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TMI BlogLegal Frameworks for losses and unabsorbed depreciation Carry Forward in Co-operative Bank Mergers and Demergers in Clause 118 of the Income Tax Bill, 2025 Vs. Section 72AB of the Income Tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... ntext of business reorganisations of co-operative banks. These provisions are crucial for ensuring the continuity and financial stability of co-operative banks undergoing structural changes such as amalgamations and demergers. The legal framework aims to facilitate the seamless transition of financial liabilities and assets to successor entities, thereby supporting the banking sector's resilience and growth. Objective and Purpose The primary objective of both Clause 118 and Section 72AB is to allow successor co-operative banks to benefit from the tax attributes of predecessor banks during business reorganisations. This includes the ability to carry forward and set off accumulated business losses and unabsorbed depreciation, thereby re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and liabilities, aligned with the actual transfer of business assets and operations. 3. Conditions for Application: The application of these provisions is contingent upon specific conditions being met by both predecessor and successor banks. These conditions include the duration of engagement in banking business, the retention of fixed assets, and the continuation of business operations post-reorganisation. Such stipulations are designed to prevent misuse of the provisions and to ensure that reorganisations are conducted for genuine business purposes rather than merely for tax advantages. 4. Compliance and Penalties: Both Clause 118 and Section 72AB stipulate that if the prescribed conditions are not met, any set-off of accumulated loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Government to specify additional conditions to ensure genuine business purposes, reflecting a more dynamic approach to regulation. This flexibility could address emerging challenges and ensure that the framework remains relevant in a changing economic environment. Conclusion Both Clause 118 and Section 72AB play a vital role in facilitating the business reorganisation of co-operative banks by ensuring that tax benefits related to accumulated losses and unabsorbed depreciation are preserved. These provisions support the financial stability and operational continuity of co-operative banks, which are crucial for economic development and financial inclusion. Future reforms could focus on further streamlining compliance processes and enhanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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