Condition under which losses can be carried forward and set off against future profits : Clause 119 of the Income Tax Bill, 2025 Vs. Section 78 of the Income Tax Act, 1961

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..... o changes in its structure or ownership. This clause is particularly relevant for businesses undergoing structural changes, such as mergers, acquisitions, or changes in partnership, as it can significantly impact their tax liabilities and financial planning. Objective and Purpose The primary objective of Clause 119 is to ensure that the benefits of tax loss carryforwards are not misused or exploited through strategic changes in ownership or structure. The provision aims to maintain the integrity of the tax system by preventing companies from artificially creating situations to benefit from tax losses. The legislative intent is to curtail tax avoidance strategies that could arise from changes in the constitution of a firm, succession of bu .....

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..... red within the first ten years of incorporation. 4. Exceptions to Sub-section 3: - The provision outlines exceptions where changes in shareholding do not affect the ability to carry forward losses. These include changes due to the death of a shareholder, gifts to relatives, corporate restructuring like amalgamations or demergers, resolution plans under the Insolvency and Bankruptcy Code, government interventions in company management, and strategic disinvestments. - Strategic Disinvestment:- Clause 119(4)(f) provides an exception for erstwhile public sector companies involved in strategic disinvestment, provided the government retains significant control post-disinvestment. 5. Compliance and Continuity:- Sub-section 5 ensures that i .....

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..... modern corporate realities. Practical Implications The implications of Clause 119 are profound for businesses undergoing structural changes. Companies must carefully consider the impact of any changes in ownership or structure on their ability to utilize tax losses. This requires strategic planning and consultation with tax professionals to navigate the complexities of these provisions and ensure compliance. Failure to adhere to these rules could result in significant tax liabilities and financial repercussions. Conclusion Clause 119 of the Income Tax Bill, 2025, represents a significant advancement in the regulation of tax loss carryforwards, reflecting contemporary business practices and challenges. By providing detailed conditions a .....

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