Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
The general Section 79 rule
For a closely-held (private) company, Section 79 says a brought-forward business loss can only be set off if at least 51% of the shareholding is the same as in the year the loss arose. A funding round that brings in new investors and shifts more than 49% would ordinarily forfeit those losses — a harsh result for a loss-making startup that just raised money.
The startup relaxation
For an eligible DPIIT-recognised startup, the law relaxes this: the loss can be carried forward as long as all the original shareholders who held shares in the loss year continue to hold them — even if their percentage is diluted by new investors. So bringing in a fund does not, by itself, destroy the losses. This applies within the eligible window and conditions — confirm per the latest Finance Act.
A worked example
A startup has ₹1 crore of carried-forward losses. It raises a round where a fund takes 30%, diluting the founders from 100% to 70%. Because the founders still hold their shares, an eligible startup keeps the ₹1 crore of losses to set off against future profits. The same dilution in a non-startup company could lose them entirely. One condition to watch: the relaxation generally needs the original shareholders to keep holding their shares, so a founder fully exiting in a secondary sale can still jeopardise the losses — it is dilution that is protected, not departure. Pair this with the 80-IAC holiday when planning. Our startup service can review your loss position.