Disclosure of information relating to carry forward of losses in Information Memorandum

Introduction

On March 17, 2025 vide Circular No. IBBI/CIRP/83/2025, the Insolvency and Bankruptcy Board of India (IBBI) has directed Insolvency Professionals, Entities and Registered Agencies to include a dedicated section in the Information Memorandum (IM) explicitly detailing the carry forward of losses under the Income Tax Act, 1961.

Under the IBC, the Information Memorandum(IM)  is a vital document that provides potential bidders (EOI respondents) with detailed information about the insolvent entity’s assets and business.

Legislative Framework

The legislative move follows the Board’s observation that recent IMs lacked adequate disclosures on the carry forward of losses, despite amendments made to Regulation 36 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which made such disclosures mandatory.

Carry forward losses are business losses from a financial year that exceed that year’s income. According to the Income Tax Act, 1961, these losses can be used to reduce tax liability in future profitable years by offsetting them against profits. For instance, a ₹10 crore loss can be carried forward and deducted from future profits, lowering taxable income.

Under the revised framework, IPs must now provide detailed information, including:

• The quantum of carry forward losses available to the corporate debtor.
• A breakdown of these losses under specific heads as defined in the Income Tax Act, 1961.
• The applicable time limits for utilizing such losses.
• A clear statement if no carry forward losses are available.

The regulator said the enhanced disclosure norms aim to offer potential resolution applicants a clearer picture of the corporate debtor’s financial position. 

“This will enable Regulatory Authorities to formulate more informed and viable resolution plans, factoring in the potential benefits of carry forward losses,” Shri Ravi Mittal, Chairman, IBBI

Conclusion 

By mandating the detailed disclosure of carry forward losses in the IM, this development enables potential resolution applicants to make more informed decisions. It ensures a clearer understanding of a corporate debtor’s financial position, including the available tax benefits, which could significantly impact resolution strategies. This change ultimately aims to promote more robust and viable resolution plans, contributing to more effective and efficient insolvency proceedings.

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