Carry forward and set off of losses not permissible in certain cases
[Section-119 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 119(1) of Income Tax Act 2025
119(1) In case of change in constitution of a firm during a tax year, such firm shall not be entitled to carry forward and set off so much of the loss proportionate to the share of retired or deceased partner as reduced by his share of profit, if any, from the firm for that tax year.
Section 119(2) of Income Tax Act 2025
119(2) If any person carrying on any business or profession has been succeeded in such capacity by another person, otherwise than by inheritance, nothing in this Chapter shall entitle any person other than the person incurring the loss to have it carried forward and set off against his income.
Section 119(3) of Income Tax Act 2025
119(3) In case of change in shareholding of a company, not being a company in which public are substantially interested, during any tax year, loss brought forward from any preceding tax year shall not be allowed to be set off against the income of the said tax year and subsequent tax years unless the following conditions are satisfied:––
- (a) if the beneficial owners of shares of the company carrying at least 51% of voting power, as on the last day of tax year in which loss was incurred, shall continue to be the beneficial owner of shares carrying at least 51% of voting power, as on the last day of the tax year in which such change in shareholding takes place; or
- (b) even if conditions referred to in clause (a) are not satisfied in case of a company, being an eligible start-up referred to in section 140,—
- (i) all shareholders of the company holding shares carrying voting power, as on the last day of tax year in which loss was incurred, continue to hold those shares as on the last day of the tax year in which such change in shareholding takes place; and
- (ii) such loss was incurred during the first ten years beginning from the year of incorporation of the company.
Section 119(4) of Income Tax Act 2025
119(4) The provisions of sub-section (3) shall not apply––
- (a) where a change in the voting power and shareholding takes place in the tax year referred to in that sub-section due to death of shareholder or transfer of shares by way of gift to any relative of the shareholder; or
- (b) where change in shareholding of Indian company, being a subsidiary of foreign company, takes place due to amalgamation or demerger of the foreign company and 51% of the shareholders of amalgamating or demerged foreign company are shareholders of amalgamated or resulting foreign company; or
- (c) where change in shareholding takes place in a tax year consequent to a resolution plan approved under the Insolvency and Bankruptcy Code, 2016 and a reasonable opportunity of being heard was afforded to the jurisdictional Principal Commissioner or Commissioner; or
- (d) to a company, its subsidiary and subsidiary of such subsidiary, if––
- (i) the Board of Directors of such company were suspended by the Tribunal on an application moved by the Central Government under section 241 of the Companies Act, 2013 and new directors were appointed by the Central Government under section 242 of the said Act; and
- (ii) the change in shareholding of such company and its subsidiary, and subsidiary of such subsidiary has taken place consequent to a resolution plan approved by the Tribunal under section 242 of the Companies Act, 2013 and a reasonable opportunity of being heard was afforded to the jurisdictional Principal Commissioner or Commissioner; or
- (e) to a company to the extent that a change in the shareholding has taken place during the tax year on account of relocation referred to in section 70(2); or
- (f) to an erstwhile public sector company where ultimate holding company of such company, immediately after the completion of strategic disinvestment, continues to hold, directly or through its subsidiary or subsidiaries, at least 51% of the voting power of such company in aggregate.
Section 119(5) of Income Tax Act 2025
119(5) Irrespective of anything contained in sub-section (4), if the conditions specified in sub-section 4(f) is not complied with in any tax year after the completion of strategic disinvestment, the provisions of sub-section (3) shall apply for such tax year and subsequent tax years.
Section 119(6) of Income Tax Act 2025
119(6) In this section,—
- (a) 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;
- (b) the expression “erstwhile public sector company” shall have the meaning assigned to it in section 116(3)(b);
- (c) “strategic disinvestment” shall have the meaning assigned to it in section 116(3)(c);
- (d) “Tribunal” shall have the same meaning as assigned to it in section 2(90) of the Companies Act, 2013.
FAQs on Section 119 of Income Tax Act 2025
What happens to carry forward and set-off of losses when there is a change in the constitution of a firm?
If there is a change in the constitution of a firm during a tax year, the firm cannot carry forward and set off the portion of loss that is proportionate to the share of the retired or deceased partner, reduced by his share of profit from that tax year.
Can a successor in business other than by inheritance carry forward and set off the predecessor’s losses?
No, only the person who incurred the loss is entitled to carry it forward and set it off; successors (except by inheritance) are not allowed to do so.
Are there restrictions on set-off of losses for closely held companies when there is a change in shareholding?
Yes, if a company (not widely held) undergoes a change in shareholding, brought forward losses cannot be set off unless the beneficial owners of at least 51% of voting power continue to be the same on both relevant dates.
Can eligible start-ups retain the benefit of carry forward of losses even if there is a change in shareholding?
Yes, if all shareholders as on the date of incurring loss continue to hold those shares on the date of change, and the loss was incurred within the first ten years from incorporation.
Does the 51% continuity requirement apply if shares are transferred due to death or gift to relatives?
No, the restriction does not apply if the change in shareholding or voting power is due to death of a shareholder or a gift to a relative.
Is the restriction applicable in case of a foreign company’s amalgamation or demerger affecting its Indian subsidiary?
No, if 51% of the shareholders of the foreign amalgamating or demerged company continue to hold shares in the amalgamated or resulting company, the restriction is not applicable.
What if the change in shareholding is due to a resolution plan under the Insolvency and Bankruptcy Code, 2016?
The restriction does not apply in such cases, provided the jurisdictional Principal Commissioner or Commissioner was given a reasonable opportunity of being heard.
Is there an exception for companies where the Board was suspended under section 241 of the Companies Act, 2013?
Yes, if the shareholding change follows a Tribunal-approved resolution plan under section 242, the restriction does not apply.
Does the restriction apply if the shareholding changes due to a relocation referred to in section 70(2)?
No, the restriction under section 119(3) does not apply in such cases.
Are erstwhile public sector companies affected by these restrictions post disinvestment?
No, provided that their ultimate holding company still holds at least 51% of voting power, directly or through subsidiaries.
What if the 51% holding condition is violated in a later year after strategic disinvestment?
Then the restriction under section 119(3) becomes applicable for that tax year and subsequent years.
What is the definition of a subsidiary for the purpose of this section?
A company is considered a subsidiary if another company holds more than half the nominal value of its equity share capital.
What does “erstwhile public sector company” mean in this context?
It has the meaning assigned in section 116(3)(b) of the Act.
What is meant by “strategic disinvestment” under this section?
It carries the meaning given in section 116(3)(c) of the Act.
Who is referred to as the “Tribunal” in this section?
The term “Tribunal” refers to the entity defined under section 2(90) of the Companies Act, 2013.
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