📌 Introduction
With the repeal of the Income Tax Act, 1961 and the commencement of the Income Tax Act, 2025 from April 1, 2026, taxpayers have raised concerns about the treatment of past losses and deductions. Losses are crucial in tax planning, as they can reduce future tax liabilities when carried forward or set off. The FAQs released by the Income Tax Department provide detailed guidance on how these transitional provisions will work.
This blog explains the FAQs in detail, offering clarity on business losses, capital losses, house property losses, deductions, exemptions, and transitional rules.
🔑 Key Highlights from the FAQs
1. Continuity of Losses
- Business, capital, and house property losses computed under the old Act can be carried forward under the new Act.
- Example: A business loss in AY 2023-24 can be carried forward, but only within the 8-year limit. incometax.gov.in
2. Preservation of Nature
- Losses retain their original character (business, speculation, capital, etc.) and are not reclassified under the new Act. incometax.gov.in
3. Belated Returns
- Losses filed through belated returns under the old Act cannot be carried forward. Compliance with timelines remains critical. incometax.gov.in
4. Restrictions on Undisclosed Income
- Losses and unabsorbed depreciation cannot be set off against undisclosed income arising from search or survey proceedings. incometax.gov.in
5. Deductions & Exemptions
- Section 80C deductions (₹1.5 lakh) continue under the new Act, but are not available under the new concessional regime.
- Profit-linked deductions (e.g., 80-IA, 80-IBA) continue for the remaining eligible period, but cannot extend beyond the original statutory window. incometax.gov.in
6. Violations of Conditions
- If conditions attached to deductions or exemptions are violated after April 1, 2026, the benefit will be reversed and taxed under the new Act.
- Example: Selling a house purchased under Section 54 exemption within 3 years will trigger taxation under the new Act. incometax.gov.in
7. Capital Gains Account Scheme
- Deposits made before April 1, 2026 remain valid, but if unutilised within the prescribed period, they will be taxed under the new Act. incometax.gov.in
8. Multi-Year Deductions
- Deductions like preliminary expenses, telecom license fees, spectrum rights continue for the remaining years under the new Act. incometax.gov.in
9. Unabsorbed Depreciation
- Unabsorbed depreciation from AYs prior to 2026 continues with unlimited carry forward under the new Act. incometax.gov.in
📊 Practical Implications for Taxpayers
- File returns on time to preserve carry forward eligibility.
- Track statutory limits (e.g., 8 years for business losses).
- Maintain compliance with conditions for deductions and exemptions.
- Plan capital gains carefully to avoid reversal of exemptions.
- Understand transitional rules—deductions continue but only within the framework of the repealed Act.
✅ Conclusion
The FAQs provide much-needed clarity on how losses and deductions transition into the new regime. The Income Tax Act, 2025 respects continuity but enforces compliance—losses and deductions remain valid only if they were properly claimed under the old Act.
For taxpayers, this means:
- No fresh rights are created under the new Act.
- Past benefits survive only within original limits.
- Violations post-April 2026 will trigger taxation under the new law.
This ensures a smoother transition while safeguarding the integrity of the tax system.
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