Limiting carrying forward of losses a 'double-edged sword'

THE PROPOSAL IN the Budget to amend the tenure for carrying forward of losses after a merger could be a double-edged sword, according to M&A (mergers & acquisitions) and tax experts.

- URVI MALVANIA

While on one hand, it may curtail evergreening of tax benefits on account of carrying forward of losses, it could also deter well-run companies from investing in ailing ones and turning them around, they said.

The Budget proposed curtailing the tenure of carrying forward of losses of an acquired company by the acquiring one only for the residual period of eight years from the assessment year in which the first instance of loss was reported.

Currently, in case of merger or amalgamation of firms or business reorganisation, the accumulated loss of the predecessor entity is deemed to be the loss of successor entity for the previous year in which the amalgamation was brought into force and can be carried forward for eight years from the year of the merger. The amendment will come into effect from April 1, 2025.