Many taxpayers believe that only profits attract attention during assessment. But in reality, even a loss has tax consequences — and often, financial benefits — provided it is properly recorded, acknowledged, & communicated by the tax department. This is where Section 157 of the Income Tax Act comes into play.
Section 157 deals with the process of intimation of loss, ensuring that when the Assessing Officer determines a loss during the assessment of a particular year, the taxpayer is formally notified in writing. This written communication becomes the legal foundation for carrying forward and setting off that loss against future income.
To put it simply:
If your business or capital activity incurs a loss, and the tax officer accepts it during assessment, you must receive an official intimation under Section 157 — otherwise, you may lose the chance to adjust that loss in future years.
This provision might sound administrative, but its role in tax planning is significant, especially for businesses, traders, & individuals with fluctuating incomes.
What Section 157 Really Says
Section 157 outlines the obligation of the Assessing Officer to issue a written intimation when a loss is determined during assessment. Without this documented process, the loss cannot be effectively carried forward as per the rules in Chapter VI.
The key phrase in the section is:
“The tax officer must inform the person in writing.”
This written notice acts as formal recognition of the loss and ensures that taxpayers can claim the benefit of set-off in subsequent years. Section 157A, historically referenced alongside this provision, identifies the Income Tax Officer as the competent authority, reinforcing the administrative structure around loss intimation. While the section itself does not calculate tax or impose liability, its function is procedural and protective — it ensures taxpayers are not denied lawful future benefits due to administrative gaps.
Why the Intimation Under Section 157 Matters
- Proof for Carry Forward of Loss
Taxpayers must have clear documentation to carry forward business loss, capital loss, or speculative loss. The intimation acts as official approval.
- Avoids Future Discrepancies
If you attempt to set off a loss in later years without receiving the Section 157 intimation, the AO may question your claim. This notice prevents such disputes."
- Strengthens Audit Trail
For businesses and professionals, maintaining a compliant trail of losses & assessments is essential for audit, scrutiny, or loan documentation.
- Helps in Strategic Tax Planning
Losses are not always harmful. When properly recognized, they can reduce future tax outflows significantly. Section 157 ensures that benefit is not lost.
Also Read: Faceless Assessments, Powers, and Best Judgment Explained
How the Process Works — Step-by-Step
Step 1: Assessment of Income or Loss
During an assessment under Section 143(3) or Section 144, the AO examines the return & supporting documents. The officer may determine that the taxpayer has, in fact, incurred a loss.
Step 2: Verification of Eligibility for Carry Forward
The AO checks whether the taxpayer has filed the return within due date (a mandatory condition for some types of losses under Section 139(1)).
Step 3: Formal Intimation of Loss
Once satisfied, the AO issues a written intimation under Section 157. This document confirms the loss and its eligibility for future set-off.
Step 4: Use of Loss in Future Years
Taxpayers can then carry forward & adjust the loss against future income under the respective provisions — for example, business loss under Section 72 or capital loss under Section 74.
Frequently Confused Point: Is Section 157 Related to Salary Relief?
Many people confuse Section 157 with relief on salary arrears.
That relief actually belongs to Section 89(1) and Rule 21A — not Section 157.
Section 157’s focus is the intimation of loss, not relief for arrears or advance salary.
Practical Example
Imagine a business files a return showing a ₹10 lakh loss. During assessment, the AO verifies the numbers & accepts the loss.
If the AO issues an intimation under Section 157:
✔ The loss is officially recognised"
✔ The taxpayer can carry forward the ₹10 lakh loss
✔ It can be set off against future business income
But without this intimation, the taxpayer may face objections later, leading to litigation or disallowance.
Also Read: A Complete Guide to Draft Assessment and Dispute Resolution Panel (DRP)
Why Section 157 Matters in Today’s Compliance Environment
With modern systems like AIS, TIS, GST data sharing, & automated scrutiny, tax assessments are more data-driven than ever. Losses attract as much analytical scrutiny as profits, especially in high-turnover or high-capital industries.
Section 157 ensures fairness.
It ensures transparency.
And it ensures that taxpayers receive what they’re entitled to — a documented acknowledgment of loss that protects their future tax planning.
Conclusion
Section 157 of the Income Tax Act plays a vital role in the taxation ecosystem by ensuring that losses determined during assessment are formally communicated to taxpayers. This written intimation empowers individuals & businesses to carry forward and set off losses correctly, reduces future disputes, and strengthens the integrity of the tax assessment process. Understanding Section 157 helps you safeguard long-term tax benefits & remain compliant in every assessment year.
Need help with assessments, scrutiny notices, or loss set-off planning? Talk to a CA at CallMyCA.com — expert help is only a click away.
