Every business sees ups and downs, & while profits bring smiles, losses often trigger worry. But what if the Income Tax Act gave you a way to turn those losses into future tax relief? That’s exactly what Section 72 of the Income Tax Act offers.
If you've incurred business or professional losses, especially in a bad financial year, Section 72 lets you carry forward those losses & offset them against future business income. In short, your current loss might just become your future gain.
What is Section 72 of the Income Tax Act?
Section 72 of the Income Tax Act allows taxpayers to carry forward & set off business losses against profits in subsequent years. This provision acts as a cushion, particularly for startups & enterprises navigating the initial years of unpredictability.
Imagine you suffered a business loss of ₹5 lakh in FY 2023–24. In the next financial year, your business earns ₹8 lakh. Thanks to Section 72, you can offset the earlier ₹5 lakh loss & pay tax only on the ₹3 lakh net profit.
Who Can Avail the Benefit of Section 72?
The section primarily applies to:
Basically, any taxpayer with income from a business or profession can make use of this provision. However, there’s a condition — the loss must be from a source under the head "Profits & Gains of Business or Profession."
Losses from capital gains or speculative businesses follow different rules & cannot be adjusted under Section 72."
Key Conditions You Must Meet
Here are some must-know conditions for applying Section 72:
- Filing the return on time is mandatory. You cannot carry forward losses unless the ITR is filed before the due date under Section 139(1).
- The loss should be computed & filed under the Act. Artificial or estimated losses are not allowed.
- The business must continue to exist. If the business is permanently shut, carried forward losses are not permitted.
- The set-off can only happen against non-speculative business income.
Time Limit for Carry Forward
One of the most searched phrases online is: "How many years can business losses be carried forward?"
Section 72 allows business losses to be carried forward for up to eight assessment years following the assessment year in which the loss was first incurred.
For example, if you incur a loss in AY 2024–25, you can carry it forward up to AY 2032–33 — provided you comply with all conditions, especially timely filing.
Set-Off & Carry Forward: Explained with Example
Let’s say your business incurs a loss of ₹7 lakh in FY 2022–23. You file your ITR on time, & in FY 2023–24, your business earns a profit of ₹4 lakh.
- You can set off ₹4 lakh of your loss in FY 2023–24.
- The remaining ₹3 lakh loss will be carried forward & can be adjusted in future years up to the 8-year limit.
Now, imagine you don’t have any profit for the next two years. In FY 2026–27, you earn ₹5 lakh — that leftover ₹3 lakh loss can still be adjusted!
Carry Forward of Unabsorbed Depreciation vs Business Loss
This is where many taxpayers get confused. Section 72 talks about business loss, whereas unabsorbed depreciation is handled under Section 32(2). The big difference?
- Business losses under Section 72 can be carried forward for eight years only.
- Unabsorbed depreciation, on the other hand, can be carried forward indefinitely."
Section 72 vs Section 72A
You may have come across Section 72A in your research. It allows amalgamated companies to carry forward & set off losses of the amalgamating company, provided certain conditions are met. Section 72A is a corporate restructuring tool, while Section 72 focuses on the individual taxpayer or standalone business entities.
Both sections are linked by the common objective: relief from past losses.
Why is Section 72 Important for Businesses?
- Financial breathing room: It lets businesses recover from a bad year without an immediate tax burden.
- Long-term planning: Entrepreneurs can strategically plan when to use accumulated losses.
- Startups benefit immensely: Since early-stage losses are common, this provision becomes a vital part of startup tax planning.
FAQs
Q1. Can I carry forward a business loss if I file ITR late?
No. Filing your ITR before the due date is mandatory for carry forward.
Q2. Is there a limit on how many times I can carry forward losses?"
Yes, for up to 8 assessment years only.
Q3. Can I set off these losses against salary income?
No. Business losses can only be set off against non-speculative business income, not salary or capital gains.
Q4. What’s the difference between Section 72 & unabsorbed depreciation?
Unabsorbed depreciation can be carried forward indefinitely, unlike business losses under Section 72, which are limited to 8 years.
Final Words
Section 72 is a lifeline — a tax provision that truly understands the roller-coaster ride of running a business. If your year wasn’t financially rewarding, this section ensures you’re not punished twice — once by the market and then by the taxman.
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