Finance Bill 2025 proposes amendments to Sections 72A and 72AA of the Income Tax Act, changing the rules for carrying forward losses in case of amalgamations or business reorganizations. Currently, a successor entity can carry forward the accumulated losses of a predecessor for eight assessment years from the year of amalgamation. The amendment states that the eight-year period will now be counted from the original year when the loss was first recorded by the predecessor entity, rather than from the year of amalgamation. This change, effective from April 1, 2025, prevents the indefinite carry forward of losses through a series of amalgamations, closing a potential tax loophole.
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- FAQs – Budget 2025: Rationalisation of provisions related to carry forward of losses in case of amalgamation
- Q.1 What are the provisions of section 72A and 72AA of the Act?
- Q.2 As per present provisions, for how many years the accumulated loss of the predecessor entity can be carried forward by the successor entity?
- Q.3 What are the changes proposed in section 72A and 72AA in Finance Bill 2025?
- Q.4 When will these changes become applicable?
- Q.5 Why is this change required to be made?
Q.1 What are the provisions of section 72A and 72AA of the Act?
Ans. Sections 72A and 72AA of the Act provide that in case of specified amalgamation or business reorganization, the accumulated loss of the predecessor entity is deemed to be the loss of successor entity for the previous year in which amalgamation or business reorganization is effected or brought into force.
Q.2 As per present provisions, for how many years the accumulated loss of the predecessor entity can be carried forward by the successor entity?
Ans. The accumulated loss of the predecessor entity can be carried forward for eight assessment years from the previous year in which amalgamation or business reorganization is effected.
Q.3 What are the changes proposed in section 72A and 72AA in Finance Bill 2025?
Ans. It is proposed that loss of the predecessor entity will be allowed to be carried forward for eight assessment years from the assessment year in which such loss was first computed for the predecessor entity.
Therefore, after amendment the period of carry forward of loss shall be computed from the year of its first occurrence in the hands of the first predecessor entity in which such loss had occurred instead of the previous year in which amalgamation for business reorganization has been effected.
Q.4 When will these changes become applicable?
Ans. The proposed changes will be applicable for any amalgamation or business reorganization which is effected or brought into force on or after 01.04.2025.
Q.5 Why is this change required to be made?
Ans. The present provisions may result in indefinite carry forward of losses if there is a series or chain of amalgamations. The amended provision plug this loophole for amalgamations after 01.04.2025.
