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Budget 2023 | Boosting Start-ups: The New Relaxation for Carrying Forward and Setting Off of Losses

Start-ups, in their early years, face numerous challenges and a lot of uncertainty, with one of them being tax regulations. With the Indian government's recent push to support start-ups, they have made a positive amendment to the tax laws, providing much-needed relief to start-ups in carrying forward and setting off of losses.


As per Section 79 of the Companies Act, carrying forward and setting off of losses is restricted for companies other than the ones in which the public is substantially interested. This regulation prohibited the setting off of carried forward losses if there was a change in shareholding, with the carried forward loss being set off only if at least 51% of shareholding remains unchanged with the company.


However, some relaxation has been provided to eligible start-ups as referred to in Section 80-IAC of the Act. The condition of continuity of 51% shareholding is not applicable to eligible start-ups, and the loss is allowed to be set off if all the shareholders of the company as on the last day of the year in which the loss was incurred continue to hold those shares on the last day of the previous year in which the loss is set off. The loss must have been incurred within the first seven years of incorporation for it to be considered for this relaxation.


In order to align this period of seven years with the ten-year period contained in Sub-section (2) of Section 80-IAC of the Act, the government has proposed increasing the time period from seven to ten years from the date of incorporation for the loss of eligible start-ups to be considered for relaxation.


The amendment to the proviso to Sub-section (1) of Section 79 of the Act will take effect from the 1st of April, 2023, and will apply to the assessment year 2023-2024 and subsequent assessment years. This amendment will provide a much-needed boost to start-ups and encourage them to take greater risks and grow their businesses.


In conclusion, the government's recent amendment to the tax laws will provide much-needed relief to start-ups, allowing them to carry forward and set off their losses more easily. This will encourage start-ups to take greater risks and grow their businesses, ultimately leading to a stronger and more vibrant start-up ecosystem in India.

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