Section 79 of ITA, 1961 : Section 79: Carry Forward And Set Off Of Losses In Case Of Certain Companies

Explanation using Example

Imagine a private limited company, ABC Pvt Ltd, which is not substantially owned by the public. In the financial year 2017-2018, the company suffered a loss. To utilize this loss in the next financial year (2018-2019) to offset its taxable income, the company must meet certain conditions as per Section 79 of the Income-tax Act, 1961.

As of the last day of the financial year 2017-2018, the shareholders who held 51% of the voting power must still hold at least the same percentage of voting power on the last day of the financial year 2018-2019. If this condition is not met, for example, if there was a significant sale of shares resulting in new shareholders who now hold 51% of the voting power, ABC Pvt Ltd would not be allowed to carry forward the loss to offset its income in 2018-2019.

However, if ABC Pvt Ltd was an eligible start-up, it could carry forward the loss provided the shareholders from the loss-making year still hold their shares, and the loss was incurred within seven years of the company's incorporation.

Additionally, exceptions exist, such as if a shareholder passed away or transferred shares as a gift to a relative, these changes in shareholding would not prevent the loss from being carried forward. Similarly, changes in shareholding due to corporate restructuring like amalgamation, or as per a resolution plan under the Insolvency and Bankruptcy Code, would not affect the loss carry forward benefit.