# For how many years can a company carry forward business losses and unabsorbed depreciation?

Source: https://qanoondigest.com/faq/companies/company-business-loss-carry-forward-six-years
Law current to: 30 June 2026. Reviewed: 2026-09-25. Checked line by line against the law: not yet.

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## Short answer

Six tax years. Section 57(2) of the Income Tax Ordinance carries a business loss forward to the six tax years after the loss year, oldest first. The part from depreciation and amortisation has no time limit under section 57(4), but offsets only 50% of balance business income, or 100% if taxable income is under Rs. 10 million.

**Applies to:** Companies with an assessed loss under the head "Income from Business", including companies merging under a scheme of amalgamation.

A company's business loss does not disappear at the end of the year, but most of it has an expiry date. Part VIII of Chapter IV of the Income Tax Ordinance, 2001 sets the rules, and it treats two parts of a loss differently: the ordinary business loss, and the part that comes from capital allowances.

## What happens to a loss in the year it arises?

Section 56(1) first sets the loss against income under any other head for the same year, except salary. A proviso says a business loss cannot be adjusted against income from property. Under section 56(3), where there is a loss under business and another head, the business loss is set off last. Whatever cannot be set off in that year moves to section 57.

## What does section 57 say?

**The six-year rule.** Section 57(1) carries forward the unabsorbed business loss (other than a speculation loss, which has its own separate rule) and sets it against income under the head "Income from Business" in the next year. Section 57(2) repeats this year by year, "but no loss can be carried forward to more than six tax years immediately succeeding the tax year for which the loss was first computed".

**Oldest first.** Section 57(3): where losses from more than one year are carried forward, the loss of the earliest tax year is set off first.

**Longer periods for named cases.** Section 57(2A) gives ten years to certain losses of a government-owned bank from 1995 to 2001, section 57(2B) gives eight years to losses of a resident company in the hotel business from tax years commencing on or after 1 July 2020, and section 57(2C) gives ten years to Pakistan International Airlines Corporation Limited.

**Capital allowances.** Section 57(4) deals with the loss attributable to deductions under sections 22 (depreciation), 23 (initial allowance), 23B (accelerated depreciation for alternate energy projects) and 24 (intangibles). That part is set off against fifty percent of the balance business income after the section 57(1) set off, "and so on until completely set off". A proviso raises this to one hundred percent where taxable income for the year is less than Rs. 10 million. Section 57(5) says these deductions are counted last in deciding whether a loss has been absorbed, so the ordinary loss is used up first.

## Worked example (illustrative figures)

Thar Cement Works (Pvt) Ltd has an assessed business loss of Rs. 40,000,000 for tax year 2024. Of this, Rs. 20,000,000 is attributable to depreciation under section 22. All amounts are invented.

**Splitting the loss (section 57(5))**

1. Unabsorbed depreciation: Rs. 20,000,000, governed by section 57(4).
2. Ordinary business loss: Rs. 40,000,000 - Rs. 20,000,000 = Rs. 20,000,000, usable up to tax year 2030.

**Tax year 2025: business income Rs. 16,000,000**

1. Set off ordinary loss: Rs. 16,000,000. Ordinary loss left: Rs. 20,000,000 - Rs. 16,000,000 = Rs. 4,000,000.
2. Balance business income: nil, so no depreciation is absorbed.

**Tax year 2026: business income Rs. 30,000,000**

1. Set off remaining ordinary loss: Rs. 30,000,000 - Rs. 4,000,000 = Rs. 26,000,000 balance.
2. Taxable income is above Rs. 10 million, so the 50% limit applies: Rs. 26,000,000 x 50% = Rs. 13,000,000.
3. Depreciation set off: Rs. 13,000,000. Taxable income: Rs. 26,000,000 - Rs. 13,000,000 = Rs. 13,000,000.
4. Unabsorbed depreciation still carried forward, with no time limit: Rs. 20,000,000 - Rs. 13,000,000 = Rs. 7,000,000.

Where the Rs. 10 million test sits close to the line, section 57(4) does not say whether "taxable income for the year" is measured before or after the depreciation set off.

## What if two companies amalgamate?

Section 57A(1) sets the assessed loss for the tax year of the amalgamating company, "other than brought forward and capital loss", against the business profits of the amalgamated company, and vice versa, in the year of amalgamation. Any unadjusted amount carries forward for six tax years after the year of amalgamation. Section 57A(2) applies section 57(4) and (5) to unabsorbed depreciation. A proviso makes both conditional on the amalgamated company continuing the amalgamating company's business for at least five years. Section 57A(3) treats the set off as income if the scheme's conditions set by the State Bank, the SECP or a court are not met.

## What if the business is bought rather than merged?

Section 59A(4)(b) says sections 56 to 59 do not entitle a person who succeeds another person in a business, otherwise than by inheritance, to carry forward and set off the predecessor's loss.

## Common mistakes

- **Counting the loss year as year one.** The six years are those "immediately succeeding" the loss year.
- **Treating the whole loss as depreciation.** Only the part from sections 22, 23, 23B and 24 escapes the six-year limit, and it is capped at 50% of balance income.
- **Filing late in a loss year.** Section 182A(1)(b) denies carry forward of the loss for a year whose return missed the due date.
- **Setting business loss against rental income.** The proviso to section 56(1) does not allow it.
- **Carrying forward an unassessed loss.** Section 59A(7) allows carry forward only of a loss assessed or treated as assessed under the orders it lists.

## What to check in the official text

Read sections 56, 57, 57A and 59A with their footnotes, and section 182A on late returns. Speculation losses, capital losses, group relief and group taxation follow separate provisions and are not covered here.

## Frequently asked

### How many years can a company carry forward a business loss?

Six tax years immediately succeeding the tax year for which the loss was first computed, under section 57(2). The oldest loss is set off first under section 57(3).

### Does unabsorbed depreciation expire?

Section 57(4) sets no time limit. It carries the loss attributable to deductions under sections 22, 23, 23B and 24 forward until completely set off, but only against 50% of the balance business income, or 100% if taxable income for the year is less than Rs. 10 million.

### Can a company lose its carry forward by filing late?

Yes. Section 182A(1)(b) says a person who does not file its return by the due date is not allowed to carry forward any loss for that tax year.

## Citations

- [Income Tax Ordinance, 2001, section 57 (Carry forward of business losses)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30#57-carry-forward-of-business-losses), as amended to 2026-06-30: "no loss can be carried forward to more than six tax years immediately succeeding the tax year for which the loss was first computed" Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf
- [Income Tax Ordinance, 2001, section 57 (Carry forward of business losses)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30#57-carry-forward-of-business-losses), as amended to 2026-06-30: "Provided that such loss shall be set off against hundred percent of the said balance income if the taxable income for the year is less than ten million Rupees." Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf
- [Income Tax Ordinance, 2001, section 56 (Set off of losses)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30#56-set-off-of-losses), as amended to 2026-06-30: "the adjustment of business loss shall not be allowed against income from property for the tax year" Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf
- [Income Tax Ordinance, 2001, section 57A (Set off of business loss consequent to amalgamation)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30#57a-set-off-of-business-loss-consequent-to-amalgamation), as amended to 2026-06-30: "the unadjusted loss shall be carried forward for adjustment upto a period of six tax years succeeding the year of amalgamation" Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf
- [Income Tax Ordinance, 2001, section 59A (Limitations on set off and carry forward of losses)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30#59a-limitations-on-set-off-and-carry-forward-of-losses), as amended to 2026-06-30: "any person who has succeeded, in such capacity, any other person carrying on any business or profession, otherwise than by inheritance" Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf
- [Income Tax Ordinance, 2001, section 182A (Return not filed within due date)](https://qanoondigest.com/ordinances/income-tax-ordinance-2001/income-tax-ordinance-2001-2026-06-30#182a-return-not-filed-within-due-date), as amended to 2026-06-30: "not be allowed, for that tax year, to carry forward any loss under Part VIII of Chapter IV" Official source: https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf