Special Provisions for Set-Off of Losses Under Section 115BAC (New Tax Regime)

Section 115BAC of the Income Tax Act, 1961, introduces a simplified tax regime with lower slab rates but restricts many deductions ansd exemptions, including provisions for set-off and carry-forward of losses. Below is a detailed analysis of how losses are treated for individuals and HUFs opting for the new tax regime.

1. Key Restrictions on Loss Set-Off Under Section 115BAC

A. House Property Losses

• No inter-head adjustment: Losses from house property cannot be set off against other heads(e.g., salary, business income).
• Only intra-head adjustment allowed: Losses can onlybe adjusted against income from other house properties.
• No carry-forward: Unlike the old regime (where losses can be carried forward for 8 years), house property losses cannot be carried forwardunder the new regime.

Example:

• Loss from house property: ₹2,00,000
• Income from other sources: ₹5,00,000
• Under new regime: The loss cannotbe adjusted, resulting in taxable income of ₹5,00,000.

B. Business Losses & Unabsorbed Depreciation

• No set-off of brought-forward losses: If losses relate to deductions/exemptions withdrawn under Section 115BAC, they cannot be set off.
  • Example: Losses attributable to additional depreciation (Section 32(1)(iia))or SEZ exemptions (Section 10AA) are disallowed.
• No carry-forward: Business losses cannot be carried forwardif they stem from deductions not allowed under the new regime.

C. Capital Losses

• Short-Term Capital Loss (STCL): Can be set off against STCG or LTCG(same as old regime).
• Long-Term Capital Loss (LTCL): Can onlybe set off against LTCG.
• Carry-forward allowed: Both STCL and LTCL can be carried forward for 8 years, provided the return is filed on time.

2. Comparison: Old vs. New Regime for Loss Set-Off

3. Practical Implications

1. Tax Planning Impact:
   • Taxpayers with high house property losses(e.g., home loan interest) may prefer the old regime to utilize losses against other income.
   • Businesses with unabsorbed depreciationmay face higher tax liability if they switch to the new regime.
2. Switching Between Regimes:
   • Salaried individualscan choose the regime yearly, but business taxpayers must stick to their choice once made.
   • If switching to the new regime, past losses may become unusable.
3. Compliance Requirements:
   • Timely filing of returnsis critical to preserve carry-forward benefits (except for house property losses in the new regime).

4. Recent Changes (Budget 2025)

• Rebate increase (Section 87A): Taxpayers with income up to ₹12 lakh pay zero taxunder the new regime.
• Standard deduction hike: Increased to ₹75,000 (from ₹50,000), partially offsetting loss restrictions.

5. Key Points

✅ New regime simplifies taxes but severely restricts loss utilization.

⚠️ House property losses cannot be set off or carried forward under Section 115BAC.

📅 Business losses tied to withdrawn deductions (e.g., Section 80C, HRA) are forfeited.

🔁 Choose the regime carefully—once opted, business taxpayers cannot switch back easily.

For taxpayers with significant losses, sticking to the old regime may be more beneficial.