Income-tax Act, 2025 | Section 116

Section 116 - Treatment of accumulated losses and unabsorbed depreciation in amalgamation or demerger, etc

Section 116 is the principal reorganisation gateway for inherited accumulated business loss and unabsorbed depreciation. It covers specified amalgamations, demergers, conversion of a firm or proprietary concern into a company, and conversion of a private or unlisted public company into an LLP. Each route has detailed continuity, ownership, asset-holding and business-continuance conditions. Failure can reverse prior benefits as income of the successor.

Reviewed by CA Nikhil Gupta · Updated 9 October 2026

Section 116: operativeEffective 1 April 2026Tax Year 2026-27 onwardLegally reviewed 8 October 2026

Current-law control

This page uses the consolidated Income-tax Act, 2025 as amended by the Finance Act, 2026. The Act and Income-tax Rules, 2026 operate from 1 April 2026. Earlier years and saved proceedings remain subject to the repeal-and-savings framework.

Primary statute: Income Tax Department consolidated Act | Rules: Notified Income-tax Rules, 2026

2-minute decode

Who should use this section

Businesses and successors involved in amalgamation, demerger, restructuring, ownership change, search/requisition or other special loss situations This applicability note is specific to section 116.

Old-law bridge

1961 Act section 72A

The bridge is navigational only. A 1961 Act case or rule is carried forward only after checking wording, transition provisions and the current 2025 Act text.

Professional alert

Rule 60 and Form 29 connection For an amalgamated company owning an industrial undertaking, section 116(4)(b)(iii) imports the prescribed conditions in Rule 60. The undertaking must ordinarily reach at least 50% of installed capacity before the end of four years from amalgamation and maintain that level until the end of five years. Form 29 is furnished with the return for the year in which the prescribed production level is achieved and for the subsequent relevant tax years within that five-year period, subject to any lawful relaxation. Exception / professional alert For qualifying reorganisations occurring on or after 1 April 2025, section 116(12) measures the balance carry-forward period from the tax year in which the predecessor first computed the loss. Reorganisation does not restart the eight-year clock.

Connected Income-tax Rules, 2026 and Forms

Rule	Current control	Form
Rule 60	Conditions for carrying forward or set-off of accumulated loss and unabsorbed depreciation in case of amalgamation	Form 29

Worked application

An industrial undertaking is amalgamated on 1 July 2026. The predecessor has carried business loss and unabsorbed depreciation. The successor must test the business-history, asset-holding, continuity and Rule 60 conditions and furnish Form 29 for the relevant years. If this is part of a chain of qualifying amalgamations or reorganisations, the remaining carry-forward period is not measured from the immediate transaction: section 116(12) traces the eight-year limit to the tax year in which the loss was first computed for the original predecessor entity, meaning the predecessor in the first relevant amalgamation or reorganisation.

Evidence / compliance checklist

Build a section 116 loss ledger showing source, head, tax year of origin, amount used and balance carried forward.
Preserve the timely return and assessment/intimation that determines the loss where the statute makes filing a condition (section 116: Treatment of accumulated losses and unabsorbed depreciation in amalgamation or demerger, etc.).
For reorganisations, retain scheme orders, ownership continuity, asset/business continuity and predecessor-successor tax records (section 116: Treatment of accumulated losses and unabsorbed depreciation in amalgamation or demerger, etc.).
Prevent double use by reconciling the carry-forward schedule to each later return before set-off (section 116: Treatment of accumulated losses and unabsorbed depreciation in amalgamation or demerger, etc.).

Common mistake

Using a single “loss carried forward” figure for section 116 without preserving head/source restrictions, filing conditions and the remaining statutory period.

Recommended approach

For section 116, fix the governing tax year, identify the operative sub-section for “Treatment of accumulated losses and unabsorbed depreciation in amalgamation or demerger, etc.”, trace every amount to evidence, apply only verified Rule/Form links, and retain a computation that another reviewer can reproduce from the primary source.

Thresholds, periods and timing checkpoints

sector company and the amalgamation is carried out within five years
from the end of the tax year in which the restriction on amalgamation
deemed to be the loss or, allowance for unabsorbed depreciation of the amalgamated company for the tax year in which the amalgamation was effected, and other
sector company in earlier tax years and ceases to be so due to strategic
(A) reduction of its shareholding to below 51%; and
Government or the public sector company exceeded 51% before
three-fourths of the book value of fixed assets held by it two years
(i) holds continuously for a minimum of five years from the date of
(ii) continues the business of the amalgamating company for a minimum of five years from the date of amalgamation;
set off of loss or allowance of depreciation made in any tax year in the hands of

Judicial / interpretive bridge

No section-specific Supreme Court bridge is included for section 116 unless text-equivalence with the 2025 Act has been checked. Legacy cases should not be transplanted into section 116 merely because the subject is similar.

Related provisions

Section 5
Section 2
Section 70
Section 112
Section 3
Section 115
Section 117

Current statutory text

116. (1) Where there has been an amalgamation of,— (a) a company owning an industrial undertaking or a ship or a hotel with another company; or (b) a banking company referred to in section 5(c) of the Banking Regulation Act, 1949 (10 of 1949) with a specified bank; or (c) one or more public sector company with one or more other public sector company; or (d) an erstwhile public sector company with one or more company or companies, if the share purchase agreement entered into under strategic disinvestment restricted immediate amalgamation of the said public sector company and the amalgamation is carried out within five years from the end of the tax year in which the restriction on amalgamation in the share purchase agreement ends, then, irrespective of anything contained in any other provision of this Act, the accumulated loss and unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, allowance for unabsorbed depreciation of the amalgamated company for the tax year in which the amalgamation was effected, and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly. (2) The accumulated loss and the unabsorbed depreciation of the amalgamating company, in case of an amalgamation referred to in sub-section (1)(d), which is deemed to be the loss or, as the case may be, the unabsorbed depreciation of the amalgamated company, shall not exceed the accumulated loss and unabsorbed depreciation of the public sector company as on the date on which it ceases to be a public sector company due to such strategic disinvestment. (3) For the purposes of sub-section (1)(d),— (a) “control” shall have the same meaning as assigned to it in section 2(27) of the Companies Act, 2013 (18 of 2013); (b) “erstwhile public sector company” means a company which was a public sector company in earlier tax years and ceases to be so due to strategic disinvestment by the Government; (c) (i) “strategic disinvestment” means sale of shareholding by the Central Government or State Government or a public sector company, in a public sector company or in a company, which results in— (A) reduction of its shareholding to below 51%; and (B) transfer of control to the buyer; (ii) for clause (c)(i)(A), the reduction of shareholding shall apply only where shareholding of the Central Government or the State Government or the public sector company exceeded 51% before the sale of shareholding; (iii) the transfer of control referred to in clause (c)(i)(B) may be effected by the Central Government or the State Government or the public sector company or any two or all of them. (4) Irrespective of anything contained in sub-sections (1), (2) and (3), the accumulated loss shall not be set off or carried forward and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless,— (a) the amalgamating company— (i) has been engaged in the business, in which the accumulated loss occurred or depreciation remains unabsorbed, for three or more years; (ii) has held continuously as on the date of the amalgamation, at least three-fourths of the book value of fixed assets held by it two years preceding the date of amalgamation; (b) the amalgamated company— (i) holds continuously for a minimum of five years from the date of amalgamation at least three-fourths of the book value of fixed assets of the amalgamating company acquired in a scheme of amalgamation; (ii) continues the business of the amalgamating company for a minimum of five years from the date of amalgamation; (iii) fulfils such other conditions as may be prescribed to ensure the revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose. (5) If any of the conditions laid down in sub-section (4) are not complied with, the set off of loss or allowance of depreciation made in any tax year in the hands of the amalgamated company shall be deemed to be the income of the amalgamated company chargeable to tax for the year in which the non-compliance occurs. (6) Irrespective of anything contained in any other provisions of this Act, in the case of a demerger, the accumulated loss and the allowance for unabsorbed depreciation of the demerged company shall,— (a) if directly relatable to the undertakings transferred to the resulting company, be allowed to be carried forward and set off in the hands of the resulting company; (b) if not directly relatable to the undertakings transferred to the resulting company, be apportioned between the demerged company and the resulting company in the same proportion in which the assets of the undertakings have been retained by the demerged company and transferred to the resulting company, and shall be allowed to be carried forward and set off in the hands of the demerged company or the resulting company, as applicable. (7) The Central Government may, by notification, specify such conditions to ensure that the demerger is for genuine business purposes. (8) If there has been reorganisation of business where, a firm is succeeded by a company fulfilling the conditions laid down in section 70(1)(zd) or a proprietary concern is succeeded by a company fulfilling the conditions laid down in section 70(1)(zf), then, irrespective of anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the predecessor firm or the proprietary concern, shall be deemed to be the loss or allowance for depreciation of the successor company for the tax year in which business reorganisation was effected and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly, subject to provisions of sub-section (9). (9) If any of the conditions laid down in section 70(1)(zd) or (zf), as the case may be, are not complied with, the set off of loss or allowance of depreciation made in any tax year in the hands of the successor company, shall be deemed to be the income of the company chargeable to tax in the year in which the non-compliance occurs. (10) If there has been reorganisation of business whereby a private company or unlisted public company is succeeded by a limited liability partnership fulfilling the conditions laid down in section 70(1)(ze), then, irrespective of anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the predecessor company, shall be deemed to be the loss or allowance for depreciation of the successor limited liability partnership for the tax year in which business reorganisation was effected and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly, subject to provisions of sub-section (11). (11) If any of the conditions laid down in section 70(1)(ze)are not complied with, the set off of loss or allowance of depreciation made in any tax year in the hands of the successor limited liability partnership, shall be deemed to be the income of the limited liability partnership chargeable to tax in the year in which the non-compliance occurs. (12) For any amalgamation referred to in sub-section (1) or reorganisation of business referred to in sub-section (8) or (10) effected on or after the 1st April, 2025, any loss forming part of the accumulated loss of the predecessor entity, being— (i) the amalgamating company; or (ii) the firm or proprietary concern; or (iii) the private company or unlisted public company, as the case may be, which is deemed to be the loss of the successor entity, being— (a) the amalgamated company; or (b) the successor company; or (c) the successor limited liability partnership, as the case may be, shall be carried forward for not more than eight tax years immediately succeeding the tax year for which such loss was first computed for the original predecessor entity. (13) For the purposes of this section,— (a) “accumulated loss” means so much of the loss of the predecessor firm or the proprietary concern or the private company or unlisted public company before conversion into limited liability partnership or the amalgamating company or the demerged company, under the head “Profits and gains of business or profession” (excluding loss in a speculation business) which would have been eligible for carry forward and set off to such predecessor entity under section 112, had the reorganisation of business or conversion or amalgamation or demerger not occurred; (b) “industrial undertaking” means any undertaking which is engaged in— (i) the manufacture or processing of goods; or (ii) the manufacture of computer software; or (iii) the business of generation or distribution of electricity or any other form of power; or (iv) the business of providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services; or (v) mining; or (vi) the construction of ships, aircrafts or rail systems; (c) “original predecessor entity” means predecessor entity in respect of the first amalgamation for sub-section (1) or first reorganisation of business for sub-sections (8) and (10), as the case may be; (d) “specified bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955) or a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980); (e) “unabsorbed depreciation” means so much of the allowance for depreciation of the predecessor firm or the proprietary concern or the private company or unlisted public company before conversion into limited liability partnership or the amalgamating company or the demerged company, which remains to be allowed and which would have been allowed to such predecessor entity under this Act, had the reorganisation of business or conversion or amalgamation or demerger not occurred.

Primary-source trail

FAQs

What does section 116 of the Income-tax Act, 2025 cover?

Section 116 covers treatment of accumulated losses and unabsorbed depreciation in amalgamation or demerger, etc.. The operative result depends on the exact statutory conditions shown on this page and applies from 1 April 2026, subject to transition/savings provisions.

Who should check section 116?