SEC – 79: CARRY FORWARD AND SET OFF OF LOSSES IN THE CASE OF CERTAIN COMPANIES (Following section 79 has been substituted for the existing section 79 by the FA, 2017, w.e.f. 1-4-2018)
(a). Where a change in shareholding has taken place in a previous year in case of a company, not being a company in which public are substantially interested, then no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless on the last day of that previous year and on the last day of the year in which loss was incurred, the shares of the company carrying not less than 51% of the voting power were beneficially held by the same persons.
(b). Where a change in shareholding has taken place in a previous year in case of a company, not being a company in which public are substantially interested,but being an eligible start-up as referred to in section 80-IAC, loss shall be carried forward and set off against the income of the previous year, if all the shareholders of such company who held shares carrying voting power on the last day of the yearin which the loss was incurred continue to hold those shares on the last day of such previous year and such loss has been incurred during the period of 7 years beginning from the year in which such company is incorporated.
Provided that this section shall not apply in following cases where there is change in voting power and shareholding in the previous year:-
i. where the change takes place consequent upon the death of the shareholder
ii. where the change takes place by way of gift of shares to any relative of the shareholder making the gift
Provided further that this section shall not apply any change in shareholding of an Indian company which is a subsidiary of the foreign company as a result of amalgamation or demerger of the foreign company subject to the condition that 51% of the shareholders of the amalgamating or demerged foreign company continue to be the shareholders of the amalgamated or the resulting foreign company.
NOTE:- It may be noted that section 79 is applicable notwithstanding anything contained in this Chapter. Therefore, the provision of section 79 are applicable only in case of carry forward of losses. The carry forward of depreciation allowance is governed by section 32(2) and therefore, section 79 will not restrict carry forward and set off of depreciation.