Can I bear commercial losses after converting from the old tax system to the new tax system?

Two years ago, I claimed to have suffered business losses under the old tax system. I pushed them again under the old regime to my last year’s income tax return (ITR). In the current assessment year, I plan to switch to the new system. Last year, can I continue the losses reported by the old regime?

Unless they choose to exit the old system, the new tax system has become the default tax system for individuals since the 2024-25 annual assessment year. Taxpayers with business income must act with caution, especially those who choose between the old and new systems of the year, or those who stand out from earlier years.

Under Section 115BAC (2) of the Income Tax Act, if a taxpayer relates to deductions not permitted by the new system, it is impossible to claim forward business losses or depreciation. These inferences include investment link deductions under section 32(1)(IIA), investment link deductions (e.g., 35AD, 35(1)(II)/(IIA)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III)/(III Any loss not linked to the above, including conventional business expenses or basic depreciation (under Section 32(1)(ii)), may still be raised and initiated even under the new regime.

These are two practical situations that can be achieved in the new tax system. First, due to regular losses such as rent, wages, electricity, etc. The nature of these deductions is normal business expenses, so the losses incurred by these expenses can be deducted. Another example is the claim that the freelancer does not absorb depreciation (normal speed) on the laptop.

Now, these are two practical situations, and losses are not allowed in the new regime – a) the manufacturer claims losses due to additional depreciation of the machinery, b) a startup deduction under Section 35AD, which is a capital investment and therefore not allowed.

Taxpayers must analyze the loss items they carry. If the huge losses in the past are related to the current deduction, switching to the new regime may lose its settings. In this case, it is still possible to submit a 10-IEA form before or before the return date, thus exiting the new system.

However, if the loss is related to standard business operations or normal depreciation, the new regime will not prevent it from being set.

The new regime offers lower tax rates but less deductions. Therefore, a comparative tax calculation – the loss that meets the criteria – is crucial.

Bhawna Kakkar, Chartered Accountant and Founder Kakkar & Company, Chartered Accountant