I’ve claimed enterprise losses two years in the past beneath the previous tax regime. I carried them ahead in my final 12 months Revenue Tax Return (ITR), once more beneath the previous regime. Within the present evaluation 12 months, I’m planning to change to the brand new regime. Can I carry ahead the losses reported within the previous regime final 12 months?
New tax regime was made the default tax system for people from the final evaluation 12 months 2024–25, except they decide out of it to decide on the previous regime. Taxpayers with enterprise earnings should tread rigorously, particularly these carrying ahead enterprise losses or unabsorbed depreciation from earlier years whereas selecting between the previous and new regime this 12 months.
As per Part 115BAC(2) of the Revenue Tax Act, taxpayers can not set off carried-forward enterprise losses or depreciation in the event that they relate to deductions that aren’t allowed beneath the brand new regime. These deductions embody further depreciation beneath Part 32(1)(iia), investment-linked deductions (e.g., Sections 35AD, 35(1)(ii)/(iia)/(iii), 33AB, 33ABA) and chapter VI-A deductions (besides 80CCD(2), 80CCH(2) and 80JJAA). Any losses that aren’t linked to the above, which incorporates common enterprise expenditure or fundamental depreciation (beneath Part 32(1)(ii)) can nonetheless be carried ahead and set off, even beneath the brand new regime.
Listed here are two sensible eventualities of enterprise losses that may be carried ahead within the new tax regime. One, a dealer incurred loss attributable to common bills like lease, wage, electrical energy and so forth. The character of those deductions is regular enterprise expenditure, and therefore the losses that arose on deducting these bills may be carried ahead. One other instance is a freelancer claiming unabsorbed depreciation on a laptop computer (regular fee).
Now, listed here are two sensible eventualities the place carrying ahead of losses received’t be allowed within the new regime–a) a producer claimed loss attributable to further depreciation on equipment and b) a startup claimed deduction beneath Part 35AD, which is a capital funding and therefore not allowed.
Taxpayers should analyze their carried-forward losses item-wise. If substantial previous losses relate to now-disallowed deductions, switching to the brand new regime might forfeit their set-off. In such instances, one can nonetheless decide out of the brand new regime by submitting Kind 10-IEA on or earlier than the due date of return.
Nonetheless, if the losses pertain to plain enterprise operations or regular depreciation, the brand new regime doesn’t bar their set-off.
The brand new regime provides decrease tax charges however fewer deductions. Therefore, a comparative tax computation—factoring in eligible losses—is crucial.
Bhawna Kakkar, chartered accountant and founder, Kakkar & Firm, Chartered Accountants
