Form 3CD Clause 32 for AY 2026-27: Brought-Forward Losses, Section 79 & Reconciliation
Updated: Sep 28
Direct answer: Clause 32 of Form 3CD is the tax-audit reconciliation point for brought-forward losses, unabsorbed depreciation and specified loss restrictions. For AY 2026-27, tax teams should reconcile return-filed figures with assessment/appellate orders, test Section 79 where a closely held company has changed ownership, separately identify speculation or specified-business losses, and ensure the final carry-forward position agrees with the income-tax return.
AY 2026–27 update (28 September 2026): CBDT changed the ordinary tax-audit report date from 30 September to 21 October 2026 and the related audited return date from 31 October to 21 November 2026. Separate transfer-pricing dates are unchanged. Official CBDT announcement
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Why Clause 32 matters for AY 2026-27
Clause 32 is easy to treat as a historical schedule, but it can directly affect the amount of loss available for set-off in AY 2026-27. Errors often arise because the opening loss register is copied from the prior year without updating it for assessments, rectification orders, appellate orders, shareholding changes, expiry periods or the character of a loss.
For FY 2025-26 / AY 2026-27, the tax audit continues under the Income-tax Act, 1961 using Form 3CA or Form 3CB together with Form 3CD. The transition to the Income Tax Act, 2025 and unified Form 26 applies to Tax Year 2026-27 onward, not to AY 2026-27.
What does Form 3CD Clause 32 require?
Clause 32 is not one disclosure. It combines several connected tests:
• Clause 32(a): assessment-year-wise details of brought-forward loss and depreciation allowance, to the extent available, including returned and assessed positions and relevant remarks.
• Clause 32(b): whether a change in shareholding triggers the loss carry-forward restriction under Section 79.
• Clause 32(c): whether the assessee incurred speculation loss referred to in Section 73.
• Clause 32(d): whether the assessee incurred a loss from a specified business referred to in Section 73A.
• Clause 32(e): for a company, whether the Explanation to Section 73 deems it to be carrying on speculation business and, if so, the relevant speculation loss.
Clause 32(a): build a loss register from source documents, not memory
The safest approach is to maintain an assessment-year-wise loss register. For every year, capture the nature of loss, amount claimed in the filed return, amount finally assessed where an order exists, unabsorbed depreciation separately, utilisation in later years, balance available and any pending appeal that could alter the position.
Do not assume the figure shown in last year’s tax-audit working is still correct. A Section 143(3) assessment, rectification, appellate order, revised return or later set-off can change the amount available. Where an appeal is pending, the remarks should make the position transparent rather than silently selecting the more favourable number.
Clause 32(b): Section 79 after a change in shareholding
Section 79 is particularly important for closely held companies with accumulated tax losses. Broadly, the provision can restrict carry-forward and set-off of prior-year losses where the required continuity of beneficial voting power is not maintained. The standard test is based on at least 51% voting-power continuity, subject to the statutory exceptions and special rules contained in Section 79.
This means a tax audit should not stop at the general ledger. The auditor and tax team should inspect the cap table, share-transfer register, allotments, mergers, gifts, death-related transmissions and other ownership events during FY 2025-26. A funding round or restructuring that looks commercially routine can alter the tax-loss position.
Practical Section 79 review
• Compare beneficial voting power on the last day of FY 2025-26 with the relevant loss-incurrence years.
• Identify whether the company is one in which the public are substantially interested or falls within a statutory exception.
• Map each share issue, transfer, conversion or restructuring to the Section 79 continuity test.
• Document why a claimed exception applies instead of merely stating “Section 79 not applicable”.
Speculation and specified-business losses cannot be pooled casually
Clause 32(c), 32(d) and 32(e) force the tax team to preserve the legal character of a loss. A speculation loss under Section 73, a specified-business loss under Section 73A and an ordinary business loss do not share identical set-off and carry-forward treatment. Combining them in one generic “business loss” ledger creates avoidable errors in both Form 3CD and the return.
For companies, the Explanation to Section 73 also needs a specific review because a business that does not look like a conventional speculative activity may still be deemed to carry on speculation business for tax purposes, subject to the statutory conditions and exclusions.
Worked example: acquisition of a loss-making private company
Assume Alpha Private Limited has ₹1.80 crore of brought-forward business loss and ₹35 lakh of unabsorbed depreciation. During FY 2025-26, a new investor acquires 70% of the voting power. The tax-audit team should not simply carry forward ₹2.15 crore from the prior-year schedule.
First, the team should test Section 79 against the beneficial voting-power history and available exceptions. If Section 79 restricts the business loss, the ₹1.80 crore may not remain available for set-off merely because it appears in an earlier return. Unabsorbed depreciation, however, has to be analysed separately under its own statutory treatment. The Clause 32 working should show the returned amount, the legally available amount, relevant orders and the reason for any adjustment.
8-point Clause 32 reconciliation checklist
• Obtain filed returns and computation statements for every year with an unutilised loss or depreciation balance.
• Update the register for assessment, rectification, revision and appellate orders.
• Reconcile prior-year utilisation against the closing balance now carried forward.
• Separate business loss, house-property loss, capital loss, speculation loss, specified-business loss and unabsorbed depreciation.
• Check statutory expiry periods rather than carrying forward old losses indefinitely.
• For closely held companies, perform an ownership-continuity test under Section 79.
• Reconcile Clause 32 to the AY 2026-27 ITR schedules before final filing.
• Keep a review note for pending appeals or uncertain positions so the audit trail is clear.
Common Clause 32 mistakes
• Copying the previous year’s loss schedule without considering orders passed during the year.
• Using only the return-filed amount even where an assessed amount is available.
• Ignoring Section 79 after a funding round, acquisition or internal restructuring.
• Treating unabsorbed depreciation as identical to ordinary business loss.
• Netting speculation or specified-business losses with ordinary losses in the audit working.
• Failing to reconcile Form 3CD with the loss schedules in the final income-tax return.
FAQs
Is Clause 32 applicable only to companies?
No. Clause 32(a) can be relevant to any tax-audit assessee with brought-forward losses or depreciation. However, Clause 32(b) and parts of the speculation-business analysis have company-specific relevance.
Does a shareholding change automatically cancel every carried-forward amount?
No. Section 79 must be applied to the specific company, loss and ownership facts, including its exceptions and special provisions. Unabsorbed depreciation also requires separate analysis rather than being assumed to follow the same rule as ordinary business loss.
Should pending appeals be ignored until finally decided?
No. A pending appeal can materially affect the loss register. The audit file should identify the returned position, assessed position, pending proceeding and the basis used for the current-year disclosure.
What is the biggest practical control for Clause 32?
Maintain one rolling, assessment-year-wise loss register that is updated immediately whenever a return, order, appeal, shareholding change or set-off event occurs. That register should feed both Form 3CD and the income-tax return.
Related PGT & Associates guides
Primary references
Need help reconciling brought-forward losses before tax audit?
PGT & Associates assists businesses, promoters and finance teams with tax-audit reconciliation, Form 3CD review and complex loss carry-forward positions. Where ownership changes, assessments or legacy loss schedules make the position uncertain, a documented pre-filing review can reduce later disputes.
Disclaimer: This article is for general professional information and does not constitute legal or tax advice. The correct treatment depends on the taxpayer’s facts, applicable law, orders and judicial developments. Obtain specific professional advice before taking a filing or litigation position.
📥 Free Download: AY 2026-27 Form 3CD Working Paper & Tax Audit Checklist (Excel)
Preparing for Section 44AB tax audits? Ensure seamless clause-by-clause verification, Section 43B(h) MSME compliance, and Clause 44 GST reconciliations with our complete working paper suite.
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