My closely held company changed hands and the Assessing Officer has knocked out the brought-forward loss under section 79. The section has been rewritten more than once — which text governs my assessment year?
Four different texts of s.79 have governed the last decade, and the one that applies is the one in force for the assessment year in which the set-off is claimed. The Finance Act 2017 (Act 7 of 2017) substituted s.79 with effect from 1 April 2018 in a clause (a) and clause (b) form; the Finance (No. 2) Act 2019 (Act 23 of 2019) substituted it again with effect from 1 April 2020 into the present sub-section (1), (2) and (3) form; the Finance Act 2021 and the Finance Act 2022 added carve-outs with effect from 1 April 2022; and the Finance Act 2023 (Act 8 of 2023) substituted 'ten' for 'seven' in the start-up proviso with effect from 1 April 2023.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2020-04-01, reported as Substituted by the Finance Act, 2017 (Act No. 7 of 2017) w.e.f. 1 April 2018; third proviso inserted by the Finance Act, 2018 (Act No. 13 of 2018) w.e.f. 1 April 2018; substituted by the Finance (No. 2) Act, 2019 (Act No. 23 of 2019) w.e.f. 1 April 2020; amended by the Finance Act, 2021 (Act No. 13 of 2021) and the Finance Act, 2022 (Act No. 6 of 2022), both w.e.f. 1 April 2022; 'seven' substituted by 'ten' by the Finance Act, 2023 (Act No. 8 of 2023) w.e.f. 1 April 2023. It bears on section 79, section 79(1), section 79(2), section 79(3), section 80-IAC, section 72A, section 47, section 32(2), section 2(18) of the Income Tax Act 1961, in Assessment & Scrutiny, How Tax Law Is Read and Deductions & Disallowances matters.
The version matters in a way that decides cases. The start-up relief the Board and the trade both describe as 's.79(1)(b)' exists as clause (b) of s.79 only for Assessment Years 2018-19 and 2019-20; from Assessment Year 2020-21 that relief lives in the proviso to s.79(1) and there is no clause (b) at all. Citing 's.79(1)(b)' for a later year is citing a provision that is not there. Second, the number of years for which a start-up's loss is protected changed from seven to ten only from Assessment Year 2023-24 — for AY 2022-23 and earlier it is seven, and an adviser who reads 'ten' off a current bare Act and applies it to AY 2021-22 gets the answer wrong. Third, the carve-outs accumulated: the death-or-gift and the foreign-holding-company-amalgamation carve-outs date from the 2017 substitution; the Insolvency and Bankruptcy Code resolution plan carve-out was added by the Finance Act 2018 with effect from 1 April 2018 (as a third proviso, later s.79(2)(c)); the Companies Act s.241/242 carve-out arrived with the 2019 substitution; and the relocation carve-out in s.79(2)(e) and the strategic-disinvestment carve-out in s.79(2)(f), with its clawback in s.79(3), came in with effect from 1 April 2022. Fourth, and this is the point the Supreme Court settled in CIT v. Subhulaxmi Mills Ltd., s.79 speaks of 'loss' and does not on its terms reach unabsorbed depreciation carried forward under s.32(2) — so an officer applying s.79 to depreciation is applying it beyond its words. Finally, an authority decided on the pre-2017 text is not authority for AY 2018-19 onwards; the label for such an authority offered as live law for a later year is 'superseded by amendment'.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Not applicable — statutory text. Section 79 applies to a company in which the public are not substantially interested, where a change in shareholding has taken place during the previous year. The current text is: sub-section (1), the fifty-one per cent beneficial voting-power continuity test measured on the last day of the previous year against the last day of the year or years in which the loss was incurred, with a proviso relieving an eligible start-up referred to in s.80-IAC where all the shareholders who held voting-power shares on the last day of the loss year continue to hold those shares on the last day of the previous year and the loss was incurred during the period of ten years beginning from the year of incorporation; sub-section (2), which disapplies sub-section (1) in six cases, namely (a) a change consequent on the death of a shareholder or transfer of shares by way of gift to a relative of the donor, (b) a 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 fifty-one per cent shareholder continuity, (c) a change 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, (d) a company and its subsidiary and that subsidiary's subsidiary where the Tribunal has under s.241 of the Companies Act 2013 suspended the Board and appointed Central Government nominees and the change is pursuant to a resolution plan approved by the Tribunal under s.242, again after hearing the jurisdictional PCIT or CIT, (e) a change on account of relocation referred to in the Explanation to clauses (viiac) and (viiad) of s.47, and (f) an erstwhile public sector company where the ultimate holding company, immediately after completion of strategic disinvestment, continues to hold at least fifty-one per cent of the voting power directly or through subsidiaries; and sub-section (3), which reapplies sub-section (1) for any previous year after completion of strategic disinvestment in which the condition in clause (f) is not complied with, and for subsequent previous years. The Explanation defines subsidiary (more than half in nominal value of the equity share capital), adopts the s.72A meanings of 'erstwhile public sector company' and 'strategic disinvestment', and adopts the Companies Act 2013 s.2(90) meaning of 'Tribunal'.
Statutory position — no holding is asserted; this entry reproduces statutory text and its commencement dates. For Assessment Years 2018-19 and 2019-20 the governing text is s.79 as substituted by the Finance Act 2017, in which the fifty-one per cent test is clause (a), the start-up relief is clause (b) with a seven-year window, and the death-or-gift, foreign-amalgamation and IBC carve-outs are the first, second and third provisos. From Assessment Year 2020-21 the governing text is s.79 as substituted by the Finance (No. 2) Act 2019, in which the fifty-one per cent test is sub-section (1), the start-up relief is the proviso to sub-section (1), and the carve-outs are clauses (a) to (d) of sub-section (2). From Assessment Year 2022-23 clauses (e) and (f) of sub-section (2) and sub-section (3) are also in force. From Assessment Year 2023-24 the start-up window is ten years and not seven.
Not applicable — statutory text. The commencement dates are taken from the amendment footnotes carried on the section itself: 'Sub. by the Act No. 7 of 2017 (w.e.f. 1-4-2018)' and 'Ins. by the Act No. 13 of 2018 (w.e.f. 1-4-2018)' against the clause (a) and clause (b) text; 'Sub. by the Act. No. 23 of 2019, w.e.f. 1-4-2020' against the sub-section (1), (2) and (3) text; 'Ins. by the Act No. 13 of 2021, w.e.f. 1-4-2022' and 'Ins. by the Act No. 6 of 2022, w.e.f. 1-4-2022' against clauses (e) and (f) of sub-section (2) and sub-section (3); and 'Sub. for "seven" by the Act No. 08 of 2023, w.e.f. 1-4-2023' against the start-up proviso. Earlier texts of the section are used here for legislative history only; the current text is stated from the section as it now stands.
Provided that even if the said condition is not satisfied in case of an eligible start-up as referred to in section 80-IAC, the loss incurred in any year prior to the previous year shall be allowed to 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, continue to hold those shares on the last day of such previous year and such loss has been incurred during the period of ten years beginning from the year in which such company is incorporated.
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Handle my notice → Ask a CA on WhatsAppFour different texts of s.79 have governed the last decade, and the one that applies is the one in force for the assessment year in which the set-off is claimed. The Finance Act 2017 (Act 7 of 2017) substituted s.79 with effect from 1 April 2018 in a clause (a) and clause (b) form; the Finance (No. 2) Act 2019 (Act 23 of 2019) substituted it again with effect from 1 April 2020 into the present sub-section (1), (2) and (3) form; the Finance Act 2021 and the Finance Act 2022 added carve-outs with effect from 1 April 2022; and the Finance Act 2023 (Act 8 of 2023) substituted 'ten' for 'seven' in the start-up proviso with effect from 1 April 2023. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 79, section 79(1), section 79(2), section 79(3), section 80-IAC, section 72A, section 47, section 32(2), section 2(18) of the Income Tax Act 1961. It is reported as Substituted by the Finance Act, 2017 (Act No. 7 of 2017) w.e.f. 1 April 2018; third proviso inserted by the Finance Act, 2018 (Act No. 13 of 2018) w.e.f. 1 April 2018; substituted by the Finance (No. 2) Act, 2019 (Act No. 23 of 2019) w.e.f. 1 April 2020; amended by the Finance Act, 2021 (Act No. 13 of 2021) and the Finance Act, 2022 (Act No. 6 of 2022), both w.e.f. 1 April 2022; 'seven' substituted by 'ten' by the Finance Act, 2023 (Act No. 8 of 2023) w.e.f. 1 April 2023. The version matters in a way that decides cases. The start-up relief the Board and the trade both describe as 's.79(1)(b)' exists as clause (b) of s.79 only for Assessment Years 2018-19 and 2019-20; from Assessment Year 2020-21 that relief lives in the proviso to s.79(1) and there is no clause (b) at all. Citing 's.79(1)(b)' for a later year is citing a provision that is not there. Second, the number of years for which a start-up's loss is protected changed from seven to ten only from Assessment Year 2023-24 — for AY 2022-23 and earlier it is seven, and an adviser who reads 'ten' off a current bare Act and applies it to AY 2021-22 gets the answer wrong. Third, the carve-outs accumulated: the death-or-gift and the foreign-holding-company-amalgamation carve-outs date from the 2017 substitution; the Insolvency and Bankruptcy Code resolution plan carve-out was added by the Finance Act 2018 with effect from 1 April 2018 (as a third proviso, later s.79(2)(c)); the Companies Act s.241/242 carve-out arrived with the 2019 substitution; and the relocation carve-out in s.79(2)(e) and the strategic-disinvestment carve-out in s.79(2)(f), with its clawback in s.79(3), came in with effect from 1 April 2022. Fourth, and this is the point the Supreme Court settled in CIT v. Subhulaxmi Mills Ltd., s.79 speaks of 'loss' and does not on its terms reach unabsorbed depreciation carried forward under s.32(2) — so an officer applying s.79 to depreciation is applying it beyond its words. Finally, an authority decided on the pre-2017 text is not authority for AY 2018-19 onwards; the label for such an authority offered as live law for a later year is 'superseded by amendment'. If it applies to you, the first step is this: Write down the assessment year of the set-off and pull the text of s.79 in force for that year before reading any case. For AY 2018-19 and AY 2019-20 the section has clauses (a) and (b) and three provisos; from AY 2020-21 it has sub-sections (1), (2) and (3).
Not applicable — statutory text. Section 79 applies to a company in which the public are not substantially interested, where a change in shareholding has taken place during the previous year. The current text is: sub-section (1), the fifty-one per cent beneficial voting-power continuity test measured on the last day of the previous year against the last day of the year or years in which the loss was incurred, with a proviso relieving an eligible start-up referred to in s.80-IAC where all the shareholders who held voting-power shares on the last day of the loss year continue to hold those shares on the last day of the previous year and the loss was incurred during the period of ten years beginning from the year of incorporation; sub-section (2), which disapplies sub-section (1) in six cases, namely (a) a change consequent on the death of a shareholder or transfer of shares by way of gift to a relative of the donor, (b) a 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 fifty-one per cent shareholder continuity, (c) a change 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, (d) a company and its subsidiary and that subsidiary's subsidiary where the Tribunal has under s.241 of the Companies Act 2013 suspended the Board and appointed Central Government nominees and the change is pursuant to a resolution plan approved by the Tribunal under s.242, again after hearing the jurisdictional PCIT or CIT, (e) a change on account of relocation referred to in the Explanation to clauses (viiac) and (viiad) of s.47, and (f) an erstwhile public sector company where the ultimate holding company, immediately after completion of strategic disinvestment, continues to hold at least fifty-one per cent of the voting power directly or through subsidiaries; and sub-section (3), which reapplies sub-section (1) for any previous year after completion of strategic disinvestment in which the condition in clause (f) is not complied with, and for subsequent previous years. The Explanation defines subsidiary (more than half in nominal value of the equity share capital), adopts the s.72A meanings of 'erstwhile public sector company' and 'strategic disinvestment', and adopts the Companies Act 2013 s.2(90) meaning of 'Tribunal'. The matter was decided on 2020-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Statutory position — no holding is asserted; this entry reproduces statutory text and its commencement dates. For Assessment Years 2018-19 and 2019-20 the governing text is s.79 as substituted by the Finance Act 2017, in which the fifty-one per cent test is clause (a), the start-up relief is clause (b) with a seven-year window, and the death-or-gift, foreign-amalgamation and IBC carve-outs are the first, second and third provisos. From Assessment Year 2020-21 the governing text is s.79 as substituted by the Finance (No. 2) Act 2019, in which the fifty-one per cent test is sub-section (1), the start-up relief is the proviso to sub-section (1), and the carve-outs are clauses (a) to (d) of sub-section (2). From Assessment Year 2022-23 clauses (e) and (f) of sub-section (2) and sub-section (3) are also in force. From Assessment Year 2023-24 the start-up window is ten years and not seven.
Not applicable — statutory text. The commencement dates are taken from the amendment footnotes carried on the section itself: 'Sub. by the Act No. 7 of 2017 (w.e.f. 1-4-2018)' and 'Ins. by the Act No. 13 of 2018 (w.e.f. 1-4-2018)' against the clause (a) and clause (b) text; 'Sub. by the Act. No. 23 of 2019, w.e.f. 1-4-2020' against the sub-section (1), (2) and (3) text; 'Ins. by the Act No. 13 of 2021, w.e.f. 1-4-2022' and 'Ins. by the Act No. 6 of 2022, w.e.f. 1-4-2022' against clauses (e) and (f) of sub-section (2) and sub-section (3); and 'Sub. for "seven" by the Act No. 08 of 2023, w.e.f. 1-4-2023' against the start-up proviso. Earlier texts of the section are used here for legislative history only; the current text is stated from the section as it now stands. In the words reproduced by the source cited on this page: "Provided that even if the said condition is not satisfied in case of an eligible start-up as referred to in section 80-IAC, the loss incurred in any year prior to the previous year shall be allowed to 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, continue to hold those shares on the last day of such previous year and such loss has been incurred during the period of ten years beginning from the year in which such company is incorporated."
It was decided by the CBDT Circulars & Instructions on 2020-04-01 and is reported as Substituted by the Finance Act, 2017 (Act No. 7 of 2017) w.e.f. 1 April 2018; third proviso inserted by the Finance Act, 2018 (Act No. 13 of 2018) w.e.f. 1 April 2018; substituted by the Finance (No. 2) Act, 2019 (Act No. 23 of 2019) w.e.f. 1 April 2020; amended by the Finance Act, 2021 (Act No. 13 of 2021) and the Finance Act, 2022 (Act No. 6 of 2022), both w.e.f. 1 April 2022; 'seven' substituted by 'ten' by the Finance Act, 2023 (Act No. 8 of 2023) w.e.f. 1 April 2023. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 79, section 79(1), section 79(2), section 79(3), section 80-IAC, section 72A, section 47, section 32(2), section 2(18), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Statutory position — no holding is asserted; this entry reproduces statutory text and its commencement dates. For Assessment Years 2018-19 and 2019-20 the governing text is s.79 as substituted by the Finance Act 2017, in which the fifty-one per cent test is clause (a), the start-up relief is clause (b) with a seven-year window, and the death-or-gift, foreign-amalgamation and IBC carve-outs are the first, second and third provisos. From Assessment Year 2020-21 the governing text is s.79 as substituted by the Finance (No. 2) Act 2019, in which the fifty-one per cent test is sub-section (1), the start-up relief is the proviso to sub-section (1), and the carve-outs are clauses (a) to (d) of sub-section (2). From Assessment Year 2022-23 clauses (e) and (f) of sub-section (2) and sub-section (3) are also in force. From Assessment Year 2023-24 the start-up window is ten years and not seven. It arises in Assessment & Scrutiny, How Tax Law Is Read and Deductions & Disallowances matters, on section 79, section 79(1), section 79(2), section 79(3), section 80-IAC, section 72A, section 47, section 32(2), section 2(18) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Test the fifty-one per cent condition on the right dates: shares carrying not less than fifty-one per cent of the voting power beneficially held on the last day of the previous year must have been beneficially held by the same persons on the last day of the year or years in which the loss was incurred. For an eligible start-up under s.80-IAC, check both limbs: every shareholder who held voting-power shares on the last day of the loss year must continue to hold those shares on the last day of the set-off year, and the loss must have been incurred within seven years (up to AY 2022-23) or ten years (AY 2023-24 onwards) beginning from the year of incorporation. Run through the carve-outs in s.79(2) in the order they appear and confirm the one you rely on existed in your year — death or gift to a relative; amalgamation or demerger of a foreign holding company with fifty-one per cent continuity; an approved IBC resolution plan after hearing the jurisdictional PCIT or CIT; a Companies Act s.241/242 board-suspension resolution plan, also after hearing the PCIT or CIT; relocation under the Explanation to s.47(viiac) and (viiad); and strategic disinvestment of an erstwhile public sector company. Where the carve-out relied on is the IBC one, check that the jurisdictional Principal Commissioner or Commissioner was in fact afforded a reasonable opportunity of being heard — the words are in the clause and are a condition of it. Where s.79(2)(f) is relied on, diarise the clawback: s.79(3) reapplies s.79(1) for any later previous year in which the ultimate holding company's fifty-one per cent is not maintained after the strategic disinvestment. Keep unabsorbed depreciation out of the s.79 computation and cite CIT v. Subhulaxmi Mills Ltd. if the officer sweeps it in.
Still good law. This is the statute and its commencement history, not a decision about it. The current text is stated from the section as it now stands, and the same text — save for the 'seven'/'ten' change made with effect from 1 April 2023 — appears in every version read from 2023 onwards. No amendment later than the Finance Act 2023 substitution of 'ten' for 'seven' has been found in any amendment footnote read. Say what that does and does not establish. It does not establish that the Finance Act 2024, the Finance (No. 2) Act 2024, the Finance Act 2025 or the Finance Act 2026 left the section alone; none of those Acts has been independently checked against it. The absence of a later footnote on the current text is the only basis for the statement, and a footnote list can lag. Anyone advising on a recent assessment year should confirm the text against the Act for his own year. The pre-2017 text of the section has not been read, and nothing is stated about it beyond the fact that it was substituted. That matters when an authority is cited: a decision on the pre-2017 text is not authority for assessment year 2018-19 onwards, and the why-it-matters note explains why. What would change the position: any Finance Act amendment to sub-section (2), which has accumulated carve-outs steadily and is the part of the section most likely to be added to; or a further change to the start-up window in the proviso, which has already moved once. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is a statutory entry, not a decided case. 'decided_on' is a commencement date — 1 April 2020, the date from which the present sub-section (1), (2) and (3) structure took effect on the substitution by the Finance (No. 2) Act 2019 — and not the date of any decision. The legislative history is taken from the amendment footnotes carried on the successive texts of the section, and it is worth setting out because the entry is about nothing else. The clause (a) and clause (b) text carries 'Sub. by the Act No. 7 of 2017 (w.e.f. 1-4-2018)' and 'Ins. by the Act No. 13 of 2018 (w.e.f. 1-4-2018)'. The sub-section text carries 'Sub. by the Act. No. 23 of 2019, w.e.f. 1-4-2020'. Clauses (e) and (f) of sub-section (2) and sub-section (3) carry footnotes attributing them to Act No. 13 of 2021 and Act No. 6 of 2022, both with effect from 1 April 2022, and the text at that stage still read 'seven years'. From the 2023 amendment onwards the proviso reads 'ten years', with the footnote 'Sub. for "seven" by the Act No. 08 of 2023, w.e.f. 1-4-2023'. Two cautions. First, the pre-2017 text of s.79 has not been read, and nothing is stated about it beyond the fact that it was substituted. A case decided on that text is not authority for a year from 2018-19 onwards. Second, a trap for anyone pulling the section by its number. There is a provision numbered 79 in a different enactment — headed 'Amendment of section 16' and opening 'In section 16 of the Interest-tax Act' — which is easy to pick up in mistake for s.79 of the Income-tax Act. Check the heading of whatever text you have before you read a word of it: this section is headed with the carry-forward and set-off bar for companies in which the public are not substantially interested, and nothing else is s.79 for this purpose. One further point of orientation, because the section is easy to misapply even with the right text in hand. Sub-section (1) tests continuity of beneficial holding of shares carrying not less than fifty-one per cent of the VOTING POWER, measured on the last day of the previous year against the last day of the year or years in which the loss was incurred. It is not a test of share capital, and it is not a test applied at the date of the change; a change during the year that is reversed before the year end does not by itself engage it. And the section speaks of 'loss'. Unabsorbed depreciation under s.32(2) is not on its terms within it, which is the point settled in CIT v. Subhulaxmi Mills Ltd. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Statutory position — no holding is asserted; this entry reproduces statutory text and its commencement dates. For Assessment Years 2018-19 and 2019-20 the governing text is s.79 as substituted by the Finance Act 2017, in which the fifty-one per cent test is clause (a), the start-up relief is clause (b) with a seven-year window, and the death-or-gift, foreign-amalgamation and IBC carve-outs are the first, second and third provisos. From Assessment Year 2020-21 the governing text is s.79 as substituted by the Finance (No. 2) Act 2019, in which the fifty-one per cent test is sub-section (1), the start-up relief is the proviso to sub-section (1), and the carve-outs are clauses (a) to (d) of sub-section (2). From Assessment Year 2022-23 clauses (e) and (f) of sub-section (2) and sub-section (3) are also in force. From Assessment Year 2023-24 the start-up window is ten years and not seven.
TaxSphere, “Statutory position — section 79: which version of the change-in-shareholding bar applies to your year”, https://taxnotice.vittsphere.com/caselaw/case/section-79-which-version-of-the-change-in-shareholding-bar-applies-to-your-year/ (validity last checked 2026-09-08)
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The resolution professional never filed the company's returns during the insolvency process. The new management filed them late and the carry forward of losses has gone. Will the Board condone the delay?
My start-up's Inter-Ministerial Board certificate for s.80-IAC was refused, so I switched to s.115BAA and filed Form 10-IC 53 days late for AY 2022-23. There is no blanket circular for that year. Can the delay be condoned?
My client works for a start-up and has exercised his options. He has no cash and the shares cannot be sold. Is there any deferral, and does it cover his own tax or only his employer's TDS?
Until when must a start-up be incorporated to claim s.80-IAC, and what happens to the claim if the return is filed late?
