Indian Income Tax Law / Corporate Tax

Section 79: Carry Forward and Set-Off of Company Losses After a Change in Shareholding

Understand the 51% beneficial voting-power test, special relief for eligible start-ups, and statutory exceptions for qualifying changes in ownership.

Reviewed 25 October 2026 | Income-tax Act, 1961: historical provision and transition context

What is Section 79 of the Income-tax Act, 1961?

Section 79 restricts the carry forward and set-off of certain past losses of a company in which the public are not substantially interested when its shareholding changes. The restriction is intended to prevent the purchase of loss-making companies mainly to use their accumulated tax losses.

The provision does not mean that every transfer of shares cancels losses. Its application depends on the type of company, the persons who beneficially hold voting power, the year of the loss, and statutory exceptions. The text on the uploaded webpage is an older version; it has been preserved below for reference, while the commentary flags later developments.

Important tax-year distinction: The Income-tax Act, 2025 came into force on 1 April 2026. For tax years governed by that Act, consult the corresponding operative provision and transitional rules. The section numbers and rules of the 1961 Act should not automatically be applied to new tax years.

Section 79(a): The 51% beneficial voting-power continuity test

For a company not substantially held by the public, other than one qualifying for the special start-up route, the ordinary rule is that an earlier year's loss cannot be set off against the current year's income following a relevant shareholding change unless at least 51% of the voting power on the last day of the current previous year is beneficially held by persons who beneficially held at least 51% of the voting power on the last day of the year in which the loss arose.

Beneficial holding looks beyond the registered holder where another person is the true beneficial owner of voting power. The required comparison is with the loss year, not merely with the immediately preceding year. If losses arose in multiple years, the test should be evaluated separately for each loss year.

Company in which the public are substantially interested: This is a statutory classification under Section 2(18) of the 1961 Act; it does not simply mean a company with numerous shareholders. The classification and any applicable exceptions should be verified for the relevant assessment year.

Section 79 is a special restriction and operates alongside the general rules on the nature, carry-forward period and set-off of losses, including Section 72 (business losses) and Section 80 (return of loss). The interaction with unabsorbed depreciation requires separate examination.

Section 79(b): Special rule for eligible start-ups

The 1961 Act introduced an alternative continuity rule for qualifying eligible start-ups referred to in Section 80-IAC. Under this route, the shareholders who held voting shares on the last day of the year in which the loss was incurred must continue to hold those shares on the last day of the year in which the set-off is claimed, subject to the applicable statutory conditions.

Later amendment: The uploaded source says the loss must have arisen during seven years from incorporation. That reflects older wording. The Finance Act, 2023 extended the relevant period to ten years, with effect from 1 April 2023, for the applicable years under the 1961 Act. Eligibility under Section 80-IAC and the precise tax year must still be checked; being described commercially as a start-up is not sufficient.

The alternative start-up rule should not be confused with a blanket exemption from the 51% test: it has its own shareholder-continuity requirements.

Exceptions and special situations

Death and gifts to relatives

The first proviso protects specified shareholding changes caused by the death of a shareholder or a gift of shares to a relative of the shareholder. The statutory meaning of relative and the facts of the transfer matter.

Foreign-company amalgamation or demerger

A qualifying indirect change in an Indian subsidiary's shareholding following amalgamation or demerger of a foreign parent can be excluded, provided the prescribed 51% continuity condition at the foreign-company level is met.

Approved insolvency resolution plan

The 1961 Act contains relief for a change in shareholding pursuant to a resolution plan approved under the Insolvency and Bankruptcy Code, 2016, after a reasonable opportunity of being heard has been given to the jurisdictional Principal Commissioner or Commissioner.

Additional amendments after the uploaded version

Later versions of Section 79 include further specially framed relief relating to certain insolvency-related proceedings and specified public-sector strategic disinvestment transactions, subject to detailed conditions. These should be checked against the consolidated statute and the facts of the transaction; the historical extract below does not contain all subsequent provisos.

Illustrations of how the rule works

Situation	Illustrative treatment
Owners with 60% beneficial voting power in the loss year still beneficially hold 60% at the end of the set-off year	The ordinary 51% continuity condition is met, subject to other loss rules.
Only 40% of beneficial voting power remains with qualifying holders from the loss year	Earlier losses may be restricted unless a statutory exception or alternative rule applies.
Eligible start-up satisfies the special shareholder-retention rule for a qualifying loss year	The alternative start-up route may allow set-off even where the ordinary test is not met.

These simplified examples assume the company is subject to Section 79 and do not address all facts or other tax restrictions.

Practical checklist

Identify the assessment year in which each loss was first computed and the year in which set-off is proposed.
Determine whether the company is one in which the public are substantially interested.
Compare beneficial voting ownership at the end of each relevant loss year with ownership at the end of the set-off year.
Examine start-up eligibility, qualifying restructuring, IBC resolution, death or gift exceptions as appropriate.
Maintain shareholder registers, beneficial ownership records, transfer documents, loss schedules and timely return-filing evidence.

Section 79: Original statutory wording from the uploaded webpage

The following historical extract and amendment notes are retained from the original page. It is not a consolidated statement of all later amendments; in particular, the seven-year start-up reference is superseded for applicable later years.

79 Income Tax Act - Carry forward and set off of losses in case of certain companies

Section 79 of Income Tax Act 1961 - Carry forward and set off of losses in case of certain companies

1Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place in a previous year,-

(a) in the case of a company not being a company in which the public are substantially interested and other than a company referred to in clause (b), 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;

(b) in the case of a company, not being a company in which the public are substantially interested but being an eligible start-up as referred to in section 80-IAC, the loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year, if, all the shareholders of such company who held shares carrying voting power on the last day of the year or years in which the loss was incurred,-

(i) continue to hold those shares on the last day of such previous year; and

(ii) such loss has been incurred during the period of seven years beginning from the year in which such company is incorporated:

Provided that nothing contained in this section shall apply to a case where a change in the said voting power and shareholding takes place in a previous year consequent upon the death of a shareholder or on account of transfer of shares by way of gift to any relative of the shareholder making such gift:

Provided further that nothing contained in this section shall apply to any change in the shareholding of an Indian company which is a subsidiary of a foreign company as a result of amalgamation or demerger of a foreign company subject to the condition that fifty-one per cent. shareholders of the amalgamating or demerged foreign company continue to be the shareholders of the amalgamated or the resulting foreign company.

2 Provided also that nothing contained in this section shall apply to a company where a change in the shareholding takes place in a previous year pursuant to a resolution plan approved under the Insolvency and Bankruptcy Code, 2016, after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner.

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1. Subs. by Act 7 of 2017, s. 32, for section 39 (w.e.f. 1-4-2018).
2. Ins. by Act 13 of 2018, s. 24 (w.e.f. 1-4-2018).

Official legislation and related resources

General information only. Applicable law depends on the tax year, company classification, ownership records and any statutory exception.