Tough to swallow: Carry forward of losses for M&As curtailed in new budget

A key amendment in the Budget does not spell good news for

merger and amalgamation

(M&A) activities. Currently, in case of amalgamation, the losses can be carried forward by the amalgamating company and set-off for a fresh period of eight years from the year of amalgamation. Now, for all amalgamations effected on or after April 1, 2025, the losses can be carried forward only for the residuary period.

For example, if an amalgamation happens in the fifth year from the incurrence of the loss by the amalgamating company, the amalgamated company can carry forward the loss only for the three remaining years. Carry forward and set-off of losses reduces the taxable profits and tax outgo for the amalgamated company.
Pranav Sayta, partner and national leader, transaction services at EY-India, said, “While this may certainly curtail the period of carry forward, it is pertinent to note that this proposal will not impact a succession (say an amalgamation) effected up to March 31, 2025. Hence, losses that have migrated to the successor (say amalgamated company) will in such cases be grandfathered – in the sense that they will continue to enjoy the benefit of carry forward and set-off even after FY26 for up to the period of eight years following the year of succession (amalgamation).”

However, Deepak Joshi, Supreme Court advocate, added, “On a disconcerting note, this amendment is proposed to be made applicable to any amalgamation or business reorganisation, which is effected on or after April 1, 2025. Thus, it adversely affects transactions that have already been concluded on the basis of benefits of carry forward under the existing provisions.”
Some grey areas remain. Ameya Kunte, founder of Globeview Advisors, points out that the proposed amendment applies to ‘amalgamation or business reorganisation, as the case may be, which is effected on or after the April 1, 2025’. Whether the section would apply where the appointed date is before April 1, 2025, would be a matter of interpretation.

He explains, “If a M&A scheme has an appointed date of Jan 1, 2025, and the scheme is approved by the National Company Law Tribunal (NCLT), say, on Dec 1, 2025, whether the amendment will apply is not clear.”
Abhishek Goenka, founder Aeka Advisors, sees a silver lining, “In the spirit of tax certainty and avoiding unintended benefits to companies, this is a welcome change. It will help in getting tax clearance for mergers faster as the extension of losses through mergers was one of the main reason that the tax department would oppose merger petitions at NCLT.”
Some words of the FM, however, have brought hope in the arena of M&As. She said, “Requirements and procedures for speedy approval of company mergers will be rationalised. The scope for fast-track mergers will also be widened and the process made simpler.” India Inc and M&A experts hope this is done soon.