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Unabsorbed depreciation carried forward under section 32(2) can be set off in a subsequent year against:
ABusiness income only, within eight assessment years
BAny head of income, but only within eight assessment years
CBusiness or capital gains income, without any time limit
DAny head of income except salaries, without any time limit
Answer & Solution
Correct answer: D. Any head of income except salaries, without any time limit
1. Unabsorbed depreciation merges with the following year's depreciation allowance and carries forward indefinitely — no eight-year cap applies.
2. It can be set off against income under any head EXCEPT salaries, and even if the business itself no longer exists.
3. Order of priority: current depreciation first, then brought-forward business losses, then unabsorbed depreciation [CIT v. Mother India Refrigeration (P.) Ltd. (SC)].
4. Options A and B import the eight-year restriction that applies to business losses, not to depreciation.
_Source: ICAI CA Inter P3(A) Income-tax SM (May 2026), Ch 3 Unit 3 PGBP, PDF p. 39_
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