Switching to the New Tax Regime? Here’s What Happens to Your Carried Forward Business Losses
If you’re thinking of moving from the old to the new tax regime in India, and you’ve accumulated business losses in the past, it’s natural to wonder what becomes of them.
The good news is that you can still carry them forward, but there are some important rules and limitations you need to be aware of.
The older regime allowed a broad range of deductions—such as exemptions for house rent allowance (HRA), leave travel, and other standard deductions. It also allowed business owners to carry forward and set off losses against future profits. The new regime, introduced in the 2020–21 financial year, offers reduced tax slab rates but does away with most deductions. For individuals with business income, switching to the new regime is a one-way street unless they shut down their business.
As per current rules and multiple clarifications by the Central Board of Direct Taxes (CBDT), losses and depreciation from earlier years, claimed under the old regime, can still be carried forward and set off even after you opt into the new regime. However, any losses or depreciation incurred under the new system will follow the limitations of the regime—meaning you cannot claim new deductions like before.
It’s also important to know that you cannot set off losses from house property (such as interest on a home loan) under the new system, as those deductions are not available.
· All past losses have been properly declared in your previous tax filings.
· You understand that once you choose the new regime, you cannot go back to the old one if you have business income.
· You consult a tax professional to help you plan the most efficient strategy.
Switching to the new regime doesn’t mean your earlier losses vanish—but you’ll need to be cautious and informed about what changes and what doesn’t. It’s always a good idea to weigh the pros and cons with a tax advisor before making a decision that affects your long-term financial planning
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