Section 79 Loss-Lapse Checker — will your startup's losses survive the funding round?

Under Section 79(1), Income-tax Act 1961, a company's carried-forward business losses are restricted if the persons holding at least 51% of voting power on the last day of the loss year do not continue to hold at least 51% on the last day of the carry-forward year. However, a proviso to Section 79 — applicable to startups referred to in Section 80-IAC — replaces the 51% test with a simpler requirement: all shareholders who held shares carrying voting power in the loss year must continue to hold shares (any quantity) in the carry-forward year. If the startup qualifies under s.80-IAC and every loss-year shareholder still holds shares, percentage dilution is irrelevant and the losses survive.

No. DPIIT recognition under the Startup India initiative is a prerequisite, but the Section 79 startup proviso keys off Section 80-IAC, which requires an Inter-Ministerial Board (IMB) certificate. DPIIT recognition alone does not trigger the proviso — without the 80-IAC certificate, the general 51% voting-power test applies.

No. Section 32(2), Income-tax Act 1961, allows unabsorbed depreciation to be carried forward indefinitely with no shareholder-continuity condition. Only business losses under Section 72 are hit by Section 79. Depreciation that was not absorbed in the year it arose can be set off against any future income, regardless of changes in shareholding.

Under the general rule (s.79(1)), if a co-founder held shares carrying voting power in the loss year and exits entirely, the remaining shareholders must still hold at least 51% on the last day of the carry-forward year. If they do not, the losses lapse for that year. Under the startup proviso (s.80-IAC), the requirement is stricter: all loss-year shareholders must continue to hold shares. A single full exit by any loss-year shareholder breaks the proviso for every loss year in which that shareholder held shares.