## Section 79 — Restriction on C/f of Losses for Closely-Held Companies

### Applicability

Applies to a Private Company (i.e., a company in which the public are NOT substantially interested) — referred to here as closely-held companies.

### Core Rule

→ B/f loss CANNOT be set off if 51% of shares (voting power) are NOT held by the SAME persons as in the YEAR of C/F of Loss.

→ In other words: shareholding continuity test on the LAST DAY of the previous year carrying the loss AND the LAST DAY of the PY of set off must show at least 51% commonality in beneficial ownership.

### Logic / Rationale

Prevents abuse where a loss-making private company is sold to a profitable acquirer simply to monetize accumulated losses — a 'loss-trading' arrangement.

### Exception

Applies only to Private (closely-held) companies. Public listed companies are exempt from this restriction.

### Counting Period for Carry Forward

A Business Loss of PY 2025-26 can be c/f for 8 years.

→ The 8 years are counted from the NEXT PY (i.e., PY 2026-27 to PY 2033-34).

→ The year of loss itself is NOT counted in the 8-year window.

Worked example

### Example 1

Example 1 — Loss Trading Blocked:

ABC Pvt. Ltd. has b/f business loss of ₹50 Lakhs from PY 2022-23. As on 31 March 2023, shareholders were A (60%), B (40%).

In April 2025, A and B sold all their shares to X and Y. As on 31 March 2026 (year of set off), X holds 60%, Y holds 40%.

Analysis: Less than 51% common shareholding between year of loss and year of set off → C/f loss CANNOT be set off in PY 2025-26.

Example 2 — Continuity Maintained:

Same facts, but in 2025, A sold only 40% of his stake and B retained his 40%. As on 31 March 2026: A (20%), B (40%), New (40%).

Analysis: Common shareholding A + B = 60% ≥ 51% → C/f loss CAN be set off.

Example 3 — Counting C/F Period:

Business Loss in PY 2025-26.

→ Can be c/f from PY 2026-27 to PY 2033-34 (8 years counted from the next PY).

⚠️ Common exam mistakes

Applying Section 79 to public listed companies — only applies to closely-held private companies.
Counting the 8-year c/f period starting from the year of loss itself — it starts from the IMMEDIATELY SUCCEEDING PY.
Confusing 'same shareholders' with 'same percentages' — only 51% commonality is required.
Missing that the shareholding test is checked on the LAST DAY of the relevant previous years.
Forgetting that Section 79 does NOT bar set off of unabsorbed depreciation (which is governed by separate rules).

Bare-Act text Section 79 · Income-tax Act, 1961 · click to expand

In case of Private Co. (i.e. Co in which public are not substantially interested) B/f Loss cannot be Set off if 51% Shares — not held by the same person — as in the Year of C/f of Loss. Business Loss — PY 2025-26: We can C/f it for 8 Yrs which is to be counted from the next PY i.e. in this case, PY 2026-27 to PY 2033-34.

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Carry Forward of Losses in Closely-Held Companies (Section 79)

Worked example

⚠️ Common exam mistakes