Can you carry forward stock and mutual fund losses under the 1961 Act to the Income-tax Act, 2025?

As the Income-tax Return (ITR) filing season gains momentum, many filers are wondering whether they can carry forward their capital losses from stocks and equity mutual funds under the Income-tax Act, 1961, into the new Income-tax Act, 2025.

The answer is yes, you can carry forward your capital losses from stocks and equity mutual funds under the new Income Tax Act, 2025. This provision is clarified by the repeal and savings clause in section 536 of the new Act.

As per Sections 536(2)(m) and (n) of the new Act, any valid losses brought forward from tax years beginning before April 1, 2026, are protected and will continue to be carried forward and set off.

“Clauses (m) and (n) of section 536(2) expressly provide that losses brought forward for tax years beginning before 1 April 2026 shall continue to be carried forward and set off under the new Act in the manner provided under the corresponding provisions of the repealed Act,” the Income Tax Department said in a FAQ.

For example, an eligible capital loss of AY 2024-25 under the Income-tax Act, 1961 can be carried forward under the new Act. However, the total carry-forward period cannot exceed the original eight-year limit counted from AY 2024–25.

Here is how your stock and equity mutual fund-related losses will be handled during the transition:

• Capital losses (short-term and long-term): These retain their original character and can be set off against capital gains computed under the new Act, strictly in the manner allowed by the old Act

• The original carry-forward limit of eight years is fully retained under the new Act.

For example, a long-term capital loss that a taxpayer had in AY 2025-26 can be used for set-off against his long-term capital gains in later years, following the conditions prescribed in the old Act.

However, you need to keep the following points in mind to successfully carry forward capital losses:

• To successfully carry forward these pre-transition losses into the 2025 Act, you must have filed your original return of loss within the prescribed due date under the Income-tax Act, 1961

• If your loss return for an earlier year was filed belatedly and denied carry-forward under the old Act, the new Act cannot revive or cure that defect.

Carry forward FY2025-26 losses to Tax Year 2026-27

In the current ITR season, most taxpayers will be filing returns for AY 2026-27 on income earned in FY 2025-26. These returns will be filed under the Income-tax Act, 1961. Returns under the new Income-tax Act, 2025 will be filed next year for Tax Year 2026-27. You can carry forward your losses from FY 2025-26 to Tax Year 2026-27.