Can You Carry Forward Losses in a Belated ITR?

Under the Income Tax Act, 1961, taxpayers can carry forward losses such as business, capital gains, or speculative losses to future years, but only if their income tax return is filed within the due date specified under Section 139(1). Filing a belated ITR, which is done after the due date, usually disqualifies these losses from being carried forward. However, losses like house property loss and unabsorbed depreciation remain eligible for carry forward even in a belated return. Understanding these distinctions helps taxpayers make informed decisions and avoid losing potential tax benefits due to late filing.

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Table of Contents

• Understanding Carry Forward of Losses under the Income Tax Act

• What Is a Belated ITR and When Can It Be Filed?

• Can You Carry Forward Losses in a Belated ITR?

• Exceptions to the Rule — Losses That Can Still Be Carried Forward

• Set Off vs. Carry Forward — Key Distinction Explained

• Impact of Late Filing on Business and Capital Gains Losses

• Relevant Sections Governing Carry Forward in Belated ITRs

• Practical Examples and Case Interpretations

• How to Avoid Losing Carry Forward Benefits Due to Late Filing

• Role of TaxBuddy in Simplifying ITR Filing and Loss Reporting

• Key Takeaways for Taxpayers

• Conclusion

• FAQs

  
  

Understanding Carry Forward of Losses under the Income Tax Act

Carry forward of losses refers to the provision under the Income Tax Act that allows taxpayers to carry unadjusted losses of one financial year to future years to offset against future income. This mechanism ensures that taxpayers are taxed only on net income over time rather than being penalised in years with temporary losses. Eligible heads of income include business or profession, capital gains (both short-term and long-term), house property, and speculative business. However, each category has specific rules and conditions regarding how long losses can be carried forward and under what circumstances.

What Is a Belated ITR and When Can It Be Filed?

A belated ITR refers to an income tax return filed after the original due date prescribed under Section 139(1) of the Income Tax Act. Taxpayers who miss the due date can file a belated return under Section 139(4) before December 31 of the relevant assessment year, unless extended by the government. However, filing a belated ITR comes with certain consequences, such as late fees under Section 234F, loss of certain deductions, and restrictions on carrying forward specific losses. Filing within the original deadline ensures full compliance and availability of all benefits.

Can You Carry Forward Losses in a Belated ITR?

As per Section 139(3) of the Income Tax Act, most losses—especially under the head “Profits and Gains of Business or Profession” and “Capital Gains”—cannot be carried forward if the ITR is filed after the due date. Only returns filed within the due date under Section 139(1) qualify for loss carry forward. Therefore, filing a belated ITR under Section 139(4) restricts the taxpayer’s ability to carry forward such losses to subsequent years. This rule aims to promote timely filing and prevent misuse of loss claims in later years.

Exceptions to the Rule — Losses That Can Still Be Carried Forward

There are two major exceptions where losses can be carried forward even if the return is filed late: house property loss and unabsorbed depreciation. Under Section 71B, a loss from house property can be carried forward for up to eight assessment years, regardless of filing deadlines. Similarly, unabsorbed depreciation under Section 32(2) can be carried forward indefinitely until fully adjusted. For instance, if a taxpayer has a house property loss of ₹1,50,000 and files a belated ITR, they can still carry forward this loss for future set-offs against house property income.

Set Off vs. Carry Forward — Key Distinction Explained

“Set off” refers to adjusting losses against income within the same financial year, whereas “carry forward” applies to unadjusted losses that can be used in future years. Set off can be intra-head (within the same income category) or inter-head (between different income heads), depending on the rules. For example, a loss from one business can be set off against profit from another business in the same year. However, if a portion remains unadjusted, it can be carried forward to future years only if the ITR is filed on time.

Impact of Late Filing on Business and Capital Gains Losses

Filing returns after the due date can lead to permanent disallowance of carry-forward benefits for business and capital gains losses. Business losses, including speculative losses, can be carried forward for eight years only if the return is filed on or before the due date under Section 139(1). Similarly, capital losses—both short-term and long-term—can be carried forward for eight years only if declared in a timely filed return. Many case laws, such as K.P. Varghese v. ITO, reaffirm that filing delays make these losses ineligible for future adjustment.

Relevant Sections Governing Carry Forward in Belated ITRs

The key sections governing carry-forward eligibility include:

• Section 139(1): Specifies the due dates for filing original ITRs.

• Section 139(3): States that returns claiming a loss carry forward must be filed within the due date.

• Section 32(2): Governs the carry forward of unabsorbed depreciation without any filing restriction. Together, these sections create a framework that rewards punctual compliance and ensures genuine loss recognition.

Practical Examples and Case Interpretations

Example 1: A taxpayer with a business loss of ₹2 lakh for FY 2024-25 files the ITR after the deadline. Since the return is belated, the business loss cannot be carried forward. Example 2: Another taxpayer with a house property loss of ₹1.2 lakh files late but can still carry forward this loss under Section 71B. Judicial precedents such as CIT v. Govind Nagar Sugar Ltd. also establish that unabsorbed depreciation can be carried forward despite late filing, reaffirming the statutory exceptions.

How to Avoid Losing Carry Forward Benefits Due to Late Filing

To preserve loss carry forward benefits, taxpayers must:

1. File ITRs before the due date under Section 139(1).

2. Maintain accurate records of losses and supporting documents.

3. Use reliable e-filing platforms that auto-track due dates and loss categories.

4. Set calendar reminders or delegate filing to professionals. Timely filing through platforms like TaxBuddy ensures compliance and prevents permanent forfeiture of loss-related benefits.

Role of TaxBuddy in Simplifying ITR Filing and Loss Reporting

TaxBuddy simplifies tax filing by automating calculations, classifying income and loss heads correctly, and identifying carry-forward eligibility. Its AI-driven interface instantly checks filing deadlines, loss categories, and section-wise eligibility, ensuring that taxpayers do not lose benefits due to late filing. Expert-assisted plans further review the computation to ensure compliance with Sections 139(3) and 32(2). This combination of automation and human oversight ensures every eligible loss is carried forward seamlessly.

Key Takeaways for Taxpayers

Filing income tax returns on time has more benefits than just avoiding late fees. It directly affects how losses and future tax adjustments can be claimed. When returns are filed after the due date—known as belated returns—certain types of losses cannot be carried forward to subsequent years. Specifically, losses under the heads “Business or Profession” and “Capital Gains” become ineligible for carry forward. This means taxpayers lose the opportunity to adjust these losses against future income, which could have reduced their tax liability in later years.

However, there are a few exceptions to this restriction. Losses from “Income from House Property” and unabsorbed depreciation can still be carried forward even if the return is filed late. This offers some relief for those who might have missed the deadline but still want to claim legitimate deductions on home loans or depreciation on business assets.

Filing within the original due date under Section 139(1) ensures that all eligible losses are preserved and can be utilised in future years to minimise tax outgo. It also reflects compliance discipline, reducing the risk of scrutiny or disallowance from the Income Tax Department.

To stay compliant and avoid such costly lapses, taxpayers can use reliable tax-filing platforms like TaxBuddy. With features like automated data validation, real-time error checks, and expert guidance, TaxBuddy ensures timely and accurate filing while maximising the available tax benefits.

Conclusion

Loss carry forward provisions allow taxpayers to smooth income fluctuations and minimise their long-term tax liability. However, filing returns late under Section 139(4) restricts most carry-forward benefits except for house property losses and unabsorbed depreciation. Timely compliance ensures financial efficiency and maximises deductions.

For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.

FAQs

Q1. What is the meaning of carry forward of losses?

Carry forward of losses means transferring unadjusted losses from one financial year to the next, so they can be set off against future income. This helps taxpayers reduce their future tax liability. The process is governed by specific rules under the Income Tax Act, and only certain types of losses—like business, capital gains, or house property losses—are eligible for carry forward, subject to compliance with filing deadlines.

Q2. Can losses be carried forward if I file my return late?

In most cases, no. If a taxpayer files their return after the due date under Section 139(1), business losses and capital gains losses cannot be carried forward. Timely filing is mandatory to preserve these benefits. However, certain exceptions exist where losses can still be carried forward even if the return is filed late.

Q3. Are there any exceptions to this rule?

Yes, two major exceptions apply. Losses from house property under Section 71B and unabsorbed depreciation under Section 32(2) can be carried forward even if the ITR is filed after the due date. These exceptions provide flexibility for taxpayers who miss the filing deadline but still want to retain partial benefits.

Q4. What is the time limit to file a belated ITR?

A belated income tax return can be filed up to December 31 of the relevant assessment year or within any extended deadline announced by the government. However, filing late reduces your ability to carry forward certain losses, so it is advisable to file within the original due date to avoid losing benefits.

Q5. Can speculative business losses be carried forward if the ITR is delayed?

No, speculative business losses—such as those from intraday trading or speculative activities—cannot be carried forward if the return is filed after the due date. To claim such losses in future years, the taxpayer must file the ITR within the prescribed timeline under Section 139(1).

Q6. What happens to losses if I miss the due date?

If the due date is missed, most losses (like business or capital losses) lapse permanently and cannot be carried forward to subsequent years. Only house property losses and unabsorbed depreciation are exceptions. Once lapsed, these losses cannot be restored even through a revised return, which makes timely filing critical.

Q7. How long can house property losses be carried forward?

House property losses can be carried forward for up to eight assessment years immediately following the year in which the loss occurred. The taxpayer can set off these losses only against income from house property in the following years. This provision remains valid even if the ITR is filed late.

Q8. Can unabsorbed depreciation be carried forward indefinitely?

Yes. Unabsorbed depreciation under Section 32(2) can be carried forward without any time limit. It can be adjusted against any income (except salary) in subsequent years until it is fully utilized. This provides significant tax relief, especially for businesses with heavy initial investments or depreciation claims.

Q9. How can I verify if my losses are correctly carried forward?

You can check the “Schedule CFL” (Carry Forward Loss) section in your filed ITR or the acknowledgment form. It lists all carried forward losses year-wise and category-wise. Alternatively, TaxBuddy’s automated platform cross-verifies prior year data, identifies discrepancies, and ensures that eligible losses are correctly reflected in the current year’s return.

Q10. What sections govern the carry forward of losses?

The key sections that govern the carry forward of losses include:

• Section 139(1) – Mandates timely filing for eligibility.

• Section 139(3) – Covers loss return filing requirements.

• Section 71B – Governs carry forward of house property loss.

• Section 32(2) – Governs unabsorbed depreciation. Each section defines specific timelines, income heads, and adjustment limits to ensure proper compliance.

Q11. Can revised returns help restore loss carry-forward eligibility?

No. Filing a revised return does not reinstate eligibility for carrying forward losses if the original return was filed late. Once the due date has passed, even a revised return filed later will not qualify for loss carry forward. This is why filing within the original timeline under Section 139(1) is essential for preserving future set-off rights.

Q12. How does TaxBuddy ensure loss reporting accuracy?

TaxBuddy uses AI-based validation to categorise income and losses accurately under their respective heads. It cross-checks carry-forward data from previous filings, ensures correct mapping under Schedule CFL, and alerts users about filing deadlines to maintain eligibility. By automating this process and offering expert review, TaxBuddy helps taxpayers avoid errors, disallowances, and loss of tax benefits.