It is carried indefinitely, and a late return does not kill it. Section 32(2) does not create a carried-forward loss; it adds the unabsorbed allowance to the following year's depreciation allowance and deems it to be part of that allowance. Because it becomes current-year depreciation, none of the machinery that limits business losses — the eight-year cap in s.72(3), the bar in s.80 for a return not filed under s.139(3) — is drafted to reach it.
Section 32(2) is short and everything turns on its last twenty words. 'Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.'
Read 'deemed to be part of that allowance'. The provision does not carry a loss forward; it converts the unabsorbed amount into the next year's depreciation. That single drafting choice produces every practical difference between unabsorbed depreciation and a business loss.
**No time limit.** Section 72(3) says: 'No loss...shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed.' That cap sits in s.72 and governs losses carried forward under s.72. Unabsorbed depreciation is not carried forward under s.72; it is added to the following year's allowance under s.32(2), and s.32(2) closes with 'and so on for the succeeding previous years' without naming any outer year.
**A late return does not destroy it.** Section 80 provides: 'Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed in accordance with the provisions of sub-section (3) of section 139, shall be carried forward and set off under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (2) of section 73A or sub-section (1) or sub-section (3) of section 74 or sub-section (3) of section 74A.' Read what it lists. Business loss under s.72(1), speculation loss under s.73(2), the loss of a specified business under s.73A(2), capital loss under s.74, and loss from the activity of owning and maintaining race horses under s.74A(3). Section 32(2) is not in that list. The department serves more than one version of this section page and the older one omits the reference to s.73A(2); the wording above is from the version at incometaxindia.gov.in/w/section-80-59, and it is worth checking against the bare Act before it is quoted in an appeal. So a return filed after the due date costs the assessee the business loss and leaves the unabsorbed depreciation intact — which is why, in a year where both arise, the split between the two on the face of the computation matters far more than practitioners usually treat it.
**Order of set off.** The two provisions are made to work in sequence by s.72(2): 'Where any allowance or part thereof is, under sub-section (2) of section 32 or sub-section (4) of section 35, to be carried forward, effect shall first be given to the provisions of this section.' That is, brought-forward business loss is set off before brought-forward depreciation. The reason is arithmetical rather than doctrinal: the business loss is the one that expires, so it is given the first bite. The same words in s.32(2) itself — 'subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73' — say the same thing from the other side.
**Why the deeming matters for set off against other heads.** Because the brought-forward amount is deemed to be the allowance for the following year, it enters that year's computation as current depreciation under s.32(1). It is therefore an allowance in computing business income, not a loss carried in a separate compartment, and it takes its chances with the ordinary set-off machinery on that footing. That is the reading of the deeming words, and it is the reason unabsorbed depreciation behaves differently at the set-off stage from a business loss. No source found sets out a decision on the point, so plead it from the statutory words rather than from a citation you have not read.
**What is left to argue about.** Two things routinely are. The first is the officer who applies s.80 to the depreciation component because the return was late; the answer is to read him the list in s.80 and ask which entry he says covers s.32(2). The second is the officer who applies the eight-year cap; the answer is the same technique — s.72(3) governs a loss carried forward under s.72, and s.32(2) is a different mechanism with different words. In both cases the argument is won on the text, not on authority, which is fortunate because it means it can be made in the first reply rather than in appeal.
Where a business changes hands or is reorganised, the carry-forward is not automatic and the corpus concept succession-and-business-reorganisation deals with what happens to depreciation and to the written down value in that situation.
Under the Income-tax Act 2025, the compilation of Supreme Court authority published on itatonline.org maps old s.32 to new s.33. The new numbers for s.72 and s.80 have not been checked against the bare 2025 Act; verify them before citing.
In a loss year the return is often filed late, and the assessee is told the carry-forward is gone. Half of it usually is not. Separating the unabsorbed depreciation from the business loss on the face of the computation, and keeping a schedule of the two figures year by year, is the difference between losing an entire loss year and losing part of it. It also changes what a purchaser is buying when a loss-making company changes hands.
My client stopped importing and now only exports. The officer says the old import loss dies because it is not the same business. Is he right?
The officer has disallowed a receipt on the ground that it is not 'derived from' our undertaking. Does the exact wording of the deduction section decide the point?
My return declared a loss and even after the addition the assessed figure is still a loss. Can concealment penalty under section 271(1)(c) be levied when no tax is payable?
My wife's and minor children's share income from a firm is clubbed into my total income. Can I set my own carried forward business loss against it, when I am not a partner in that firm?
I have a brought-forward business loss and brought-forward unabsorbed depreciation in the same year. Which one does the officer have to use first, and does it matter?
I filed a return showing a loss after the due date but before any assessment was made. Can the officer refuse to determine the loss and refuse to let me carry it forward?
My client's father died and the heirs formed a firm to carry on his business. Can the firm use his brought-forward loss, or does s.78(2) stop it?
In the loss year the officer recorded that the loss could not be carried forward, and we did not appeal. The officer of the set-off year now says that finding is final against us. Is it?
Every page in this library links to what it was written from, so you can check it rather than take our word for it.