Can I Carry Forward Business Loss After Switching from Old to New Tax Regime?

Can I Carry Forward Business Loss After Switching from Old to New Tax Regime?

Can I Carry Forward Business Loss After Switching from Old to New Tax Regime? The introduction of the new tax regime under Section 115BAC has brought with it a simpler tax structure with lower tax rates but without several exemptions and deductions available under the old regime. While salaried individuals and pensioners may find the transition easier, business professionals and freelancers need to tread carefully—especially when it comes to carrying forward business losses.

Can I Carry Forward Business Loss After Switching from Old to New Tax Regime? If you’re planning to switch to the new regime and have business losses from previous years, this blog breaks down everything you need to know about whether those losses can still be utilized.

🧾 The Legal Framework: Section 115BAC(2)

As per Section 115BAC(2) of the Income Tax Act:

Can I Carry Forward Business Loss After Switching from Old to New Tax Regime? Taxpayers opting for the new tax regime cannot set off carried-forward business losses or unabsorbed depreciation if these are linked to deductions not allowed under the new regime.

These disallowed deductions include:

• Additional depreciation under Section 32(1)(iia)
• Investment-linked deductions under:
  • Section 35AD (capital investment in specified businesses)
  • Section 35(1)(ii)/(iia)/(iii) (scientific research)
  • Section 33AB, 33ABA
• Deductions under Chapter VI-A, except for:
  • Section 80CCD(2) (employer’s NPS contribution)
  • Section 80CCH(2) (Agniveer corpus fund)
  • Section 80JJAA (new employment generation)

✅ When Can You Carry Forward Business Losses in the New Tax Regime?

If your business losses from earlier years are not linked to any of the disallowed deductions, you’re in the clear. You can still carry them forward and set them off against future income.

✔️ Allowed Losses:

1. Loss due to regular business expenditure
   • Can I Carry Forward Business Loss After Switching from Old to New Tax Regime? Examples: Rent, salaries, electricity bills, office expenses
2. Unabsorbed basic depreciation under Section 32(1)(ii)
   • Examples: Depreciation on laptops, vehicles, furniture used in business

🧠 Practical Example:

A trader incurred a ₹2 lakh loss in FY 2022–23 due to high office rent and salary payouts. Since these are standard business expenses, this loss can be carried forward and set off in the new regime. Can I Carry Forward Business Loss After Switching from Old to New Tax Regime?

❌ When Carrying Forward is Not Allowed in the New Regime

If your loss is linked to deductions that the new tax regime disallows, you’ll lose the right to carry forward or set off those losses after switching.

❌ Disallowed Losses:

1. Additional depreciation on machinery (Section 32(1)(iia))
2. Investment-linked deductions
   • Capital expenses under Section 35AD
   • Research expenses under Section 35
3. Certain Chapter VI-A deductions

⚠️ Practical Example:

A manufacturer claimed additional depreciation of ₹3 lakh on new plant machinery in FY 2022–23 and reported a business loss. If they switch to the new regime, they cannot carry forward this loss any longer.

🔁 Old Regime vs New Regime: Should You Switch?

Can I Carry Forward Business Loss After Switching from Old to New Tax Regime? Switching to the new tax regime could mean lower tax rates, but if you have substantial carried-forward losses tied to disallowed deductions, the new regime might result in higher tax liability in future years.

📌 Things to Consider:

• Do an item-wise analysis of your carried-forward losses.
• Estimate future profits and the tax impact with or without loss set-off.
• If needed, opt out of the new regime by filing Form 10-IEA before the ITR due date.

📝 How to File Form 10-IEA

To opt out of the new regime and retain your right to carry forward such losses:

1. Log into the Income Tax Portal
2. Navigate to: e-File → Income Tax Forms → File Income Tax Forms
3. Select Form 10-IEA
4. Fill and submit it before the due date of your ITR

📊 Summary Table: Can You Carry Forward Losses?

🧮 Final Word

Can I Carry Forward Business Loss After Switching from Old to New Tax Regime? Switching to the new tax regime is more than just a tax-rate comparison—it’s a strategic decision. If you’re a taxpayer with carried-forward business losses, analyze the source of those losses before switching.

If your past losses are from normal operations, you’re safe. But if they are from special deductions, you may lose them forever under the new regime.

So, make a smart move—consult a tax expert if needed, and choose your regime wisely.

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