Indian Income Tax Law / Banking Reorganisation

Section 72AB: Carry Forward of Losses and Unabsorbed Depreciation in Co-operative Bank Reorganisation

Understand the tax treatment of accumulated business losses and unabsorbed depreciation when co-operative banks amalgamate or demerge, including eligibility tests, apportionment, definitions and clawback provisions.

Reviewed 25 October 2026 | Historical provision under the Income-tax Act, 1961

What does Section 72AB provide?

Section 72AB of the Income-tax Act, 1961 provides special rules for the carry forward and set-off of accumulated losses and unabsorbed depreciation in a qualifying business reorganisation of co-operative banks. It addresses both amalgamation and demerger, subject to statutory safeguards.

In an eligible amalgamation, the successor co-operative bank can use the predecessor bank's eligible carried-forward losses and depreciation allowance as though the amalgamation had not occurred. This is not a fresh loss: the amount must have been eligible for carry forward under the applicable tax rules. The original loss's remaining carry-forward period and other restrictions must be checked.

This page retains the original wording supplied for Section 72AB and adds explanations. The Income-tax Act, 2025 took effect from 1 April 2026; for tax years governed by that Act, the current statutory text and transitional provisions must be consulted rather than treating Section 72AB as the operative numbering.

Section 72AB(1) and (2): Amalgamation and eligibility requirements

Subsection (1) allows the successor co-operative bank to set off eligible accumulated loss and unabsorbed depreciation of the predecessor co-operative bank in an amalgamation. Subsection (2) attaches conditions to this relief:

Predecessor banking activity: The predecessor co-operative bank must have carried on banking business for at least three years.
Predecessor asset holding: It must have continuously held at least three-fourths of the book value of its fixed assets for the two years preceding the business reorganisation, as specified in the provision.
Successor asset retention: The successor must continuously retain at least three-fourths of the relevant fixed assets acquired through the reorganisation for a minimum of five years.
Business continuity: The successor must continue the predecessor's business for at least five years from reorganisation.
Other prescribed requirements: Conditions directed at genuine business purpose or business revival must also be satisfied where applicable.

These tests should be documented before any set-off is claimed and monitored throughout the post-reorganisation period.

Section 72AB(3): Losses and depreciation on demerger

Where the reorganisation is a demerger, the resulting co-operative bank's entitlement depends on the connection between the loss or depreciation and the transferred undertaking.

Directly attributable amounts: Where the entire loss or depreciation is directly related to the undertaking transferred, that amount may pass to the resulting bank.
Amounts not directly attributable: The eligible amount is allocated by the ratio of the assets of the transferred undertaking to the assets of the demerged co-operative bank, under the statutory formula.

Subsection (4) permits the Central Government to notify additional conditions for genuine business purposes. Subsection (5) provides a deemed division of the relevant previous year into periods before and after the business reorganisation for loss and depreciation purposes.

Section 72AB(6): Consequences of non-compliance

If the conditions in subsection (2) or notified under subsection (4) are breached, the loss or depreciation previously allowed to the successor co-operative bank is deemed to be taxable income in the year of non-compliance. The clawback makes ongoing compliance important, not merely eligibility on the transaction date.

Definitions in Section 72AB(7)

Accumulated loss: The qualifying non-speculative business loss of the amalgamating or demerged co-operative bank which would have been eligible for carry forward and set-off under Section 72 had the reorganisation not taken place.

Unabsorbed depreciation: The depreciation allowance remaining unallowed that would otherwise have been available to the relevant co-operative bank without the reorganisation.

Co-operative bank, amalgamation, demerger, predecessor, successor and resulting co-operative bank: These expressions have the respective meanings assigned in Section 44DB of the 1961 Act, as expressly incorporated by Section 72AB(7)(c). The specific statutory definitions, rather than their ordinary commercial meanings, govern eligibility.

Illustrative calculation

Suppose a demerged co-operative bank has Rs 80 lakh of eligible accumulated business losses that cannot be directly linked to a particular undertaking. If the transferred undertaking represents 30% of the assets used in the statutory apportionment, the amount attributable to the resulting co-operative bank would be Rs 24 lakh (30% of Rs 80 lakh), subject to all applicable statutory conditions. The balance remains subject to the rules governing the demerged bank.

This is a simplified illustration; valuation, allocation of assets, historic loss eligibility, remaining carry-forward periods and other restrictions require separate verification.

Compliance documents

Reorganisation scheme, sanction orders and effective date.
Audited financial statements and fixed-asset registers for the required periods.
Year-wise schedules of business losses and unabsorbed depreciation.
Evidence of business continuity and asset retention after amalgamation.
Allocation working papers for losses and depreciation on demerger.

Section 72AB: Statutory wording retained from the original webpage

The following is the full text and legislative footnote from the uploaded historical page. It is retained for reference; later amendments, commencement rules and the Income-tax Act, 2025 should be checked for the relevant tax year.

72AB Income Tax Act - Provisions relating to carry forward and set-off of accumulated loss and unabsorbed depreciation allowance in business reorganisation of co-operative banks

Section 72AB of Income Tax Act 1961 - Provisions relating to carry forward and set-off of accumulated loss and unabsorbed depreciation allowance in business reorganisation of co-operative banks

1(1) The assessee, being a successor co-operative bank, shall, in a case where the amalgamation has taken place during the previous year, be allowed to set off the accumulated loss and the unabsorbed depreciation, if any, of the predecessor co-operative bank as if the amalgamation had not taken place, and all the other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly.

(2) The provisions of this section shall apply if-

(a) the predecessor co-operative bank-

(i) has been engaged in the business of banking for three or more years; and

(ii) has held at least three-fourths of the book value of fixed assets as on the date of the business reorganisation, continuously for two years prior to the date of business reorganisation;

(b) the successor co-operative bank-

(i) holds at least three-fourths of the book value of fixed assets of the predecessor co-operative bank acquired through business reorganisation, continuously for a minimum period of five years immediately succeeding the date of business reorganisation;

(ii) continues the business of the predecessor co-operative bank for a minimum period of five years from the date of business reorganisation; and

(iii) fulfils such other conditions as may be prescribed to ensure the revival of the business of the predecessor co-operative bank or to ensure that the business reorganisation is for genuine business purpose.

(3) The amount of set-off of the accumulated loss and unabsorbed depreciation, if any, allowable to the assessee being a resulting co-operative bank shall be,-

(i) the accumulated loss or unabsorbed depreciation of the demerged co-operative bank if the whole of the amount of such loss or unabsorbed depreciation is directly relatable to the undertakings transferred to the resulting co-operative bank; or

(ii) the amount which bears the same proportion to the accumulated loss or unabsorbed depreciation of the demerged co-operative bank as the assets of the undertaking transferred to the resulting co-operative bank bears to the assets of the demerged co-operative bank if such accumulated loss or unabsorbed depreciation is not directly relatable to the undertakings transferred to the resulting co-operative bank.

(4) The Central Government may, for the purposes of this section, by notification in the Official Gazette, specify such other conditions as it considers necessary, other than those prescribed under subclause (iii) of clause (b) of sub-section (2), to ensure that the business reorganisation is for genuine business purposes.

(5) The period commencing from the beginning of the previous year and ending on the date immediately preceding the date of business reorganisation, and the period commencing from the date of such business reorganisation and ending with the previous year shall be deemed to be two different previous years for the purposes of set off and carry forward of loss and allowance for depreciation.

(6) In a case where the conditions specified in sub-section (2) or notified under sub-section (4) are not complied with, the set off of accumulated loss or unabsorbed depreciation allowed in any previous year to the successor co-operative bank shall be deemed to be the income of the successor co-operative bank chargeable to tax for the year in which the conditions are not complied with.

(7) For the purposes of this section,-

(a) "accumulated loss" means so much of loss of the amalgamating co-operative bank or the demerged co-operative bank, as the case may be, under the head "Profits and gains of business or profession" (not being a loss sustained in a speculation business) which such amalgamating cooperative bank or the demerged co-operative bank, would have been entitled to carry forward and setoff under the provisions of section 72 as if the business reorganisation had not taken place;

(b) "unabsorbed depreciation" means so much of the allowance for depreciation of the amalgamating co-operative bank or the demerged co-operative bank, as the case may be, which remains to be allowed and which would have been allowed to such bank as if the business reorganisation had not taken place;

(c) the expressions "amalgamated co-operative bank", "amalgamating co-operative bank", "amalgamation", "business reorganisation", "co-operative bank", "demerged co-operative bank", "demerger", "predecessor co-operative bank", "successor co-operative bank" and "resulting co-operative bank" shall have the meanings respectively assigned to them in section 44DB.

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1. Ins. by Act 22 of 2007, s. 21 (w.e.f. 1-4-2008).

Official legislation and further reading

Related historical provisions include Section 72A (other amalgamations and demergers) and Section 72AA (certain banking amalgamations).

This article is for general information. Tax treatment depends on the tax year, type of bank, the sanctioned scheme, applicable conditions and current legislation.