Section 78 of ITA, 1961 : Section 78: Carry Forward And Set Off Of Losses In Case Of Change In Constitution Of Firm Or On Succession

Explanation using Example

Let's say we have a partnership firm named XYZ & Associates, which specializes in architectural design. The firm consists of three partners: A, B, and C, each holding an equal share of 33.33%. In the financial year 2020-2021, the firm incurred a loss of INR 300,000. In the next financial year, partner B decides to retire from the firm. Now, the firm's constitution has changed since B has retired.

According to Section 78(1) of the Income-tax Act, 1961, XYZ & Associates cannot carry forward the entire loss of INR 300,000 to the next year to set it off against the firm's profits. Instead, the loss that...

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