Carry Forward & Set Off of Losses in Case of Closely Held Companies

1. CARRYFORWARD&SETOFFOFLOSSESIN CASE OF CLOSELY HELD COMPANIES [SECTION79] • https://taxguru.in/income-tax/carry-set-losses-case-closely-held-companies.html • Carryforwardandsetoffoflossesincaseofacloselyheldcompanynotbeinganeligiblestart-up[i] referredto in section 80-IAC • In the case of a company in which the public is not substantially interested and not being an eligible start-up referred to in section 80-IAC, no loss incurred in any year prior to the previous year shall be carried forward and setoff against the income ofthe previous year, unless: • onthelastdayofthepreviousyear,thesharesofthecompanycarryingnotlessthan51%ofthevoting powerwere beneficially held bypersons • whobeneficiallyheldsharesofthecompanycarryingnotlessthan51%ofthevotingpoweronthelast • dayoftheyearoryearsinwhichthelosswasincurred. • Carryforwardandsetoffoflossesincaseofacloselyheldcompanybeinganeligiblestart-upreferred toin section 80-IAC • In the case of a company in which the public is not substantially interested but being an eligible start-up as referred to in section 80-IAC, any unabsorbed loss of the company shall be allowed to be carried forward and set offagainst the incomeof the previousyear if eitherof the conditionsis satisfied – • on the last day of the previous year, the shares of the company carrying not less than 51% of the voting power were beneficially held by persons who beneficially held shares of the company carrying not lessthan51%ofthevotingpoweronthelastdayoftheyearoryearsinwhichthelosswasincurred; or • all the shareholders of such company who held shares carrying voting power on the last day of the previous year or years in which the loss was incurred continue to hold those shares on the last day of such previous year in which the loss is to be set-off and such loss has been incurred during the period of 7years beginning fromthe year of incorporationof such company. • Non-applicabilityofrestriction • Thisrestrictionshall,however,notapply: • i. where a change in the 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 makingsuch gift;

2. where any change in shareholding takes place in an Indian company, being a subsidiary[ii]of a foreign company, as a result of amalgamation or demerger of the foreign company. However, this is subject to the condition that 51% of the shareholders of the amalgamating/ demerged company continue to be shareholdersof the amalgamated/resulting foreign company. • where a change in 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 heardto the jurisdictionalPrincipal Commissioner orCommissioner. • toacompany,anditssubsidiaryandthesubsidiaryofsuchsubsidiary,where • the Tribunal, on an application moved by the Central Government under section 241 of the Companies Act, 2013, has suspended the Board of Directors of such company and has appointed newdirectorsnominatedby theCentralGovernment, undersection242of thesaidAct; and • a change in shareholding of a company, and its subsidiary and the subsidiary of such subsidiary, has taken place in a previous year pursuant to a resolution plan approved by the Tribunal under section 242 of theCompanies Act, 2013after affording a reasonable opportunity of being heard to thejurisdictional Principal Commissioneror Commissioner. • to a company to the extent that a change in the shareholding has taken place during the previous year on accountof • relocation[iii]ofacapitalassetbytheoriginalfund[iv]totheresultingfund[v];and • consequent transfer of a capital asset, being a share or unit or interest held by a shareholder or unitholder or interest holder in the original fund, in consideration for the share or unit or interest in theresultant fund • to an erstwhile public sector company which has become so as a result of strategic disinvestment[vi]. Accordingly, the loss incurred in any previous year prior to, and including, the previous year of strategic disinvestment shall be carried forward and set off by the erstwhile public sector company. However, this relaxation shall cease to apply from the previous year in which the company, that was the ultimate holding companyofsucherstwhilepublicsectorcompanyimmediatelyaftercompletionofthestrategic disinvestment, ceases to hold, directly or through its subsidiary or subsidiaries, fifty-one per cent of the votingpowerof theerstwhile publicsector company[CBDTPress releasedated 10.9.2021]. • Abusinesscarriedoutbyaneligiblestart-upengagedin– • Innovation,developmentorimprovementofproductsorprocessesorservicesor • ascalablebusinessmodelwithahighpotentialofemploymentgenerationorwealth Incorporatedduring theperiod 1.4.2016-31.3.2022and • Totalturnover?`100croresintheP.Y.relevanttotheA.Y.forwhichdeductionisclaimedunder • section80-IACand • HoldsacertificateofeligiblebusinessfromthenotifiedInter-MinisterialBoardofCertification. • Acompanyshallbeasubsidiaryofanothercompanyifsuchothercompanyholdsmorethanhalfinnominal valueof the equity share capitalof the company.

3. Transfer of assets of the original fund, or its wholly-owned special purpose vehicle, to a resultant fund on or before31.3.2023,whereconsiderationforsuchtransferisdischargedintheformofshareorunitorinterestin theresulting fund to – • shareholder or unit holder or interest holder of the original fund, in the same proportion in which the shareorunitorinterestwasheldbysuchshareholderorunitholderorinterestholderinsuchoriginal fund,in lieu oftheir shares or unitsor interests in theoriginal fund; or • the original fund, in the same proportion as referred to in (i), in respect of which the share or unit or interestis notissued bythe resultantfund toits shareholderor unitholder orinterest holder. • A fund established or incorporated or registered outside India, which collects funds from its members for investingit for theirbenefit and fulfils thefollowing conditions, namely- • thefundisnotapersonresidentinIndia; • the fund is a resident of a country or a specified territory with which an agreement referred to in section 90(1) or 90A(1) has been entered into or is established or incorporated or registered in a country or a specifiedterritory asmay be notifiedby the CentralGovernment in thisbehalf; • the fund and its activities are subject to applicable investor protection regulations in the country or specifiedterritory where itis established orincorporated or isa resident; and • fulfilssuchotherconditionsasmaybeprescribed. • A fund established or incorporated in India in the form of a trust or a company or a limited liability partnership,which • has been granted a certificate of registration as a Category I or Category II or Category III AIF, and is regulated under the SEBI (Alternative Investment Fund) Regulations, 2012 made under the SEBI Act, 1992or IFSC Authority Act, 2019;and • islocatedinanyIFSCasreferredtoinsection80LA(1A). • Sale of shareholding by the Central Government or any State Government in a public sector company which resultsinreductionofits shareholdingtobelowfifty-oneper centalongwithtransferof controltothebuyer.