Losses of PSUs will be allowed to be carried forward after strategic disinvestment, clarifies government

MN news September 11, 2021

76 1 minute read

New Delhi : In order to facilitate the strategic disinvestment of public sector undertakings (PSUs), the government on Friday clarified that losses incurred by PSUs before their strategic disinvestment and change of ownership can be carried forward and set off by the erstwhile public sector company against future profits.
The Central Board of Direct Taxes (CBDT) in an official release noted that Section 79 of the Income-Tax Act, 1961 would not apply to an erstwhile public sector company which has become so as a result of strategic disinvestment.
“Accordingly, loss incurred in any previous year prior to, and including, the previous year of strategic disinvestment shall be carried forward and set off by the erstwhile public sector company,” the Board said.
The CBDT stated that necessary legislative amendments will be proposed in due course of time to implement the decision.
In order to promote strategic disinvestment of PSUs, Finance Minister Nirmala Sitharaman had proposed to relax the condition regarding carry forward of loss for disinvested PSU in amalgamation while presenting Union Budget for 2021-22.
“In order to make disinvestment deals of ailing PSUs more attractive for strategic investors, the government has allowed that even after change in shareholding of such ailing PSUs due to transfer of shares in such PSUs by government to strategic investors, past losses of such PSUs will be allowed to be carried forward for set off against future profits,” said tax expert Suraj Nangia.
Under normal tax provisions, without this relaxation, past losses of a company is not allowed to be set off if there is change in majority shareholding of a company (i.e. 51 per cent).
“It may be noted that such relaxation will be available only till the strategic investor retains at least 51 per cent in the PSU after take-over. In case the strategic investor’s shareholding falls below 51 per cent such relaxation will be withdrawn,” Nangia explained.