Can You Carry Forward Losses After Filing a Belated ITR?

Rules Under the Income-tax Act, 2025

Missing the original Income-tax Return (ITR) filing deadline can have consequences beyond late-filing fees and interest. One of the most important consequences is that a taxpayer may lose the right to carry forward certain losses to future tax years.

Under the Income-tax Act, 2025, the general rule remains substantially similar to the Income-tax Act, 1961. Business losses, capital losses and certain other specified losses generally cannot be carried forward if the return is filed after the applicable due date.

However, important exceptions exist, particularly for house-property losses and unabsorbed depreciation.

What is a Belated Return under the Income-tax Act, 2025?

Section 263 of the Income-tax Act, 2025 contains the provisions relating to filing Income-tax Returns.

• Section 263(1): Return filed within the applicable due date.
• Section 263(4): Belated return.
• Section 263(5): Revised return.
• Section 263(6): Updated return.

A belated return under section 263(4) can generally be filed within the prescribed time allowed under the Act. However, permission to file a belated return does not mean that every tax benefit available with an original return filed within the due date will continue to be available.

Can Losses Be Carried Forward If the ITR Is Filed Late?

Generally, no.

Section 121 of the Income-tax Act, 2025 provides that specified losses cannot be carried forward unless the loss has been determined pursuant to a return filed under section 263(1).

Therefore, where a taxpayer wants to carry forward eligible:

• Business losses
• Capital losses
• Speculation losses
• Specified-business losses
• Losses from owning and maintaining racehorses

the Income-tax Return should generally be filed within the original applicable due date under section 263(1).

Which Losses Can and Cannot Be Carried Forward After Filing a Belated ITR?

Section 121 specifically refers to sections 111(1), 112(1), 113(2), 114(2) and 115(2). The provision relating to house-property loss under section 110 is not included in this restriction.

1. Business Loss

Normal business losses are governed by section 112 of the Income-tax Act, 2025.

Eligible business losses can generally be carried forward for up to eight tax years. However, the return containing such loss must satisfy the timely filing requirement under section 121.

Accordingly:

• Business loss + return filed within due date: Carry forward allowed, subject to applicable conditions.
• Business loss + belated return: Carry forward generally not allowed.

2. Capital Loss

Capital losses are governed by section 111 of the Income-tax Act, 2025.

This includes:

• Short-term capital loss and
• Long-term capital loss

Capital losses may generally be carried forward for up to eight tax years, subject to applicable set-off rules. However, section 121 requires the relevant loss to be determined through a return filed within the due date under section 263(1).

Therefore, investors and taxpayers with capital losses should avoid missing the original ITR filing deadline merely because they have no tax payable.

3. Speculation Loss

Speculation losses are governed by section 113 of the Income-tax Act, 2025.

Such losses may generally be carried forward for four tax years, subject to applicable conditions. However, the timely-return condition under section 121 applies.

Therefore, a speculation loss reported only through a belated return generally cannot be carried forward.

4. Specified Business Loss

Loss from a specified business is governed by section 114.

Section 121 expressly covers section 114(2). Therefore, filing the return within the applicable due date is necessary to preserve the right to carry forward such losses.

5. Loss from Owning and Maintaining Racehorses

Losses from owning and maintaining racehorses are governed by section 115.

Such losses may generally be carried forward for four tax years, but the timely-return condition under section 121 applies.

Exception: House-Property Loss Can Generally Be Carried Forward Even with a Belated Return

House-property loss is an important exception to the general rule.

Section 110 of the Income-tax Act, 2025 provides for carry-forward and set-off of eligible house-property losses for up to eight tax years.

Section 121 does not include section 110 within its timely-return restriction. Accordingly, a house-property loss is generally not denied carry-forward merely because the return was filed after the original due date, provided the other applicable conditions are satisfied.

Example

Suppose a taxpayer has a house-property loss of ₹3,00,000 and files the ITR after the original due date.

The mere fact that the return was filed belatedly does not trigger the section 121 restriction applicable to capital losses and specified business losses.

Therefore, the eligible unabsorbed house-property loss may generally be carried forward under section 110, subject to the applicable set-off provisions.

What About Unabsorbed Depreciation?

Unabsorbed depreciation is separately governed by section 116 of the Income-tax Act, 2025.

Section 116 is not included among the losses covered by the timely-return restriction under section 121.

Therefore, unabsorbed depreciation is generally not lost merely because the ITR was filed belatedly, subject to other applicable provisions and conditions.

Taxpayers should therefore distinguish between:

• Business loss and
• Unabsorbed depreciation

They are treated differently for carry-forward purposes.

Can the Loss Still Be Set Off in the Same Tax Year?

Section 121 primarily restricts the carry-forward of specified losses to subsequent tax years.

Current-year intra-head and inter-head set-off are governed separately by sections 108 and 109 of the Income-tax Act, 2025.

Therefore, filing a belated return does not automatically mean that every permissible current-year loss set-off is denied. The rules applicable to the particular type of income and loss must be examined separately.

Income-tax Act, 1961 vs Income-tax Act, 2025

Under the Income-tax Act, 1961, section 80 similarly restricted the carry-forward of specified losses unless the return was filed in accordance with section 139(3).

Therefore, the Income-tax Act, 2025 broadly retains the existing principle while restructuring and renumbering the relevant provisions.

What Happens to Losses from Years Governed by the Income-tax Act, 1961?

This transitional issue is especially important for AY 2026-27.

Income earned during FY 2025-26 remains governed by the Income-tax Act, 1961 even though the Income-tax Act, 2025 became effective from 1 April 2026.

Losses that were validly eligible for carry-forward under the Income-tax Act, 1961 can continue into the Income-tax Act, 2025 regime, subject to the repeal, saving and transitional provisions.

However, the Income-tax Act, 2025 does not make an earlier ineligible loss eligible merely because the new Act has come into force.

For example, if a business or capital loss under the Income-tax Act, 1961 became ineligible for carry-forward because the taxpayer filed the relevant loss return belatedly, that loss does not become eligible simply because the Income-tax Act, 2025 subsequently applies.

Example: Capital Loss and Belated ITR

Suppose Mr. A incurs a capital loss of ₹4,00,000 during Tax Year 2026-27.

He is required to file his return within the applicable due date under section 263(1), but instead files a belated return under section 263(4).

Since capital loss carry-forward is governed by section 111 and section 121 requires the loss to be determined pursuant to a return filed under section 263(1), Mr. A would generally not be permitted to carry forward the ₹4,00,000 capital loss to future tax years.

Had the return been filed within the applicable due date, the eligible capital loss could generally have been carried forward for up to eight tax years, subject to the applicable set-off conditions.

Common Mistakes Taxpayers Should Avoid

• Assuming the belated ITR deadline preserves all benefits: The ability to file a belated return does not necessarily preserve the right to carry forward specified losses.
• Treating all losses alike: House-property loss and unabsorbed depreciation are treated differently from capital and business losses.
• Not filing because no tax is payable: A taxpayer with capital or business losses may still need to file within the original due date to preserve those losses.
• Confusing current-year set-off with carry-forward: The rules for setting off a loss during the same tax year and carrying it forward to future years are different.
• Assuming an updated return can restore an expired loss benefit: Filing an updated return does not automatically revive a loss that became ineligible because the original timely filing requirement was not satisfied.

Key Takeaway

Under the Income-tax Act, 2025, filing a belated ITR can result in the loss of the right to carry forward several categories of losses.

• Business loss:  Generally cannot be carried forward
• Capital loss:  Generally cannot be carried forward
• Speculation loss:  Generally cannot be carried forward
• Specified-business loss:  Generally cannot be carried forward
• Race-horse loss:  Generally cannot be carried forward
• House-property loss:  Generally can be carried forward
• Unabsorbed depreciation:  Generally not barred merely because of belated filing

Therefore, taxpayers with capital-market losses, F&O or business losses and other eligible specified losses should pay close attention to the original ITR due date under section 263(1), rather than relying only on the last date available for filing a belated return.

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