Rules explained: Old vs New Income Tax Act 2025 – Can you set off or carry forward losses from previous years? Details
The new Income-tax Act, 2025, came into effect on April 1, 2026. If you have carried forward losses from previous financial years to reduce your tax liability in the future, you may wonder whether these losses remain valid under the new tax framework.
The Central Board of Direct Taxes (CBDT), in its FAQs on the interplay and transition from the Income-tax Act, 1961, to the Income-tax Act, 2025, has clarified that the fundamental rules for setting off and carrying forward losses remain unchanged. Here is what taxpayers need to know.
Can losses from previous years be carried forward under the new Income-tax Act?
Yes. Losses carried forward under the Income-tax Act, 1961, can continue to be carried forward and set off under the Income-tax Act, 2025. The new law does not restart the time limit for using these losses. The remaining period under the old law continues to apply.
For example, if you incurred an eligible business loss in assessment year (AY) 2023-24, you can carry it forward for up to eight assessment years. But the introduction of the new law does not give you an additional eight years from April 1, 2026.
How does set-off and carry-forward of losses work?
The basic process remains the same. Losses are first adjusted against income under the same head, wherever permitted. Any remaining loss may then be adjusted against income under another head, subject to the applicable rules.
Can house property losses and capital losses also be carried forward?
Yes. The CBDT has clarified that brought-forward losses from house property and capital gains remain eligible for set-off under the new law.
For example, a house property loss from AY 2024-25 can be carried forward and adjusted against eligible house property income in a subsequent tax year.
Similarly, a long-term capital loss from an earlier year can be set off against long-term capital gains, but not short-term capital gains. Short-term capital losses can be adjusted against short-term or long-term capital gains.
What if you filed your loss return late?
A belated return can affect your eligibility to carry forward certain losses. The new law does not revive losses that were ineligible under the old law.
For example, if a salaried employee files their ITR for AY 2026-27 after the July 31 due date, they are not allowed to carry forward the loss for subsequent years. The new law does not automatically make them eligible to carry forward or set off losses of previous years.
Has the restriction on setting off losses against undisclosed income changed?
No. The restriction continues under the new Act. Brought-forward losses and unabsorbed depreciation cannot be set off against undisclosed income brought to tax in connection with search, requisition or survey proceedings.
Disclaimer: This is for informational purposes only. Consult a qualified tax professional for advice specific to your circumstances.
