Sections 119 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 119 sets out cases in which a loss cannot be carried forward and set off: a retired or deceased partner's share in a firm's loss, a loss of a business taken over by someone else, and a company's loss after a change of more than half of its voting shareholders. Section 120 bars set-off of losses against undisclosed income found on search, requisition or survey. This article reads the two 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 your return, see our tax planning advisory.
A firm cannot carry forward a retired or deceased partner's share of loss beyond his share of profits (section 119(1)). A person who succeeds another in a business, other than by inheritance, cannot carry forward the predecessor's loss (119(2)). A company that is not one in which the public are substantially interested loses its earlier losses unless shares carrying at least 51% of the voting power are held on the last day of the year by the same persons who held them on the last day of the loss year (119(3)); there are exceptions in 119(4). Section 120 bars set-off of any loss or unabsorbed depreciation against undisclosed income found on search, requisition or survey.
Section 119(1): change in the constitution of a firm
If the constitution of a firm changes during a tax year, nothing in Chapter VII entitles the firm to carry forward and set off the part of the loss proportionate to the share of a retired or deceased partner that exceeds his share of profits, if any, in the firm for the tax year.
Example (invented). A firm has an unabsorbed loss of Rs. 1,00,000, of which a retiring partner's proportionate share is Rs. 40,000. His share of the profits of the firm for the tax year is Rs. 15,000. The excess, Rs. 40,000 – Rs. 15,000 = Rs. 25,000, cannot be carried forward and set off by the firm.
Section 119(2): succession in business
If a person carrying on any business or profession is succeeded in that capacity by another person, otherwise than by inheritance, nothing in Chapter VII entitles anyone other than the person who incurred the loss to carry it forward and set it off against his income. The reorganisation cases in section 116(8) to (11) operate "irrespective of anything contained in any other provision", and our article on section 116 covers them.
Section 119(3): change in shareholding of a company
The general rule
Irrespective of anything in Chapter VII, in the case of a change in shareholding during the tax year of a company (not being a company in which the public are substantially interested):
- (a) no loss incurred in any earlier year is carried forward and set off against the income of the tax year, unless, on the last day of the tax year, shares carrying not less than 51% of the voting power were beneficially held by the persons who beneficially held shares carrying not less than 51% of the voting power on the last day of the year or years in which the loss was incurred.
Example (invented). Larkspur Pvt. Ltd. incurred a loss in tax year 1, when Asha held 60% of the voting power and Binoy held 40%. In tax year 3, Asha sells half of her shares to Chetan, so that on the last day of tax year 3 Asha holds 30%, Binoy 40% and Chetan 30%. Persons who held 51% or more on the last day of tax year 1 (Asha and Binoy, together all of the voting power) still hold 70% on the last day of tax year 3 (Asha 30% + Binoy 40%). That is not less than 51%, so the condition in clause (a) is met. If Binoy had sold his entire 40% to Chetan as well, Asha alone would hold 30%, and the loss could not be carried forward and set off against the income of tax year 3 under clause (a). (Shareholding percentages are invented.)
The eligible start-up exception: clause (b)
Regardless of the change in percentage of shareholding, where the company is an eligible start-up referred to in section 140, an earlier loss may be carried forward and set off against the income of the tax year if:
- (i) all the shareholders who held shares carrying voting power on the last day of the year or years in which the loss was incurred continue to hold those shares on the last day of the tax year; and
- (ii) the loss was incurred during the period of ten years beginning from the year in which the company is incorporated.
For the start-up deduction in section 140, see our article on section 140.
Section 119(4): when sub-section (3) does not apply
| Clause | Case |
|---|---|
| (a) | Change in voting power and shareholding in the tax year due to the death of a shareholder, or transfer of shares by way of gift to any relative of the shareholder |
| (b) | Change in shareholding of an Indian company that is a subsidiary of a foreign company, due to amalgamation or demerger of the foreign company, where 51% of the shareholders of the amalgamating or demerged foreign company are shareholders of the amalgamated or resulting foreign company |
| (c) | Change in shareholding in a tax year consequent to a resolution plan approved under the Insolvency and Bankruptcy Code, 2016, where a reasonable opportunity of being heard was afforded to the jurisdictional Principal Commissioner or Commissioner |
| (d) | A company, its subsidiary and subsidiary of such subsidiary, if (i) the Board of Directors was suspended by the Tribunal on an application moved by the Central Government under section 241 of the Companies Act, 2013 and new directors were appointed by the Central Government under section 242; and (ii) the change in shareholding took place consequent to a resolution plan approved by the Tribunal under section 242, with a reasonable opportunity of being heard afforded to the jurisdictional Principal Commissioner or Commissioner |
| (e) | A company to the extent that a change in shareholding during the tax year is on account of relocation referred to in section 70(2) (Table: serial number 5.C) |
| (f) | An erstwhile public sector company where the ultimate holding company, immediately after completion of strategic disinvestment, continues to hold, directly or through subsidiaries, at least 51% of the voting power in aggregate |
The Insolvency and Bankruptcy Code, 2016 and the Companies Act, 2013 are other laws; check them for the provisions named.
Sub-section (5). Irrespective of sub-section (4), if the condition in sub-section (4)(f) is not complied with in any tax year after the completion of strategic disinvestment, sub-section (3) applies for that year and subsequent years.
Sub-section (6).
- (a) a company is a subsidiary of another company if the other company holds more than half in nominal value of the equity share capital;
- (b) "erstwhile public sector company" is as in section 116(3)(b);
- (c) "strategic disinvestment" is as in section 116(3)(c)(i);
- (d) "Tribunal" has the meaning in section 2(90) of the Companies Act, 2013.
Section 120: no set off against undisclosed income
Sub-section (1)
Irrespective of anything in any other provision of the Act, any loss, whether brought forward or otherwise, or unabsorbed depreciation is not allowed to be set off against any undisclosed income included in the total income of any tax year consequent to:
- a search conducted under section 247; or
- a requisition under section 248; or
- a survey conducted under section 253, not being a survey under section 253(4).
Sub-section (2)
"Undisclosed income" for any tax year has the meaning referred to in section 301.
For search and survey, see the live notes on section 247 (search and seizure) and section 253 (survey). Section 121, on submitting a return to determine losses, is covered in the live note on section 121.
Summary table
| Section | Who is affected | Effect |
|---|---|---|
| 119(1) | Firm, on retirement or death of a partner | Loss proportionate to the partner's share, beyond his profit share, cannot be carried forward and set off |
| 119(2) | Person succeeding in a business, other than by inheritance | Predecessor's loss cannot be carried forward by the successor |
| 119(3) | Company not substantially held by the public | Earlier losses lapse unless the 51% voting continuity test is met (or the start-up condition in (b)) |
| 120 | Any assessee with undisclosed income after search, requisition or survey | No set off of losses or unabsorbed depreciation against that income |
Need help with loss carry forward after a change in ownership?
Whether a loss survives a share transfer depends on voting power on two specific dates and on the exceptions in section 119(4). Our tax planning advisory team can help you test a planned transaction against section 119 before it closes.
Key takeaways
- A firm cannot carry forward a retired or deceased partner's share of loss beyond his share of profits.
- A successor, other than by inheritance, cannot carry forward the predecessor's loss.
- For a company not substantially held by the public, shares carrying at least 51% of voting power must be held by the same persons on the two relevant days.
- Eligible start-ups under section 140 have a separate test: all earlier shareholders continue, and the loss arose within ten years from incorporation.
- Section 120 bars set-off against undisclosed income found on search, requisition or survey (other than a survey under section 253(4)).
Read next
- Section 116: accumulated losses in amalgamation or demerger
- Sections 117–118: bank and co-operative bank losses
- Section 121: loss return
- 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.