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CA Intermediate · Taxation · Set-Off or Carry Forward and Set-off of Losses

Ravi Industries Pvt Ltd (a domestic company, not a company in which public are substantially interested) has a business loss of Rs 12,00,000 for tax year 2024-25, filed in time and carried forward. During 2025-26 there was a change in shareholding: shares carrying 60% voting power on the last day of 2024-25 were held by persons who held only 35% on the last day of 2025-26. In 2025-26 the company earned business profit of Rs 5,00,000. Which statement is correct about carry forward of the loss against the 2025-26 profit?

The loss cannot be set off against the 2025-26 profit. For a closely held company, carried-forward business loss is allowed only if shares carrying at least 51% voting power are beneficially held by the same persons on the last day of both years, and that condition was not met.

  1. ALoss cannot be set off against 2025-26 profit as the beneficial shareholding of at least 51% did not continueCorrect
  2. BRs 5,00,000 can be set off, and Rs 7,00,000 is carried forward
  3. CThe loss can be set off only to the extent of 35/60 of the profit
  4. DThe loss lapses only after the profit exceeds Rs 10,00,000

Explanation

For a company in which the public are not substantially interested, a business loss is carried forward and set off only if shares carrying at least 51% voting power are beneficially held by the same persons on the last day of the year of loss and the year of set-off. Here the holding fell to 35%, so the condition fails. The proportional set-off in options is not provided by law.

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