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Yes—repeal of the Income-tax Act, 1961 does not by itself cancel a valid loss. Section 536 of the Income-tax Act, 2025 carries qualifying losses determined for tax years beginning before 1 April 2026 into the new framework. The loss keeps its original character, follows the corresponding old-law set-off rules and can be used only for the unexpired part of its original carry-forward period.
There are two separate changes to understand: the replacement of the 1961 Act by the 2025 Act, and the choice between India’s old and new tax regimes. The transition preserves eligible losses, but the regime you choose can restrict current-year and brought-forward set-offs—most notably for house-property losses and deductions disallowed in the new regime.
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What happens to a loss when the Income-tax Act, 2025 starts?
A valid loss determined under the 1961 Act for a tax year beginning before 1 April 2026 is not reset or extinguished. Section 536 preserves it under the corresponding old-law provision, including its head of income, permitted destination and remaining time limit.
For example, an eligible business loss from AY 2023-24 can move into the new framework, but its eight-year window is still counted from AY 2023-24. The 2025 Act does not grant a fresh eight years from 1 April 2026.
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The transition date matters because Tax Year 2026-27 is the first tax year beginning on or after 1 April 2026. A loss determined for FY 2025-26 (AY 2026-27) under the 1961 Act can be carried into Tax Year 2026-27 and later years if all prescribed conditions were met.
How is set-off applied before carry-forward?
The sequence remains the same under both Acts: first adjust the loss within its own head of income, then apply any legally permitted adjustment against another head, and carry forward the balance that remains eligible.
- Intra-head adjustment: offset income and loss within the same head, such as one house property against another eligible house-property result.
- Inter-head adjustment: apply a remaining loss against another head only where the statute permits it and subject to its cap or restriction.
- Carry-forward: record the unabsorbed eligible amount for later years under the specific rule for that loss.
A business loss cannot be used against salary income. A capital loss cannot be used against salary, business or house-property income. The fact that a loss is “brought forward” does not remove these head-specific limits.
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What are the rules for each type of loss?
| Loss type | Ordinary rule under the 2025 Act | Valid loss determined before 1 April 2026 | Effect of the new regime |
|---|---|---|---|
| House property | Up to ₹2,00,000 may be set off against other heads in the current year. The balance can be carried forward for up to eight succeeding tax years and later used only against house-property income. | Remains available under the old section 71B manner, with its original remaining period. | Official computation guidance requires calculation without set-off of house-property loss against other heads. |
| Non-speculative business or profession | After permitted current-year adjustments, the carried-forward amount is used against business or professional income. The structural period remains eight years. | Keeps its business character and is set off only against business income under the old section 72 manner. | A loss attributable to a deduction disallowed in the new regime cannot be used as though that deduction were still available. |
| Capital gains | Cannot be adjusted against another head. A short-term capital loss can offset capital gains from any capital asset; a long-term capital loss can offset only long-term capital gains. Carry-forward is up to eight succeeding tax years. | Continues against capital gains under the old-law manner and retains its short-term or long-term character. | Regime choice does not convert a capital loss into another type of loss. |
| Speculation and race-horse activity | Activity-specific set-off restrictions apply. The official transition comparison retains a four-year carry-forward period for speculation and race-horse losses. | Valid old amounts continue under the corresponding old-law treatment. | Do not treat these amounts as ordinary business losses; the activity-specific provisions control. |
Does the old or new tax regime change loss treatment?
Yes. This choice is separate from the 1961-to-2025 Act transition. The new regime is the default for eligible individuals, Hindu undivided families, associations of persons, bodies of individuals and artificial juridical persons. An eligible taxpayer may opt for the old regime; a taxpayer with business or professional income uses Form 10-IEA to opt out, subject to the applicable election rules.
The clearest loss difference concerns house property. Under the new regime, the computation is made without setting off a house-property loss against salary or other heads. A taxpayer therefore cannot use the old-regime ₹2,00,000 inter-head allowance while being assessed under the new regime.
The computation guidance also excludes brought-forward loss or depreciation attributable to exemptions or deductions that the new regime disallows. Check what created the loss instead of relying only on the label “business loss.”
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What should you check before claiming a previous-year loss?
- Identify the legal comparison: determine whether you are dealing with the Act transition, the tax-regime election, or both.
- Classify the loss: house property, non-speculative business, capital, speculation, specified business or race-horse activity.
- Recalculate the current year: apply intra-head adjustment first and then only the inter-head set-off allowed for that head.
- Count the original period: use the years already elapsed under the old Act; transition does not restart the clock.
- Verify the original return: a loss return that failed the old Act’s section 139(3) read with section 80 filing conditions does not become carry-forward eligible merely because the law changed.
- Apply the regime restrictions: if the new regime is selected, test the house-property and deduction-attributable-loss rules before calculating the amount available.
How do the transition examples work?
AY 2023-24 business loss
An eligible business loss determined for AY 2023-24 can continue after the 2025 Act begins. It remains a business loss, is used against business income and expires when the original eight-year period ends.
AY 2024-25 house-property loss
A house-property loss from AY 2024-25 remains available under the old section 71B manner. It is not reclassified as a general loss and is used against house-property income in later years.
FY 2025-26 loss entering Tax Year 2026-27
A loss determined for FY 2025-26 (AY 2026-27) under the 1961 Act may be carried into Tax Year 2026-27 and subsequent years when the prescribed conditions are satisfied.
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Belated loss return
If a return for AY 2024-25 was filed late and failed the section 139(3) read with section 80 conditions, section 536 does not cure that defect. The amount is not made eligible simply by moving into the new Act.
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No single answer applies to every taxpayer. The result depends on the loss head, the year in which it was determined, the amount already absorbed, the remaining statutory period, the original filing status and the regime election for the year in which you want to use it. Keep the original return acknowledgement and computation, the loss schedule or assessment record, and a year-by-year reconciliation of amounts set off and carried forward.
Where more than one head, a late return, business deductions or a regime switch is involved, prepare the computation separately under each applicable rule before entering the carry-forward figure in the return.
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Frequently Asked Questions
Can a carried-forward loss be entered without checking the original return?
No. Reconcile the amount to the return in which the loss was first reported and confirm that the filing met the conditions that applied in that year. Also document any portion already absorbed so the brought-forward figure is not overstated.
If I have two properties, how does the house-property loss sequence work?
Results from properties are considered within the house-property head before any cross-head adjustment is examined. Whether a remaining amount can reduce other income then depends on the regime and the statutory limit for that year.
Does a change of regime change the character of my old capital or business loss?
No. A regime election does not turn a capital loss into a business loss or a business loss into a salary loss. The original head and the specific set-off provision continue to govern its use.
What is the safest way to track the expiry of an old loss?
Create a schedule by assessment year showing the original amount, each year’s utilisation and the last year in which the balance may be carried forward. This prevents the transition to Tax Year 2026-27 from being mistaken for a new starting point.
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