Budget Curtails Carry-Forward Losses for M&As

The Union Budget 2025-26, while promising a new framework for smoother mergers and acquisitions (M&As), has plugged a major loophole on carry-forward losses for a total of eight assessment years between amalgamating company and amalgamated company from the date of loss instead of the date of the merger.

- Dev Chatterjee & Jaden Mathew Paul

For all mergers effected on or after April 1, 2025, the losses can be carried forward only for the residuary period (counting from the date of loss).

Amrish Shah, partner, Deloitte India, said mergers will now become less attractive due to restriction on losses carried forward. "Insolvency and bankruptcy cases may not get full value in the auction process if a merger is envisaged for the utilisation of losses by the acquirer," Shah said.

Abhishek Mundada, partner, Dhruva Advisors, said losses eligible to be carried forward under amalgamation/merger can no longer be evergreened (i.e., have fresh life) and time limit for setoff of such losses shall be restricted to the period of eight assessment years following the year in which it was first computed for original predecessor entity.

"This shall be applicable for amalgamation being effected on and after April 1, 2025. The provisions have been aligned as applicable for demerger transactions," he said.