Section 117 of the Income-tax Act, 2025 — Carry Forward and Set Off of Accumulated Loss in Amalgamation of Banking Companies (and Government Insurers)

In plain language

What Section 117 actually deals with

Section 117 of the Income-tax Act, 2025 is a special, no-conditions rule that lets the accumulated business loss and unabsorbed depreciation of a distressed banking company (or a nationalised bank, or a Government general insurance company) be picked up by the entity it merges into. It is the direct successor to Section 72AA of the old Income-tax Act, 1961. It sits right next to Section 116 (the successor of Section 72A), but works very differently — it applies only in "certain cases" of amalgamation and, crucially, does not force the amalgamated entity to satisfy the strict eligibility conditions that Section 116 imposes.

Who it applies to

• Banking companies amalgamated with another banking institution under a scheme sanctioned by the Central Government under section 45(7) of the Banking Regulation Act, 1949.
• Corresponding new banks (nationalised banks) amalgamated with another corresponding new bank under a scheme brought into force under the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 or 1980.
• Government companies carrying on general insurance business, amalgamated with another such company under a Central Government scheme under the General Insurance Business (Nationalisation) Act, 1972.

In plain terms: this is the section that made the SBI–associate bank mergers, the 2019–2020 PSU bank consolidations, and the merger of public general insurers tax-neutral for carried-forward losses. An ordinary private company merger does not use Section 117 — it uses Section 116.

How the benefit works

• The accumulated loss and unabsorbed depreciation of the amalgamating (predecessor) entity are deemed to be the loss / depreciation allowance of the amalgamated (successor) entity for the tax year in which the scheme came into force.
• Once deemed to be the successor's own figures, the normal set-off and carry-forward machinery of the Act applies — the loss can be set off against the successor's future business profits, and depreciation against any income.
• "Accumulated loss" means the business loss (not speculation loss) the predecessor could have carried forward under the general loss provisions had the merger not happened. "Unabsorbed depreciation" means depreciation still not allowed that would have been allowed to the predecessor but for the merger.

Key conditions and the new 8-year outer limit

• No 72A-style conditions: Unlike Section 116, Section 117 does not require the 3-year prior business, the 75% fixed-asset holding test, or the 5-year continuity undertaking. The Government scheme itself is treated as sufficient safeguard.
• New 8-year cap (from 1 April 2025): For any scheme brought into force on or after 1 April 2025, a loss forming part of the accumulated loss can be carried forward in the successor's hands for not more than 8 tax years counted from the tax year for which that loss was first computed for the original predecessor. The merger does not restart the 8-year clock.
• This "no-evergreening" rule (introduced by the Finance Act, 2025 and carried into the 2025 Act) stops indefinite loss shifting through repeated mergers.

How it interacts with other provisions

• Section 116 is the general amalgamation/demerger/reorganisation rule (old 72A). Section 117 overrides it for the specified banking/insurance cases.
• The general carry-forward sections (business loss carry-forward, unabsorbed depreciation) supply the actual set-off mechanics once the loss is deemed to belong to the successor.
• Read together with the definition of amalgamation and demerger in the Act's interpretation section, which controls whether a transaction even qualifies.

Practical implications

• Public-sector and RBI-driven bank rescues can proceed without losing the tax value of accumulated losses, which improves the acquirer's post-merger cash flows.
• Successor banks/insurers must now track the original year each loss was first computed — the 8-year clock is anchored to the predecessor, so old losses may expire earlier than expected.
• Documentation of the Central Government / RBI sanctioned scheme is essential; the whole relief hinges on the merger being under the specified statutes.