Veena - A company pays taxes only if it makes a profit. In this case the companys profit/net income is negative in year 1 and year 2 hence no tax is paid.
Nov 20 2012 10:19 AM
Now there is another tax rule through which a company can carry-forward its losses. So year 1 + year 2 the company has total losses of Rs. 3 crores (2+1). Even thought the company made a profit of Rs. 1 crore in year 3, it can adjust that 1 crore to the 3 crores of cumulative loses and not pay tax. So at the end of year 3, the loss carryforward will be 2 crores (3-1) that the company can offset in year 4.
Is that clear ? If not let me know if you need a call to clarify this.