Sections 117 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 117 passes the accumulated loss and unabsorbed depreciation of amalgamating banks, corresponding new banks and Government general insurance companies to the surviving entity, with an eight-tax-year limit for schemes in force on or after 1 April 2025. Section 118 does the same for co-operative banks on amalgamation or demerger, subject to conditions. This article reads both sections as per the Income-tax Act, 2025 as amended by the Finance Act, 2026; later amendments, rules and notifications should be checked. For help with a reorganisation, see our tax planning advisory.
Under section 117, the accumulated loss and unabsorbed depreciation of amalgamating banking companies, corresponding new banks and Government general insurance companies are deemed to be those of the surviving entity for the tax year the scheme came into force, and for schemes on or after 1 April 2025 the loss can be carried forward for not more than eight tax years. Under section 118, a successor co-operative bank sets off the predecessor's losses as if the amalgamation had not taken place, provided the conditions in sub-section (3) (and any notified conditions) are met; otherwise the set-off is deemed income.
Section 117: banks and Government insurance companies
Sub-section (1): which schemes
Irrespective of section 2(6)(a) to (c) or section 116, where there has been an amalgamation of:
| Clause | Amalgamation |
|---|---|
| (a)(i) | One or more banking companies with any other banking institution under a scheme sanctioned and brought into force by the Central Government under section 45(7) of the Banking Regulation Act, 1949 |
| (a)(ii) | One or more banking companies with any other banking institution, or a company following a strategic disinvestment, where the amalgamation occurs within five years from the end of the tax year in which the disinvestment is carried out |
| (b) | One or more corresponding new banks with any other corresponding new bank under a scheme brought into force by the Central Government under section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 or 1980, or both |
| (c) | One or more Government companies with any other Government company under a scheme sanctioned and brought into force by the Central Government under section 16 of the General Insurance Business (Nationalisation) Act, 1972 |
the accumulated loss and unabsorbed depreciation of the amalgamating entity are deemed to be the loss, or allowance for depreciation, of the surviving banking institution or company, amalgamated corresponding new bank or amalgamated Government company for the tax year in which the scheme was brought into force, and the Act's other provisions on set-off and carry forward apply accordingly. These references to other Acts are quoted as printed; check those laws.
Sub-section (2): eight tax years
Where a scheme is brought into force on or after the 1st April, 2025, any loss forming part of the accumulated loss of the predecessor entity (banking company, amalgamating corresponding new bank or amalgamating Government company) that is deemed to be the successor entity's is carried forward in the successor's hands for not more than eight tax years immediately succeeding the tax year for which the loss was first computed for the original predecessor entity.
Example (invented). Meridian Bank's loss was first computed in tax year 1. A scheme under section 45(7) of the Banking Regulation Act, 1949 merges Meridian into Capstone Bank and comes into force in tax year 4, after 1 April 2025. Capstone's carry forward of that loss ends with tax year 9 (eight tax years succeeding tax year 1), not tax year 12.
Sub-section (3): meanings
| Term | Meaning |
|---|---|
| Accumulated loss | So much of the loss of the amalgamating banking company, corresponding new bank or Government company under "Profits and gains of business or profession" (excluding speculation losses) which the predecessor would have been entitled to carry forward and set off under section 112 had the amalgamation not occurred |
| Banking company | As in section 5(c) of the Banking Regulation Act, 1949 |
| Banking institution | As in section 45(15) of the Banking Regulation Act, 1949 |
| Corresponding new bank | As in section 2(d) of the 1970 Act, or section 2(b) of the 1980 Act, mentioned above |
| General insurance business | As in section 3(g) of the General Insurance Business (Nationalisation) Act, 1972 |
| Government company | A Government company as in section 2(45) of the Companies Act, 2013, engaged in general insurance business and established under section 4, 5 or 16 of the 1972 Act |
| Original predecessor entity | The predecessor entity in the first amalgamation |
| Strategic disinvestment | As in section 116(3)(c)(i) |
| Unabsorbed depreciation | The allowance for depreciation of the amalgamating entity which remains to be allowed and would have been allowed had the amalgamation not occurred |
Section 117 has no conditions of the kind in section 116(4) (three years of business, three-fourths of fixed assets, five-year continuation). For those, and for the general amalgamation rule, see our article on section 116.
Section 118: co-operative banks
Sub-section (1): amalgamation
The assessee, being a successor co-operative bank, where the amalgamation has taken place during the tax year, is allowed to set off the accumulated loss and unabsorbed depreciation, if any, of the predecessor co-operative bank as if the amalgamation had not taken place, and the Act's other provisions on set-off and carry forward of loss and depreciation apply accordingly.
Sub-section (2): demerger
Where a co-operative bank demerger takes place during the tax year, and the demerged bank's accumulated loss or unabsorbed depreciation:
- (a) is directly relatable to the undertaking transferred, the whole of it is carried forward and set off against the income of the resulting co-operative bank; and
- (b) is not directly relatable, it is first apportioned between the demerged and resulting banks in the same proportion in which the assets of the undertaking are distributed between them, and carried forward and set off against their respective incomes.
Sub-sections (3) to (5): conditions and breach
Section 118 applies if:
| Who | Condition |
|---|---|
| Predecessor co-operative bank | (i) engaged in the business of banking for three or more years; and (ii) has held at least three-fourths of the book value of fixed assets as on the date of the business reorganisation, continuously for two years before that date |
| Successor co-operative bank | (i) holds at least three-fourths of the book value of fixed assets of the predecessor acquired through the reorganisation continuously for a minimum five years immediately succeeding the date; (ii) continues the predecessor's business for a minimum five years; and (iii) fulfils such other conditions as may be prescribed to ensure revival of the business or that the reorganisation is for genuine business purposes |
Sub-section (4) lets the Central Government, by notification, specify other conditions (apart from (3)(b)(iii)) to ensure the reorganisation is for genuine business purposes. What has been notified is not in the text consulted, and the prescribed conditions are left to the Income-tax Rules, 2026.
Under sub-section (5), if a condition in sub-section (3) or notified under sub-section (4) is not complied with, the set-off of accumulated business loss or unabsorbed depreciation made in any tax year in the successor's hands is deemed to be the successor's income chargeable to tax for the year in which the non-compliance occurs.
Sub-section (6): the year is split
The period from the beginning of the tax year to the day immediately preceding the date of business reorganisation, and the period from that date to the end of the tax year, are deemed to be two different tax years for set-off and carry forward of loss and allowance for depreciation.
Example (invented). A co-operative bank amalgamation takes place on 1 October. For set-off and carry forward, 1 April to 30 September is treated as one tax year and 1 October to 31 March as another. The days-based split of deductions under section 64 is covered in our article on sections 64 and 65.
Sub-section (7): meanings
"Accumulated loss" is so much of the loss of the amalgamating or demerged co-operative bank, as referred to in section 112 in the predecessor's hands, which it would have been entitled to carry forward and set off under that section had the reorganisation not taken place. The terms amalgamated co-operative bank, amalgamating co-operative bank, amalgamation, business reorganisation, demerged co-operative bank, demerger, predecessor co-operative bank, successor co-operative bank and resulting co-operative bank have their meanings in section 65. "Unabsorbed depreciation" is the allowance remaining to be allowed to the amalgamating or demerged bank had the reorganisation not taken place.
Comparing sections 116, 117 and 118
| Point | Section 116 | Section 117 | Section 118 |
|---|---|---|---|
| Entities | Companies, firms, proprietary concerns, LLP conversions | Banking companies, corresponding new banks, Government general insurance companies | Co-operative banks |
| Conditions for the loss to pass | Yes (sub-section (4)) | None stated in section 117 | Yes (sub-section (3)) |
| Eight-tax-year limit | For events on or after 1 April 2025 (sub-section (12)) | For schemes on or after 1 April 2025 (sub-section (2)) | None stated in section 118 |
| Breach of conditions | Set-off deemed income | Not applicable | Set-off deemed income |
Need help with a bank or co-operative bank reorganisation?
Loss carry forward after a merger depends on the type of entity, the year the loss was first computed and the conditions kept for five years. Our tax planning advisory team can help you check each point against sections 116 to 118 before the scheme is finalised.
Key takeaways
- Section 117 covers bank, corresponding new bank and Government insurance company amalgamations under the Central Government's schemes.
- For schemes on or after 1 April 2025, the transferred loss is carried forward not more than eight tax years from the year it was first computed for the original predecessor.
- Section 118 requires conditions to be met by both predecessor and successor co-operative banks.
- Breach of section 118 conditions deems the earlier set-off to be income of the year of breach.
- Under section 118(6), the year of reorganisation is split into two deemed tax years.
Read next
- Section 116: accumulated losses in amalgamation or demerger
- Sections 119–120: losses not carried forward in certain cases
- Sections 64–65: co-operative bank reorganisation deductions
- Income-tax Act 2025 Chapter VII
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.