CA Subham Kumar & CA Sarath Karthick R – [2025] 171 taxmann.com 254 (Article)
1. Introduction
The Finance Bill 2025 proposes a major change in the realm of mergers and acquisitions (M&As), particularly focusing on the carry-forward of tax losses. This budget introduces pivotal amendments that redefine the treatment of accumulated losses within corporate restructuring pursuant to amalgamation.
2. Amendment to Carry Forward Loss Provisions: A Paradigm Shift
Historically, provisions of the Income Tax Act, 1961 (IT Act) permitted the transference of accumulated losses from the transferor or predecessor entity to the transferee or successor entity for up to eight assessment years post-amalgamation.
The revised Finance Bill now mandates that the carry-forward period is confined to eight years from the year in which such losses arose, rather than eight years from the previous year when such merger was undertaken. This strategic amendment is poised to streamline the utilization of business losses post M&A, curbing the practice of ‘evergreening’ losses through protracted leveraging periods.
3. Relevant Provision under IT Act
As per the existing provision of the IT Act, the 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 was affected. Further, 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 eight assessment years immediately succeeding the assessment years for which the loss was first computed. Based on the combined reading, any losses of the amalgamating entity or predecessor entity are considered as losses of the previous year when such amalgamation was affected and accordingly get a fresh life of eight years.
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