Finance Bill 2025 proposes amendments to Sections 72A and 72AA of the Income Tax Act, aligning the provisions for carry forward and set-off of accumulated losses and unabsorbed depreciation in cases of amalgamation or business reorganization. Currently, these sections allow accumulated losses of an amalgamating entity to be deemed as losses of the successor entity for the year of amalgamation. To ensure parity with Section 72 and prevent perpetual carry forward of losses through successive amalgamations, the amendment limits the carry forward of such losses to a maximum of eight assessment years from the year in which the losses were first computed for the original predecessor entity. This restriction applies to amalgamations or reorganizations effective from April 1, 2025, with the amendments taking effect from April 1, 2026. The changes also introduce the term “original predecessor entity” to identify the entity in the first instance of amalgamation or reorganization. These amendments aim to streamline tax provisions and restrict indefinite carry forward of losses.
Budget 2025: Rationalisation of provisions related to carry forward of losses in case of amalgamation
Section 72A and 72AA of the Act provide provisions relating to carry forward and set-off of accumulated loss and unabsorbed depreciation allowance in cases of amalgamation or business reorganization as specified therein.
2. Section 72A and 72AA provide that accumulated loss of the amalgamating entity or predecessor entity shall be deemed to be the loss of the amalgamated entity or the successor entity for the previous year in which amalgamation or business reorganisation has been effected or brought into force. Further, section 72 of the Act provides that no loss (other than loss from speculation business) under the head “Profits and gains from business or profession” shall be carried forward for more than 8 assessment years immediately succeeding the assessment years for which the loss was first computed.
3. In order to bring clarity and parity with the provisions of section 72 of the Act, it is proposed to amend section 72A and section 72AA of the Act to provide that any loss forming part of the accumulated loss of the predecessor entity, which is deemed to be the loss of the successor entity, shall be eligible to be carried forward for not more than eight assessment years immediately succeeding the assessment year for which such loss was first computed for original predecessor entity. The proposed amendment is aimed to prevent evergreening of the losses of the predecessor entity resulting from successive amalgamations and also to ensure that no carry forward and set off of accumulated loss is allowed after eight assessment years from the immediately succeeding the assessment year for which such loss was first computed for original predecessor entity.
4. The aforesaid amendments shall apply to any amalgamation or business re-organisation which is effected on or after 01.04.2025.
5. These amendments will take effect from the 1st day of April, 2026.
[Clauses 14 & 15]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 14 of the Bill seeks to amend section 72A of the Income-tax Act relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, etc.
Section 72A of the Act states that accumulated loss and unabsorbed depreciation of the amalgamating companies or firm or proprietary concern or private company or unlisted private company, as the case maybe, shall be deemed to be accumulated loss and unabsorbed depreciation of the amalgamated company or successor company or successor limited liability partnership, as the case may be, for the previous year in which the business reorganisation was effected, to the extent of amount of accumulated loss and unabsorbed depreciation and as per conditions as specified therein.
It is proposed to insert sub-section (6B) in the section to state that where any amalgamation or business reorganisation, is effected on or after 1st April, 2025, any loss forming part of the accumulated loss of the predecessor entity, being the amalgamating company or firm or proprietary concern; or private company or unlisted public company, as the case maybe, which is deemed to be the loss of the successor entity, being the amalgamated company or successor company or successor limited liability partnership, as the case maybe, shall be carried forward in the hands of the successor entity for not more than eight assessment years immediately succeeding the assessment year for which such loss was first computed for original predecessor entity.
It is further proposed to state that “original predecessor entity” means predecessor entity in respect of the first amalgamation under sub-section (1) or first business reorganisation for sub-section (6) or (6A).
This amendment will take effect from 1st April, 2026.
Clause 15 of the Bill seeks to amend section 72AA of the Income-tax Act relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in scheme of amalgamation in certain cases.
Section 72AA of the Act states that accumulated loss and unabsorbed depreciation of the amalgamating company shall be deemed to be the loss and unabsorbed depreciation of the amalgamated companies, for the previous year in which the scheme of amalgamation was brought into force.
It is proposed to insert a proviso to the said section to provide that where any scheme of such amalgamation is brought into force on or after 1st April, 2025, any loss forming part of the accumulated loss of the predecessor entity, being the banking company or companies, amalgamating corresponding new bank or banks or amalgamating Government company or companies, as the case maybe, which is deemed to be the loss of the successor entity, being the banking institution or company, amalgamated corresponding new bank or banks or amalgamated Government company or companies, as the case may be, shall be carried forward in the hands of the successor entity for not more than eight assessment years immediately succeeding the assessment year for which such loss was first computed for original predecessor entity.
It is further proposed to state that “original predecessor entity” means predecessor entity in respect of the first amalgamation.
This amendment will take effect from 1st April, 2026.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
14. Amendment of section 72A.
In section 72A of the Income-tax Act, with effect from the 1st April, 2026,––
(i) after sub-section (6A), the following sub-section shall be inserted, namely:––
“(6B) Where any amalgamation or business reorganisation, as the case may be, is effected on or after the 1st April, 2025, any loss forming part of the accumulated loss of the predecessor entity under subsection (1), (6) or (6A), being––
(a) the amalgamating company; or
(b) the firm or proprietary concern; or
(c) the private company or unlisted public company,
as the case may be, which is deemed to be the loss of the successor entity, being––
(i) the amalgamated company; or
(ii) the successor company; or
(iii) the successor limited liability partnership,
as the case may be, shall be carried forward in the hands of the successor entity for not more than eight assessment years immediately succeeding the assessment year for which such loss was first computed for original predecessor entity.”;
(ii) in sub-section (7), after clause (aa), the following clause shall be inserted, namely:––
‘(ab) “original predecessor entity” means predecessor entity in respect of the first amalgamation under sub-section (1) or first business reorganisation under sub-section (6) or (6A).’.
15. Amendment of section 72AA.
In section 72AA of the Income-tax Act, with effect from the 1st April, 2026,––
(i) the following proviso shall be inserted, namely:––
“Provided that where any scheme of such amalgamation is brought into force on or after the 1st April, 2025, any loss forming part of the accumulated loss of the predecessor entity, being––
(a) the banking company or companies; or
(b) the amalgamating corresponding new bank or banks; or
(c) the amalgamating Government company or companies,
as the case may be, which is deemed to be the loss of the successor entity, being––
(i) the banking institution or company; or
(ii) the amalgamated corresponding new bank or banks; or
(iii) the amalgamated Government company or companies,
as the case may be, shall be carried forward in the hands of the successor entity for not more than eight assessment years immediately succeeding the assessment year for which such loss was first computed for original predecessor entity.”;
(ii) in the Explanation, after clause (vii), the following clause shall be inserted, namely: ––
‘(viii) “original predecessor entity” means predecessor entity in respect of the first amalgamation.’.
