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Section 117 Income Tax Act 2025: Can Banks Transfer Losses on Amalgamation?

Section 117 deals with the treatment of accumulated business losses and unabsorbed depreciation when specified banking institutions, corresponding new banks or government general insurance companies amalgamate under qualifying schemes.

Updated: 10 November 2026 | Chapter VII - Set off or carry forward and set off of losses

Key rule: Section 117 is a special provision. It operates notwithstanding section 2(6)(a) to (c) and section 116, but only for the specified amalgamations and subject to the other applicable provisions of the Act.

Which amalgamations qualify under Section 117(1)?

The special treatment applies to the following classes of amalgamation:

1. Banking companies - Section 117(1)(a)

  • One or more banking companies amalgamating with another banking institution under a scheme sanctioned and brought into force by the Central Government under section 45(7) of the Banking Regulation Act, 1949.
  • One or more banking companies amalgamating with another banking institution or a company following a strategic disinvestment, where the amalgamation takes place within five years from the end of the tax year in which that disinvestment occurred.

2. Corresponding new banks - Section 117(1)(b)

One or more corresponding new banks amalgamating with another corresponding new bank under a Central Government scheme brought into force under section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 or section 9 of the corresponding 1980 Act, or both.

3. Government general insurance companies - Section 117(1)(c)

One or more government companies amalgamating with another government company under a Central Government scheme sanctioned and brought into force under section 16 of the General Insurance Business (Nationalisation) Act, 1972. The definition of government company in this section is specifically confined to the prescribed general insurance companies.

How are accumulated losses and unabsorbed depreciation treated?

For an amalgamation within Section 117(1), the qualifying accumulated loss and unabsorbed depreciation of the amalgamating entity are deemed to be, respectively, the loss and depreciation allowance of the successor entity for the tax year in which the scheme is brought into force. The other provisions of the Income-tax Act relating to set-off and carry-forward then apply.

Important distinction: The deeming provision does not turn speculation losses into eligible accumulated business losses. The definition in Section 117(3)(a) expressly excludes speculation-business losses.

Does a fresh eight-year carry-forward period begin after amalgamation?

No. Under Section 117(2), where the relevant amalgamation scheme is brought into force on or after 1 April 2025, a qualifying predecessor loss transferred to the successor can be carried forward for not more than eight tax years immediately succeeding the tax year for which that loss was first computed for the original predecessor entity. The amalgamation does not restart the clock. The rule concerns accumulated losses; unabsorbed depreciation is governed by the applicable depreciation provisions.

Definitions under Section 117(3)

Accumulated loss - clause (a): Eligible loss under the head "Profits and gains of business or profession", excluding speculation-business losses, that the predecessor could have carried forward and set off under Section 112 if amalgamation had not occurred.
Banking company - clause (b): Has the meaning assigned by section 5(c) of the Banking Regulation Act, 1949.
Banking institution - clause (c): Has the meaning assigned by section 45(15) of the Banking Regulation Act, 1949.
Corresponding new bank - clause (d): Has the meaning assigned by section 2(d) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 or section 2(b) of the 1980 Act.
General insurance business - clause (e): Has the meaning assigned by section 3(g) of the General Insurance Business (Nationalisation) Act, 1972.
Government company - clause (f): A government company within section 2(45) of the Companies Act, 2013, engaged in general insurance business and established under section 4, 5 or 16 of the General Insurance Business (Nationalisation) Act, 1972.
Original predecessor entity - clause (g): The predecessor entity in the first amalgamation.
Strategic disinvestment - clause (h): Has the meaning assigned in Section 116(3)(c)(i).
Unabsorbed depreciation - clause (i): Depreciation allowance of the specified amalgamating entity that remains to be allowed and would have been allowed to that predecessor had the amalgamation not occurred.

Practical example: calculating the remaining loss period

Assume a qualifying bank first computed an eligible business loss for tax year 2026-27 and is amalgamated under a qualifying scheme in tax year 2028-29. The successor does not receive eight new tax years from 2028-29. Subject to the statutory conditions, the original eight succeeding tax years run from 2027-28 through 2034-35. The example illustrates the period rule only; actual set-off also depends on the nature and eligibility of the loss.

How does Section 117 differ from Section 116?

Section 116 lays down rules for various amalgamations, demergers and other business reorganisations. Section 117 is a targeted rule for the listed banking and government general insurance amalgamations and expressly overrides specified provisions of Section 116 for those cases. Section 117 broadly corresponds to Section 72AA of the Income-tax Act, 1961, but each transaction should be examined against the applicable statutory text and commencement provisions.

Frequently asked questions

Can every company transfer losses under Section 117?

No. The section is limited to the specified classes of banking and government general insurance amalgamation.

Are speculation losses covered?

No. The definition of accumulated loss excludes losses from a speculation business.

Can a strategic disinvestment qualify?

Yes, where the banking-company amalgamation falls within Section 117(1)(a)(ii), including its five-year timing condition and the statutory meaning of strategic disinvestment.

Does amalgamation renew the carry-forward period?

No. For schemes brought into force on or after 1 April 2025, Section 117(2) measures the eight-year period from the tax year in which the loss was first computed for the original predecessor entity.

Does the eight-year rule apply in the same way to unabsorbed depreciation?

No. Section 117(2) specifically addresses losses forming part of accumulated loss. Unabsorbed depreciation must be assessed under the applicable depreciation provisions.

Statutory sources and further reading

For authoritative interpretation, consult the enacted legislation and the current official departmental publication, including any amendments applicable to the relevant tax year.

Income Tax Department - Income-tax Act 2025Gazette - Income-tax Act 2025Departmental FAQs on losses

This article is general legal information and does not substitute for transaction-specific professional advice.