## Order of Set Off Within PGBP

When multiple items can absorb current-year business income, they must be set off in this strict order:

### Sequential Order

1. Current Year Depreciation

2. Current Year Capital Expenditure on Scientific Research AND Current Year Expenditure on Family Planning (to the extent allowed)

3. Brought Forward Loss from Business / Profession

4. Unabsorbed Depreciation

5. Unabsorbed Capital Expenditure on Scientific Research

6. Unabsorbed Expenditure on Family Planning

### Why the Order Matters

→ The ORDER affects the period of carry forward. Current-year items have priority because they are use-it-or-lose-it. Unabsorbed depreciation has indefinite life, while business losses can be c/f for only 8 years.

→ Wise ordering may reduce the overall carry-forward burden in future years.

### Memory Aid

'CY → BF → UA':

Current Year items first (Dep → Sci Res/FP)
Brought Forward business loss next
Unabsorbed items last

Worked example

### Example 1

Example:

Mr. P has the following items for AY 2025-26:

Business Income (before any set off): ₹10,00,000
Current Year Depreciation: ₹2,00,000
Current Year Sci Research expenditure: ₹1,00,000
Brought Forward Business Loss (PY 2023-24): ₹3,00,000
Unabsorbed Depreciation (PY 2020-21): ₹4,00,000

Set Off Order:

Step	Item	Amount Set Off	Balance Income
Start	—	—	10,00,000
1	CY Depreciation	2,00,000	8,00,000
2	CY Sci Research	1,00,000	7,00,000
3	B/f Business Loss	3,00,000	4,00,000
4	Unabsorbed Depreciation	4,00,000	NIL

Final taxable business income = NIL.

⚠️ Common exam mistakes

Setting off unabsorbed depreciation BEFORE business loss — wrong order; b/f business loss has priority.
Ignoring the order and netting all items together — order affects which losses lapse first.
Treating CY depreciation and unabsorbed depreciation interchangeably — they have different priorities.
Setting off b/f business loss before exhausting current-year depreciation.

Bare-Act text Sections 32(2), 35(4), 36(1)(ix), 72 · Income-tax Act, 1961 · click to expand

Order of Set Off: 1. Current Year Depreciation; 2. Current Year Capital Expenditure on Scientific Research and Current Year Expenditure on Family Planning, to the Extent Allowed; 3. Brought Forward Loss from Business / Profession; 4. Unabsorbed Depreciation; 5. Unabsorbed Capital Expenditure on Scientific Research; 6. Unabsorbed Expenditure on Family Planning.

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Order of Set Off Under PGBP

Worked example

⚠️ Common exam mistakes