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<h1>Section 78: Limits on Loss Carry Forward After Partner Retirement or Death; Unabsorbed Depreciation Exempted</h1> Section 78 of the Income Tax Act addresses the carry forward and set off of losses when a firm's constitution changes due to a partner's retirement or death. In such cases, the firm cannot carry forward the retired or deceased partner's share of brought forward losses, minus their share in current year profits. This restriction does not apply when a new partner is admitted or if existing partners change their profit-sharing ratio. Unabsorbed depreciation can still be carried forward regardless of partner changes. Section 78(2) restricts loss carry forward when business succession occurs without inheritance, but this does not apply to unabsorbed depreciation or specific capital expenditures.
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