Quick Answer
16 min read|Updated: Apr 1, 2026|Income-tax
Featured Answer: The Income Tax Act 2025 replaces the 1961 Act effective 1 April 2026 (AY 2026-27). Transitional provisions ensure that existing tax positions — including depreciation WDV, loss carry-forward entitlements, MAT credit balances, capital gains cost bases, and ongoing proceedings — migrate seamlessly into the new legislative framework.
| Type of Loss | Carry-Forward Period | Set-Off Allowed Against | Transition Treatment |
|---|---|---|---|
| Business loss (non-speculative) | 8 AYs from year of loss | Business income only | Remaining years preserved |
| Speculative business loss | 4 AYs from year of loss | Speculative business income only | Remaining years preserved |
| Short-term capital loss | 8 AYs from year of loss | Any capital gains (short-term or long-term) | Remaining years preserved |
| Long-term capital loss | 8 AYs from year of loss | Long-term capital gains only | Remaining years preserved |
| Unabsorbed depreciation | Unlimited (no time limit) | Any income except salary | Full balance preserved indefinitely |
| Loss from owning racehorses | 4 AYs from year of loss | Income from owning racehorses | Remaining years preserved |
| Loss from VDA transfer | Not allowed | No set-off permitted | No carry-forward into 2025 Act |
MAT Credit: Preservation and Limitations
Minimum Alternate Tax (MAT) credit is the difference between MAT paid under section 115JB and the regular tax liability. Companies that paid MAT in excess of their normal tax liability accumulated credit that could be carried forward and set off in subsequent years when normal tax exceeded MAT. This credit has a significant monetary value for many companies.
Balance Carries Forward
The MAT credit balance as on 31 March 2026 carries forward into the 2025 Act. The credit can be set off against tax payable under the 2025 Act for the remaining period out of the original 15-year window from the year in which the credit first arose. For example, MAT credit arising in AY 2020-21 (15-year limit expires AY 2034-35) continues to be available for set-off through AY 2034-35.
Section 115BAA Companies: Permanent Loss of MAT Credit
Companies that opted for the concessional tax regime under section 115BAA of the 1961 Act (effective tax rate of approximately 25.17%) were exempt from MAT. Upon exercising this option, they could no longer utilize their accumulated MAT credit. This position continues under the 2025 Act — MAT credit is permanently lost for such companies. There is no mechanism to reclaim it even under the new regime.
This is an important consideration for companies that are evaluating whether the transition changes their effective tax rate calculus. The MAT credit write-off was a known cost of opting for 115BAA, and the 2025 Act does not reverse it.
For corporate tax rate analysis, see our guide to corporate tax rates and MAT for 2026.
| AY of Credit Origin | MAT Credit Arising (Rs.) | Credit Utilised to Date (Rs.) | Balance as on 31.03.2026 (Rs.) | Expiry AY (15-Year Limit) | Remaining Years |
|---|---|---|---|---|---|
| AY 2019-20 | 12,50,000 | 8,00,000 | 4,50,000 | AY 2033-34 | 8 years |
| AY 2021-22 | 18,75,000 | 5,25,000 | 13,50,000 | AY 2035-36 | 10 years |
| AY 2023-24 | 9,30,000 | Nil | 9,30,000 | AY 2037-38 | 12 years |
| AY 2025-26 | 6,80,000 | Nil | 6,80,000 | AY 2039-40 | 14 years |
| Total | 47,35,000 | 13,25,000 | 34,10,000 | Verify year-wise before migration | |
Capital Gains: Cost Base, Holding Period and Grandfathering
Capital gains computation involves several historical reference points — cost of acquisition, date of acquisition, period of holding, and indexation. Each of these is addressed by the transitional provisions to ensure continuity.
Cost of Acquisition
The cost of acquisition for any capital asset held on 1 April 2026 is determined as per the rules that applied under the 1961 Act. If the asset was acquired before 1 April 2001, the assessee retains the option of adopting the FMV as on 1 April 2001 as the cost. This historical cost base is not disturbed by the transition.
Holding Period from Original Date
The holding period for determining whether a gain is short-term or long-term is counted from the original date of acquisition, not from 1 April 2026. An asset purchased on 1 January 2024 and sold on 30 June 2027 has a holding period of approximately 3.5 years, not 1.25 years.
FMV 31 January 2018 Grandfathering Continues
The grandfathering provision for listed equity shares and units of equity-oriented mutual funds — introduced in the Finance Act 2018 — continues to apply. Where such assets were acquired before 1 February 2018, the cost of acquisition is the higher of (a) actual cost or (b) FMV as on 31 January 2018 (capped at the full value of consideration). This protected pre-2018 unrealised gains from taxation and the protection carries forward into the 2025 Act.
Pre-July 2024 Election: 20% Indexed vs 12.5% Flat
The Finance (No. 2) Act 2024 removed indexation benefit for long-term capital gains on most assets and introduced a flat 12.5% rate effective 23 July 2024. However, for assets acquired before 23 July 2024, taxpayers were given an election: compute tax at 20% with indexation (old method) or 12.5% without indexation (new method), and pay whichever is lower. This election is preserved under the 2025 Act for assets that were acquired before the cutoff date.
For comprehensive capital gains guidance, refer to our capital gains tax guide for 2025.
| Parameter | Option A: Old Method | Option B: New Method |
|---|---|---|
| Tax rate | 20% | 12.5% |
| Indexation benefit | Available (CII-based) | Not available |
| Eligibility | Assets acquired before 23 July 2024 | All long-term capital assets |
| Election mechanism | Compute both; choose lower tax | Default method under 2025 Act |
| Transition treatment | Election preserved for pre-July 2024 acquisitions under the 2025 Act | |
Ongoing Proceedings: Assessments, Appeals and Reassessments
One of the most important aspects of the transition is the treatment of proceedings that are already underway. Assessment orders being drafted, appeals pending before CIT(A) or ITAT, revision proceedings under section 263, and reassessment notices already issued — all of these have a clear path.
Proceedings Continue Under the 1961 Act
All assessment proceedings, reassessment proceedings, appeals, revisions, and rectifications that were pending as on 1 April 2026 continue to be governed by the procedural provisions of the 1961 Act. The Assessing Officer who issued a notice under section 148 of the 1961 Act completes that reassessment under the 1961 Act framework. The CIT(A) hearing an appeal against an order under section 143(3) of the 1961 Act decides it under the 1961 Act.
New Proceedings Under the 2025 Act
Proceedings initiated on or after 1 April 2026 — whether for AY 2026-27 onward or even for earlier years — follow the 2025 Act procedural framework. However, the substantive law applicable to the year under consideration continues to govern. A reassessment for AY 2024-25 initiated after 1 April 2026 follows 2025 Act procedures but applies 1961 Act substantive provisions for computing income of that year.
Advance Rulings: Preserved
Applications for advance rulings that were pending before the Board for Advance Rulings (or its successor body) continue to be heard and decided. Advance rulings already pronounced continue to bind the applicant and the tax authorities to the extent they were binding under the 1961 Act.
Deductions with Unexpired Benefit Periods
Several deductions under the 1961 Act were available for a fixed number of years from the commencement of an eligible business or activity. Where the benefit period has not expired as on 31 March 2026, the assessee continues to receive the deduction under the 2025 Act for the remaining years.
Key Provisions That Continue
- Section 80-IA (infrastructure and power undertakings): Tax holiday for the unexpired portion of the 10-year or 15-year block continues.
- Section 80-IAC (eligible startups): Three consecutive years of 100% deduction out of the 10-year eligibility window — if not fully availed, the remaining years continue.
- Section 10AA (SEZ units): The graduated deduction (100% for first 5 years, 50% for next 5 years, reinvestment-based for last 5 years) continues for the unexpired portion.
The principle is consistent: the legislative transition does not curtail any time-bound benefit that has not expired. The assessee need not re-apply or re-qualify — the original approval or notification under the 1961 Act is sufficient.
Double Taxation Avoidance Agreements (DTAAs)
India has an extensive network of DTAAs with over 90 countries. Many of these treaties contain specific references to provisions of the 1961 Act — for example, references to “profits or gains of business or profession under section 28” or “income from house property under section 22.”
Treaties Continue in Force
All existing DTAAs remain fully operative. No renegotiation is required. Section references in DTAAs that cite provisions of the 1961 Act are to be read as references to the corresponding provisions of the 2025 Act. The government is expected to publish an official concordance table mapping old sections to new ones, but the legal position is clear even without it — the treaty obligations are not affected by domestic recodification.
For the complete section mapping, see our section number mapping from 1961 Act to 2025 Act.
The transitional provisions reflect a mature legislative approach. The Parliament has clearly prioritised fiscal continuity over administrative convenience. For practitioners, the real work lies not in understanding the law — which is straightforward — but in documentation. Every WDV register, loss carry-forward schedule, MAT credit register, and capital gains cost base must be formally reconciled and certified as on 31 March 2026. The entities that do this diligently in Q1 of FY 2026-27 will save themselves enormous trouble in future assessments. Those that treat it as a mere bookkeeping exercise will find that missing records under the defunct 1961 Act framework are nearly impossible to reconstruct years later.
I also advise practitioners to pay close attention to the interplay between old losses and new set-off rules. The quantum of the loss is frozen, but the set-off mechanism is governed by the 2025 Act. If the new Act introduces any tighter restrictions on inter-head set-off, those restrictions will apply even to old losses. This asymmetry is legally sound but commercially important to model in advance.
Practical Checklist for CAs and CFOs
The following seven-point checklist should be completed before or immediately after 1 April 2026 to ensure a clean transition:
| Sr. | Action Item | Details | Deadline | Status |
|---|---|---|---|---|
| 1 | Reconcile WDV registers | Prepare block-wise closing WDV as on 31.03.2026. Verify against IT returns filed. Identify pending additional depreciation balances. Get sign-off from tax head. | 30 April 2026 | Pending |
| 2 | Prepare loss carry-forward schedule | Year-wise breakup of business losses, capital losses, speculative losses, and unabsorbed depreciation. Note remaining carry-forward years for each. Confirm timely filing status for each loss year. | 30 April 2026 | Pending |
| 3 | Compute MAT credit balance | Year-wise MAT credit register. Mark credits utilised and balance available. Note expiry AY for each year’s credit. Flag if company has opted for 115BAA (credit lost). | 30 April 2026 | Pending |
| 4 | Verify cost of acquisition records | Ensure documentary evidence of cost for all capital assets. Confirm FMV as on 31.01.2018 for listed equity shares. Document cost inflation index computations for pre-July 2024 assets. | 31 May 2026 | Pending |
| 5 | Map old section numbers to new | Prepare or obtain a concordance table. Update internal policies, board resolutions, DTAA references, and compliance checklists to reflect new section numbers. | 30 June 2026 | Pending |
| 6 | Update accounting software and templates | Ensure ERP/tax software is updated for 2025 Act depreciation rates, loss schedules, and section references. Verify ITR utility compatibility. Test computation engines. | 30 June 2026 | Pending |
| 7 | Review DTAAs and international structures | Map treaty references from 1961 Act to 2025 Act equivalents. Review PE definitions, withholding rate articles, and LOB clauses for any interpretation changes. Update transfer pricing documentation templates. | 31 July 2026 | Pending |
- The WDV of depreciable assets migrates unchanged — no recomputation or revaluation is needed.
- Business losses carry forward for the remaining period of the original 8 years; unabsorbed depreciation has no time limit.
- MAT credit balance survives for the remaining period of 15 years, but 115BAA companies lose it permanently.
- Capital gains cost of acquisition, holding period, and FMV grandfathering (31 Jan 2018) all continue undisturbed.
- Ongoing assessments, appeals, and reassessments under the 1961 Act continue under 1961 Act procedures.
- Deductions under 80-IA, 80-IAC, and 10AA with unexpired benefit periods continue for the remaining years.
- DTAAs remain in force; old section references are read as new Act equivalents.
- VDA (cryptocurrency) losses cannot be carried forward — this prohibition continues.
- The pre-July 2024 election between 20% indexed and 12.5% flat rate for capital gains is preserved.
- Documentation is the single most important action — reconcile all registers before or immediately after 1 April 2026.
Frequently Asked Questions
No. The WDV as on 1 April 2026 under the Income Tax Act 1961 carries forward unchanged into the 2025 Act. There is no recomputation, revaluation, or restatement. The closing WDV under the old Act becomes the opening WDV under the new Act for each block of assets.
Yes. Business losses that were eligible for carry-forward under the 1961 Act continue to be carried forward under the 2025 Act for the remaining period out of the original 8 assessment years. The critical condition is that the return for the year of loss must have been filed on time under section 139(1) of the 1961 Act.
MAT credit balance as on 31 March 2026 carries forward and can be set off against tax payable under the 2025 Act for the remaining period out of the original 15-year window. However, companies that opted for section 115BAA (22% concessional rate) permanently lose their MAT credit as they were already exempt from MAT.
The cost of acquisition continues to be determined as per the rules applicable under the 1961 Act. The FMV as on 31 January 2018 grandfathering for listed equity shares and equity-oriented mutual fund units continues to apply. The holding period is counted from the original date of acquisition, not from 1 April 2026.
Yes. All assessment proceedings, reassessment proceedings, appeals, revisions, and rectifications that were pending under the 1961 Act continue to be governed by the 1961 Act procedures. Only new proceedings initiated after the transition date will follow the 2025 Act framework.
No. Losses from transfer of Virtual Digital Assets (cryptocurrency, NFTs, etc.) cannot be carried forward under the 2025 Act. This restriction existed under the 1961 Act from AY 2023-24 onward and continues unchanged. VDA losses cannot be set off against any other head of income either.
Deductions with unexpired benefit periods under sections 80-IA, 80-IAC, and 10AA of the 1961 Act continue to be available under the 2025 Act for the remaining period. The assessee does not lose any unexpired years of tax holiday or deduction simply due to the legislative transition.
All existing DTAAs continue to remain in force. Section references in DTAAs that refer to provisions of the 1961 Act are to be read as references to the corresponding provisions of the 2025 Act. No renegotiation of treaties is required for the transition.
Yes. Where an assessee was entitled to additional depreciation under section 32(1)(iia) of the 1961 Act and has claimed only part of it (for example, 50% in the year of acquisition for assets put to use for less than 180 days), the balance additional depreciation continues to be available in the first year under the 2025 Act.
Key steps include: reconcile WDV registers as on 31 March 2026, prepare a loss carry-forward schedule with remaining years, compute MAT credit balance and remaining set-off period, verify cost of acquisition records for capital assets, map old section numbers to new equivalents, update accounting software and templates, and review all DTAAs for section reference changes. Completing these tasks by Q1 of FY 2026-27 is strongly recommended.
Disclaimer: This article is intended for educational and informational purposes only. It does not constitute legal, tax, or professional advice. Readers should consult a qualified tax professional before making any decisions based on this content. The Income Tax Act 2025 is effective from 1 April 2026 for AY 2026-27. Provisions discussed are based on the Act as passed and may be subject to rules, notifications, and circulars issued by the CBDT.
Author: CA V. Viswanathan, FCA, ACS, CFE, IBBI/RV/03/2019/12333
Need professional assistance with your transition planning? Contact our team of experts for personalised guidance on migrating your tax positions to the Income Tax Act 2025.
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- Capital Gains Tax Guide 2025
- Corporate Tax Rates India 2026 and MAT
- New Section Numbers — 1961 to 2025 Mapping
