The Central Board of Direct Taxes (CBDT) has clarified that the fundamental principles of loss set-off and carry-forward remain unchanged under the new Income Tax Act 2025. According to the FAQ section, 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 is carried forward. The duration for which losses can be carried forward also remains unchanged from the previous framework.
Taxpayers can carry forward losses computed under the 1961 Act into the new 2025 Act without any modification. As reported by Upstox, 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to be carried forward and set off under the new Act in the manner provided under the corresponding provisions of the repealed Act.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, with no change in their original nature or carry-forward periods.
The new Act maintains existing carry-forward periods for different loss categories. According to the FAQs, speculation and racehorse losses retain their original carry-forward periods of 4 years, while business and capital losses continue with 8 years. For house property losses, losses from house property brought forward for years before 1 April 2026 can be set off and carried forward under the new Act, while business losses brought forward from years before 1 April 2026 can be set off against only business income under the new Act. The loss set-off and carry-forward rules have been consolidated into Chapter VII (Sections 108–121) of the ITA 2025, moving out of Chapter IV for dedicated treatment.
Several existing limitations remain unchanged under the new framework. As reported by Upstox, 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. The new Act also maintains the ₹2 lakh cap on house property losses and preserves existing capital loss restrictions, ensuring continuity in loss treatment mechanisms.
The Income Tax Act 2025, effective from April 1, 2026, introduces a simplified tax structure by doing away with the distinction between the assessment year and the previous year, replacing it with a single 'tax year' framework. This change streamlines the tax timeline while maintaining the core principles of loss management that taxpayers have relied on under the previous 1961 Act. The PGBP framework has been restructured into a clean, sequential block of 41 sections covering everything from the basis of charge to presumptive taxation in Part D of Chapter IV, eliminating the previous labyrinth of 17+ sections with scattered provisions.
