In M&A conversations, tax losses often sound like a hidden asset. Section 72A of the Income-tax Act is the provision that decides whether those losses actually survive an amalgamation—or quietly disappear.

At its core, Section 72A allows the accumulated business losses and unabsorbed depreciation of the amalgamating company to be carried forward and set off by the amalgamated company. This is a powerful benefit, but it is not automatic. The law is designed to reward genuine business restructurings, not tax-driven acquisitions.

First, eligibility matters. The provision applies only to specified cases—such as industrial undertakings, banking companies, public sector amalgamations, and certain post-strategic disinvestment mergers. If the transaction doesn’t fall within these buckets, the losses stop there.

Second, there are strict continuity conditions. The loss-making company must have been carrying on its business for at least three years and must have retained a substantial portion of its fixed assets. Post-merger, the acquiring company must continue that business and hold those assets for at least five years. In simple terms, the tax law expects the business to be revived, not dismantled.

Third—and this is often overlooked—non-compliance has teeth. If the conditions are breached later, losses already set off can be clawed back and taxed as income in the year of violation. This can create unpleasant surprises years after deal closure.

For CXOs, the takeaway is clear: tax losses can enhance deal value, but only if the transaction structure, business plans, and post-merger conduct are aligned from day one. Section 72A is less about tax optimisation—and more about long-term commitment to the underlying business.