Taxpayers with eligible losses carried forward under the Income-tax Act, 1961, can continue to use them after the transition to the Income-tax Act, 2025. However, the new legislation does not provide a fresh period for claiming these losses or automatically restore claims that were already ineligible.
The Central Board of Direct Taxes (CBDT), through its FAQs on the transition between the two laws, has clarified that the change preserves eligible losses along with their existing conditions. The Income-tax Act, 2025, which came into force on April 1, 2026, broadly retains the framework governing adjustment and carry-forward of losses.
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Eligible Losses Survive the Transition
The clarification addresses concerns over whether repeal of the 1961 Act would affect taxpayers’ accumulated losses.
Sections 536(2)(m) and 536(2)(n), forming part of the new Act’s repeal and savings framework, preserve the carry-forward and set-off of qualifying losses from earlier years. Such losses retain their original classification, including business, house property and capital losses.
Their utilisation remains subject to the restrictions applicable to the relevant category. A loss does not acquire wider eligibility merely because it is being adjusted against income computed under the new legislation.
No Fresh Eight-Year Window
For losses subject to a statutory carry-forward limit, the transition does not reset the clock.
An eligible business loss relating to assessment year 2023–24, for example, remains governed by its original eight-year carry-forward window. The taxpayer can use the unexpired portion of that period, subject to the prescribed conditions, but cannot claim another eight years beginning April 1, 2026.
The FAQs also indicate that the principal time limits remain unchanged: ordinary business losses and capital losses retain an eight-year limit, while speculation losses retain a four-year limit.
House Property and Capital Losses Continue With Restrictions
Eligible house property losses brought forward from earlier years remain available for adjustment against qualifying house property income.
Capital losses also continue to be governed by the distinction between short-term and long-term losses. A long-term capital loss can be adjusted only against long-term capital gains. A short-term capital loss may be adjusted against either short-term or long-term capital gains, subject to the applicable conditions.
Similarly, brought-forward ordinary business losses remain adjustable against eligible business income. Taxpayers must therefore identify both the category of the loss and the income against which they propose to claim it.
Late Filing Does Not Automatically Become Valid
The transition does not cure a failure to satisfy the original conditions for carrying forward a loss.
The CBDT illustrates this through a loss return for AY 2024–25 filed belatedly without meeting Section 139(3), read with Section 80, of the 1961 Act. Where the loss consequently became ineligible for carry-forward, the new Act does not revive it.
However, the consequences of delayed filing must be examined according to the category of loss and the relevant statutory provision. A blanket statement that every loss becomes unavailable merely because a salaried taxpayer files a belated return would be too broad. The clarification concerns losses for which timely filing is a condition of carry-forward.
Restriction Against Undisclosed Income Continues
The new legislation also preserves the restriction on adjusting brought-forward losses and unabsorbed depreciation against specified undisclosed income arising from search, requisition or survey proceedings.
The CBDT identifies Section 120 of the 2025 Act as continuing the principle previously contained in Section 79A of the 1961 Act. Taxpayers cannot use accumulated losses or unabsorbed depreciation to neutralise such income where the statutory prohibition applies.
For taxpayers, the practical requirement is to maintain a year-wise record of eligible losses, the amounts already adjusted and the remaining carry-forward period. The legislative transition preserves valid claims while keeping their existing limits and compliance requirements in place.
