Tax season often brings unwelcome surprises—especially losses. Fortunately, the Indian Income Tax Act provides avenues to soften the blow through set‑off and carry‑forward provisions. These rules remain largely consistent across the Old and New Tax Regimes, but critical differences can affect your tax planning strategy.

Understanding the Basics

• Set‑off means adjusting a loss against income in the same assessment year.
• Carry‑forward allows you to carry any unused losses into future years—a crucial tool for effective tax planning.

Set‑Off: Intra‑Head vs. Inter‑Head

Intra‑head set‑off occurs within the same income category. For example, a loss from one business can be offset against profit from another business under the same head (Business income).

Inter‑head set‑off allows remaining losses to offset income under a different head—for instance, a business loss against salary income—subject to restrictions.

Key Restrictions

• House Property Losses: Old Regime allows set‑off against other heads (up to ₹2 lakh). New Regime restricts it only to house property income.
• Business Losses: Non‑speculative losses can be set off against any income except salary, carry forward for 8 years.
• Speculative Business Losses: Only adjustable against speculative gains, carry forward for 4 years.
• Capital Losses: STCL can offset both STCG and LTCG. LTCL usually offsets only LTCG, but one‑time relief (till March 2026) allows set‑off against any capital gains.
• Gambling, racehorse or exempt income losses cannot be set off.

Carry‑Forward Rules (With Filing Conditions)

House property losses – 8 years, against house property income only (allowed even for belated return).
Non‑speculative business losses – 8 years, business income, requires timely filing.
Speculative losses – 4 years, only against speculative income.
Capital losses – 8 years, STCL against both, LTCL only against LT.
Specified business (35AD) – 8 years, same head.
Racehorse losses – 4 years, same activity only.

New vs. Old Regime – What Changes?

• House property losses cannot be set off against other heads under the New Regime.
• Business and capital losses carried forward under Old Regime remain valid under New Regime.
• Belated returns can disqualify carry‑forward of many losses (especially capital losses).

Pro Tips for Tax Savvy Readers

1. File on time to preserve carry‑forward eligibility.
2. Evaluate your loss position before switching regimes.
3. Use carry‑forward strategically to offset expected profits.
4. Stay updated on legislative changes like the one‑time relief for LTCL.

FAQs

Q1. Can I set off house property loss under the New Regime?
No. It can only be set off against house property income and cannot be carried forward.

Q2. Will business or capital losses from old regime still be usable if I switch to new one?
Yes, carried‑forward losses from Old Regime can still be used under the New Regime.

Q3. What happens if I miss the ITR deadline?
Most carry‑forward benefits are lost except house property losses.

Q4. How long can I carry forward business losses?
Non‑speculative – 8 years, speculative – 4 years.

Q5. Can I set off LTCL against STCG?
Normally no, but till March 2026 you can under the one‑time relief.

Final Thoughts

Managing losses wisely through set‑off and carry‑forward can significantly mitigate tax liabilities. The Old Regime provides more flexibility in handling house property losses, while the New Regime favors simplicity. Timely filing and awareness of policy updates are the keys to maximizing benefits.