With the rollout of the Income Tax Act, 2025, taxpayers and investors have been keen to understand how losses from the old Income-tax Act, 1961, will be treated.
The Central Board of Direct Taxes (CBDT) has clarified several points in its FAQ section, reassuring taxpayers that the core principles of set-off and carry forward of losses remain unchanged.
"The core architecture remains the same, losses are first adjusted intra-head, i.e., within the same head of income and then inter-head, subject to statutory restrictions, after which the balance, if any, is carried forward. The duration for which loss can be carried forward also remains unchanged," the FAQ notes.
Old losses preserved
Taxpayers can carry forward losses computed under the 1961 Act into the new 2025 Act. The FAQ clarifies: "Losses brought forward for tax years beginning before 1 April 2026 shall continue to be carried forward and set off under the new Act in the manner provided under the corresponding provisions of the repealed Act."
This includes business losses, capital losses, house property losses, speculation losses, and specified business losses. For example, a business loss from AY 2023-24 can still be set off against business income under the new Act without affecting its original nature.
House property and business losses
Losses from house property and business income under the old Act remain fully eligible: "Loss from house property brought forward for years before 1 April 2026 can be set off and carried forward under the new Act."
"Business losses brought forward from years before 1 April 2026 can be set off against only business income and carried forward under the new Act," the tax department noted in its FAQs.
Capital and speculation losses
Both long-term and short-term capital losses can continue to be set off against capital gains, while speculation and racehorse losses retain their original carry-forward periods (4 years for speculation and racehorse, 8 years for business and capital losses).
Income Tax Act, 1961 vs Income Tax Act, 2025 provisions and changes
| Subject | Income Tax Act, 1961 | Income Tax Act, 2025 | Change |
|---|---|---|---|
| Intra-head set off | Sec 70 | Sec 108 | No Change |
| Inter-head set off | Sec 71 | Sec 109 | No Change |
| House property loss cap | ₹2 lakh (Sec 71(3A)) | ₹2 lakh (Sec 109(1)(b)) | No Change |
| Capital loss restriction | Sec 71(3) | Sec 109(2) | No Change |
| Business loss carry forward | Sec 72 | Sec 112 | 8 years retained |
| Capital loss carry forward | Sec 74 | Sec 111 | 8 years retained |
| Speculation loss | Sec 73 | Sec 113 | 4 years retained |
| Specified business | Sec 73A | Sec 114 | No Change |
| Race horse loss | Sec 74A | Sec 115 | 4 years retained |
( Source: Income Tax Act 2025 FAQs)
Key restrictions remain
The FAQ also reiterates existing limits: losses cannot be set off against undisclosed income, and belatedly filed loss returns under the old Act remain ineligible for carry forward under the new Act.
With its coming into force from April 1, 2026, the Income-Tax Act 2025 simplifies the tax timeline by doing away with the distinction between the assessment year and the previous year, replacing it with a single "tax year" framework.
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