes the provisions for taxation of any kind of income earned by an individual. Major heads for the categories of income for tax assessing are: Income from salaryIncome from house propertyProfit & Gains from business or professionIncome from capital gainsIncome from other sources. Right classification of income under different heads plays a vital role in assessing the tax liability as different methods are used for computation of tax, the deductions claimed. The tax rates are also different depending upon the class of income. One such method for assessing the income also depends upon the nature of the transaction, i.e., whether it is speculative & non-speculative. Section 73 of the Income Tax Act, 1961 deals with speculative income, which is discussed henceforth. Section 73 of the Income Tax Act, 1961 Carry forward and set off losses from speculation transactions are dealt with under Section 73 of Income Tax Act, 1961. Speculative transactions are the purchase or sale of any goods & commodity where the commodity is not transferred or delivered; rather, they are just settled otherwise. For example, an individual (farmer) agrees to sell rice to another person in two months’ time at a price of INR.100/kg. The farmer speculates that the prices of rice will fall after two months as per his observations. Now, after two months, the price of the rice actually falls to INR 80/kg. The farmer, therefore, makes a profit of INR 20/kg. This would be his speculative income. Exempted Entities Under Section 73 Section 73 of the Income Tax Act, 1961 does not apply to the following: Any assesses who is any entity other than a company.The companies whose gross total income comes from the following heads:Interest on securitiesIncome from house propertyIncome from capital gainsIncome from other sourcesPrincipal business activity of an entity is:Granting of loans & advancesThe business of banking. Exempted Transactions Under Section 73 Following transactions are excluded from the definition of speculation transactions: Hedging Contracts for raw materials: These are the contracts mostly entered into by manufacturers or merchandise to hedge against any loss. Such loss may occur if the price at which the contract is entered into between the parties fluctuates in the future on the date of actual delivery. These are the contracts to cover the losses of the price of raw materials or merchandise at the time of actual delivery. Hedging contracts for stock & shares: These are the contract similar to that of above with the only difference of being shares. Here the contracts are entered into for covering the losses against price fluctuations in cases of holding of stocks & shares. Forward Contract: These are the contracts entered into between parties in which parties agreed to trade for the commodity at the set price in future date irrespective of the actual price prevailing during the actual transaction in a future date.Derivative trading: Derivatives are the securities whose value is derived from underlying assets such as bonds, stocks, etc. Thus investment is made under derivative trading in equity and currency to get the exposure of higher returns & investments. Recommended Article Section 201 of the Income Tax Act,1961 – Interest on Late Payment of TDS. Treatment of loss from Speculative Business As per section 73 of the Income Tax Act, 1961 losses from Speculative Business are treated as follows: Loss accruing from the speculation business carried on by assesses can be set off only against the profit of another speculation business. Assesses cannot adjust the loss from speculation business against any other income. In any assessment year, loss from the speculation business is not wholly set off, such non-set off a loss or in the case where there is no income from any other speculation business such whole loss can be carried forward to the next assessment years.And in the next assessment year, it shall be set off against the profit from speculation business occurring during that year and in case of no income in that year also, they are carried forward again for the next assessment year and so on. Carry forward of loss of Speculative Business Loss from the speculative business can be carried forward for up to the next four assessment years.Carried forward losses can be set off only against speculation income and no other income. If there is no income in such subsequent year also, they are carried forward for the next year and so on.Such losses cannot be carried forward by an assesses if he has not filed his Income Tax Return for the Financial Year within the due date.There is no compulsion to carry on the business in future dates at the time of set off. Contrary View of Section 73 with Case Laws Section 73 applies to the companies whose part business consists of purchase & sale of shares are included as speculative business. Part means some portion of the business, it may include 90% of the business, but the whole 100% is not considered as a part business. However, in the case of Arvind Investment Ltd. The high court of Calcutta has decided in contrary view that section 73 applies in cases where part business as well whole business consists of the activity of purchase & sale of shares. Gross total income shall be the total of Income, Profit & Loss. Loss is a negative income that should be considered as a part of income decided by the high court in the case of Aryasthan Corporation Ltd. The purchase of shares and apply the shares are the entirely two different concepts under section 73. The purchase of the shares is covered under speculative business. But if any company applies for the share of another company and shares are allotted to such a company who later sale such allotted share doesn't come under section 73. The same has been decided in the case of Ginni Finance Pvt Ltd by the “C” bench of Calcutta ITAT that the loss incurred by the assesses by selling the shares of one company whose shares have been acquired by the assesses. Such loss doesn't cover under section 73, and it can't be said as a loss against the purchase & sale of shares of other companies. Read, Also Section 145 of the Income Tax Act,1961.