# Special Cases in Carry Forward of Losses

Four important practical situations affect how losses are carried forward and set off.

## Case 1 — Loss of Earlier Year, Late Return in Subsequent Year

Scenario: Loss was incurred in PY 2024-25 and the return for PY 2024-25 was filed within the due date u/s 139(1). In PY 2025-26 (the year of set-off / further c/f), the return is filed after the due date.

Rule: The loss of PY 2024-25 CAN still be carried forward to the next PY. The due-date condition applies only to the year in which the loss was originally incurred, NOT to subsequent years.

> Key principle: Once the loss return was timely filed in the year of loss, late filing in later years does not extinguish the carry-forward right.

## Case 2 — Loss of Current Year, Current Year Return Filed Late

Scenario: Loss is incurred in PY 2025-26 and the return for PY 2025-26 is filed after the due date u/s 139(1).

Rule:

Carry forward NOT allowed (return for loss year was belated).
However, current year set-off (intra-head and inter-head) IS allowed.

> The right to set off losses against current year income under Sections 70 and 71 is NOT dependent on timely filing. Only the right to c/f is lost.

## Case 3 — Closely Held Companies (Section 79)

In case of a private company (a company in which the public are not substantially interested):

Rule: Brought-forward business losses cannot be set off unless shares carrying at least 51% of voting power are held by the same persons on the last day of the previous year of set-off as were held on the last day of the previous year in which the loss was incurred.

> In plain language — if more than 49% of shareholding changes hands, the b/f loss is forfeited.

## Case 4 — How to Count the 8-Year (or 4-Year) Period

The period of carry forward begins from the PY immediately succeeding the year of loss.

Example: Business loss incurred in PY 2025-26 can be carried forward for 8 years, i.e., from:

PY 2026-27 → PY 2033-34

(The year of incurring the loss itself is NOT counted.)

Worked example

### Example 1

Example 1 — Case 1 (Late return in subsequent year)

Mr. X incurred a business loss of ₹4,00,000 in PY 2024-25 and filed the return on 30 September 2025 (within due date). In PY 2025-26, his return is filed on 15 December 2026 (after due date u/s 139(1)).

Can the loss of PY 2024-25 still be carried forward to PY 2026-27? — Yes. The original loss year had a timely return; late filing in PY 2025-26 does not destroy the carry-forward right.

### Example 2

Example 2 — Case 2 (Current year late filing)

Mr. Y's PY 2025-26 figures:

Business loss: ₹3,00,000
House property income: ₹1,00,000
Return filed: 5 January 2027 (belated)

Treatment:

Inter-head set-off allowed → ₹1,00,000 of business loss set off against HP income.
Balance ₹2,00,000 business loss CANNOT be carried forward because return is belated.

### Example 3

Example 3 — Case 3 (Closely held company change in shareholding)

ABC Pvt. Ltd. had a b/f business loss of ₹10,00,000 from PY 2022-23. On 31 March 2023, shares were held: A (60%), B (40%). On 31 March 2026, shares are held: C (60%), B (40%).

Can the b/f loss be set off in PY 2025-26? — No. Only 40% (B's holding) is common between both dates; less than 51% is held by the same persons. The loss is lapsed.

### Example 4

Example 4 — Case 4 (Counting the period)

Capital loss of ₹5,00,000 incurred in PY 2025-26.

Carry forward period: 8 years starting from PY 2026-27 → last year of set-off is PY 2033-34 (AY 2034-35).

⚠️ Common exam mistakes

Believing that late filing in any year breaks the c/f chain — only the year of incurring the loss must have a timely return for c/f purposes.
Denying current-year set-off when return is belated — current year set-off u/s 70 & 71 is allowed regardless of timely filing; only c/f is lost.
Applying Section 79 to all companies — Section 79 applies only to closely held (private) companies, NOT to companies in which public are substantially interested.
Counting the year of loss itself as one of the 8 years — the 8-year period starts from the year FOLLOWING the loss year.
Forgetting that for closely held companies, the 51% must be held by the SAME persons on BOTH relevant dates (last day of loss year and last day of set-off year).

Bare-Act text Section 79 read with Sections 72, 139(1), 139(3) · Income-tax Act, 1961 · click to expand

Section 79: Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place during the previous year in the case of a company, not being a company in which the public are substantially interested, 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 the previous year, the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year or years in which the loss was incurred.

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Special Cases — Belated Return, Closely Held Companies & Counting of Years

Worked example

⚠️ Common exam mistakes