Can you carry forward losses while filing ITR under the new tax regime? Read the fine print However, the question arises if the same benefit is available for all capital assets under the new tax regime
The new tax regime is the default tax regime for ITR filing from this year i.e., for FY2023-24. However, can you carry forward your capital losses from previous years or this year under the new tax regime? Remember, the new tax regime does not allow various common deductions and tax exemptions.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} The income tax laws allow an individual to carry forward capital losses for 8 financial years. These losses can be set off against future capital gains. Setting off capital losses against capital gains can lower taxable capital gains. This will lead to lower tax payable on capital gains in the future. This benefit is available under the old tax regime.
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Carrying forward of losses in new tax regime
Akhil Chandna, Partner, Grant Thornton Bharat, a tax consultancy firm, says, "If an individual opts for the new tax regime, he or she can still avail the benefit of set-off and carry forward of capital losses (both from previous and current years). However, in the case of a house property loss, the same cannot be set off against any other head of income under the new tax regime. Further, such house property loss cannot be carried forward to subsequent years for setting off against house property income or any other head of income."
Sujit Bangar, a former IRS officer and founder of TaxBuddy.com, an ITR filing website, says, "Section 115BAC of the Income-tax Act (governing the new tax regime) does not specifically mention restriction on carry forward and setting off of losses on any capital asset under the new tax regime. However, ITR filing forms do not allow setting off and carrying forward of losses from income from house property. Hence, if you have any losses from capital assets (except losses from house property) and opt for the new tax regime, you can set them off as per the rules specified under the Income-tax Act."
Under income tax rules, capital gains or losses are categorised as short term or long term depending on the nature of the asset and the period of holding specified for the asset. Short-term losses can be set off against long-term and short-term capital gains. However, long-term losses can only be set off against long-term capital gains.
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What if you switch to old tax regime next year
Individuals might have filed ITR under the old tax regime in the previous years and carried forward losses from house property. What will happen to these losses if the ITR is filed under the new tax regime in the subsequent year?
Bangar says, "If an individual having losses from income from house property in the previous year files ITR under the new tax regime this year, he cannot carry forward these losses (presuming the losses are not fully set off in this year) to the next year. Consequently, even if the individual files ITR under old tax regime the next year the ITR filer cannot use these losses as they would not have been carried forward. Income tax rules require losses under any head to be carried forward every year without a break to be set off against future capital gains."
However, Chandna has a different view. He says, "Any house property loss that is incurred during the year of opting for the new tax regime lapses as it cannot be carried forward. However, clarity is needed for house property losses incurred in previous years when the old tax regime was opted for. One possible view in favour of taxpayer is that even when the taxpayer is choosing the new tax regime, he can still carry forward these brought forward losses in the CFL schedule and claim the set-off against income in subsequent years when the old regime would be opted, however, this needs to be clarified by the government to avoid any future litigation."
There can be situations where an individual have carried forward losses from house property in the previous years when ITR was filed in old tax regime. However, this year ITR is filed with the new tax regime. The question arises if new tax regime allows to set-off previous years' carried losses with this year current income from house property. Bangar says, "One cannot set off carry forward losses in the new tax regime. Individual should file ITR with old tax regime to take benefit of setting off of losses."
Also Read: Which ITR form applies to your income?
ITR form for carrying forward losses in old, new tax regime
Bangar says, "A taxpayer should file his/her income tax return using ITR-2 form to carry forward losses from previous financial years (except in case of house property). Schedule CG of the ITR-2 form must be filled to carry forward the losses to future financial years. ITR-1 form does not have Schedule CG to carry forward losses."
File ITR before July 31 to carry forward losses
From this year, if an individual misses the last date to file ITR, the belated ITR will be filed under the new tax regime.
Chandna says, "If an individual files a belated ITR under the new tax regime, any capital losses incurred during that financial year, or the previous financial year cannot be carried forward."
Bangar says, "If the ITR filed is belated ITR, then no capital loss is allowed to be carried forward. Hence, for an individual to carry forward allowed capital losses of current or previous year under the new tax regime, the ITR must be filed on or before the due date, i.e., July 31."
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This story originally appeared on: India Times - Author:Faqs of Insurances
