Carry forward of stock and mutual fund losses remains valid under Income-tax Act, 2025

As the Income Tax Return (ITR) filing season gathers pace, many taxpayers are looking for clarity on whether capital losses from stocks and equity mutual funds incurred under the Income-tax Act, 1961 can still be carried forward after the implementation of the Income-tax Act, 2025.

The new law has retained this benefit for eligible taxpayers. Under the repeal and savings provisions mentioned in Section 536 of the Income-tax Act, 2025, losses from earlier tax years will continue to remain valid and can be adjusted in future years.

Sections 536(2)(m) and 536(2)(n) specifically state that losses relating to tax years before April 1, 2026 will continue to be carried forward and set off according to the rules prescribed under the earlier Income-tax Act, 1961. The Income Tax Department has also clarified through its FAQ that validly carried-forward losses under the old regime will continue to enjoy protection even after the new Act comes into force.

For instance, a taxpayer who incurred a capital loss in Assessment Year 2024-25 can continue carrying forward that loss under the new law. However, the maximum period allowed for carrying forward such losses will remain restricted to the original eight-year limit calculated from the relevant assessment year.

The transition framework also ensures that both short-term and long-term capital losses will retain their original nature. These losses can be adjusted against future capital gains under the new Act, but only in the manner permitted under the previous law. As an example, a long-term capital loss incurred in AY 2025-26 can still be set off against long-term capital gains in future years if all the earlier conditions are fulfilled.

Taxpayers should, however, pay close attention to compliance requirements. The benefit of carrying forward losses into the new regime will only be available if the original return reporting the loss was filed within the due date specified under the Income-tax Act, 1961. If a taxpayer had filed the loss return after the deadline and the carry-forward claim was rejected under the old law, the new Act will not restore that benefit.

Overall, the Income-tax Act, 2025 provides continuity for investors by preserving the existing rules related to carrying forward eligible losses from stocks and equity mutual funds.