Carry Forward of Losses in an LLP: Benefits for Startups
Short answer: An LLP that makes a loss in its early years can carry the business loss forward for up to 8 years and set it off against future business profits, provided it files its income-tax return by the due date. Unabsorbed depreciation can be carried forward with no time limit. And unlike a private company, an LLP does not lose its carried-forward losses when partners change.
How each kind of loss is treated
| Item | Carry forward | Condition |
|---|---|---|
| Business loss | Up to 8 years, against business income | The return showing the loss must be filed by the due date |
| Unabsorbed depreciation | No time limit, against any income | Carried forward even if the return is late |
| Capital loss | Up to 8 years, against capital gains only | The return must be filed by the due date |
Why this suits startups
- Early losses are not wasted. Losses in the first few years reduce tax once the LLP becomes profitable, which matters because an LLP pays a flat rate on its profits (see the LLP tax rate).
- Partner changes do not cancel losses. The rule that cancels a closely held company’s losses when its shareholding changes substantially applies to companies, not LLPs. An LLP can bring in or replace partners without losing its carried-forward losses.
- Depreciation keeps its value. Unabsorbed depreciation on equipment and other assets carries forward indefinitely.
The condition founders most often miss
A business loss is carried forward only if the LLP’s return is filed on time. An LLP must file an income-tax return every year even when it has no income; for an LLP whose accounts need no audit at all (neither a tax audit nor an LLP audit), the due date is now 31 August, and 31 October if either audit applies. See the LLP ITR due date and the LLP compliance calendar.
What a loss does not do
An LLP is taxed as a separate entity, so its loss stays with the LLP. Partners cannot set the LLP’s loss off against their own salary or other personal income. A partner’s share of profit is exempt in their hands later, because the LLP has already paid tax on it.
Which tax law applies?
The rules above are under the Income-tax Act, 1961, which governs FY 2025-26. From FY 2026-27 the Income-tax Act, 2025 applies with new section numbers; check the position for later years with your CA. See income tax for LLP.
Frequently asked questions
For how many years can an LLP carry forward business losses?
Up to 8 years, against future business income, if the return showing the loss was filed by the due date.
Does a change in partners stop an LLP from carrying forward losses?
No. The rule that cancels losses on a change in shareholding applies to closely held companies, not to LLPs.
Can partners set off an LLP's loss against their personal income?
No. The loss belongs to the LLP and can only be set off in the LLP’s own assessment.
Is there a time limit for unabsorbed depreciation?
No. Unabsorbed depreciation can be carried forward without a time limit.
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