1. Carry forward and set off of losses in case of a closely held company not being an eligible start-up[i] referred to in section 80-IAC

In the case of a company in which the public is not substantially interested and not being an eligible start-up referred to in section 80-IAC, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year, unless:

  • on the last day of the previous year, the shares of the company carrying not less than 51% of the voting power were beneficially held by persons
  • who beneficially held shares of the company carrying not less than 51% of the voting power on the last day of the year or years in which the loss was incurred.

2. Carry forward and set off of losses in case of a closely held company being an eligible start-up referred to in section 80-IAC

In the case of a company in which the public is not substantially interested but being an eligible start-up as referred to in section 80-IAC, any unabsorbed loss of the company shall be allowed to be carried forward and set off against the income of the previous year if either of the conditions is satisfied –

a) on the last day of the previous year, the shares of the company carrying not less than 51% of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than 51% of the voting power on the last day of the year or years in which the loss was incurred; or

b) all the shareholders of such company who held shares carrying voting power on the last day of the previous year or years in which the loss was incurred continue to hold those shares on the last day of such previous year in which the loss is to be set-off and such loss has been incurred during the period of 7 years beginning from the year of incorporation of such company.

3. Non-applicability of restriction

This restriction shall, however, not apply :

i. where a change in the voting power and shareholding takes place in a previous year consequent upon the death of a shareholder or on account of transfer of shares by way of gift to any relative of the shareholder making such gift;

ii. where any change in shareholding takes place in an Indian company, being a subsidiary[ii] of a foreign company, as a result of amalgamation or demerger of the foreign company. However, this is subject to the condition that 51% of the shareholders of the amalgamating/ demerged company continue to be shareholders of the amalgamated/ resulting foreign company.

iii. where a change in shareholding takes place in a previous year pursuant to a resolution plan approved under the Insolvency and Bankruptcy Code, 2016, after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner.

iv. to a company, and its subsidiary and the subsidiary of such subsidiary, where

a. the Tribunal, on an application moved by the Central Government under section 241 of the Companies Act, 2013, has suspended the Board of Directors of such company and has appointed new directors nominated by the Central Government, under section 242 of the said Act; and

b. a change in shareholding of a company, and its subsidiary and the subsidiary of such subsidiary, has taken place in a previous year pursuant to a resolution plan approved by the Tribunal under section 242 of the Companies Act, 2013 after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner.

v. to a company to the extent that a change in the shareholding has taken place during the previous year on account of

a. relocation[iii] of a capital asset by the original fund[iv] to the resulting fund[v]; and

b. consequent transfer of a capital asset, being a share or unit or interest held by a shareholder or unitholder or interest holder in the original fund, in consideration for the share or unit or interest in the resultant fund

vi. to an erstwhile public sector company which has become so as a result of strategic disinvestment[vi]. Accordingly, the loss incurred in any previous year prior to, and including, the previous year of strategic disinvestment shall be carried forward and set off by the erstwhile public sector company. However, this relaxation shall cease to apply from the previous year in which the company, that was the ultimate holding company of such erstwhile public sector company immediately after completion of the strategic disinvestment, ceases to hold, directly or through its subsidiary or subsidiaries, fifty-one per cent of the voting power of the erstwhile public sector company [CBDT Press release dated 10.9.2021].

[i] A business carried out by an eligible start-up engaged in –

  • Innovation, development or improvement of products or processes or services or
  • a scalable business model with a high potential of employment generation or wealth
    • Incorporated during the period 1.4.2016-31.3.2022 and
    • Total turnover ≤ ` 100 crores in the P.Y. relevant to the A.Y. for which deduction is claimed under section 80-IAC and
    • Holds a certificate of eligible business from the notified Inter-Ministerial Board of Certification.

[ii] A company shall be a subsidiary of another company if such other company holds more than half in nominal value of the equity share capital of the company.

[iii] Transfer of assets of the original fund, or its wholly-owned special purpose vehicle, to a resultant fund on or before 31.3.2023, where consideration for such transfer is discharged in the form of share or unit or interest in the resulting fund to –

i. shareholder or unit holder or interest holder of the original fund, in the same proportion in which the share or unit or interest was held by such shareholder or unit holder or interest holder in such original fund, in lieu of their shares or units or interests in the original fund; or

ii. the original fund, in the same proportion as referred to in (i), in respect of which the share or unit or interest is not issued by the resultant fund to its shareholder or unit holder or interest holder.

[iv] A fund established or incorporated or registered outside India, which collects funds from its members for investing it for their benefit and fulfils the following conditions, namely-

i. the fund is not a person resident in India;

ii. the fund is a resident of a country or a specified territory with which an agreement referred to in section 90(1) or 90A(1) has been entered into or is established or incorporated or registered in a country or a specified territory as may be notified by the Central Government in this behalf;

iii. the fund and its activities are subject to applicable investor protection regulations in the country or specified territory where it is established or incorporated or is a resident; and

iv. fulfils such other conditions as may be prescribed.

[v] A fund established or incorporated in India in the form of a trust or a company or a limited liability partnership, which

i. has been granted a certificate of registration as a Category I or Category II or Category III AIF, and is regulated under the SEBI (Alternative Investment Fund) Regulations, 2012 made under the SEBI Act, 1992 or IFSC Authority Act, 2019; and

ii. is located in any IFSC as referred to in section 80LA(1A).

[vi] Sale of shareholding by the Central Government or any State Government in a public sector company which results in reduction of its shareholding to below fifty-one per cent along with transfer of control to the buyer.

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