Losses, Unabsorbed Depreciation and MAT/AMT Credit Under Section 536 of the Income-tax Act, 2025

The Income-tax Act, 2025 came into force on 1 April 2026 and Section 536(1) repealed the Income-tax Act, 1961. Losses, unabsorbed depreciation and MAT or AMT credit built up under the 1961 Act do not lapse on repeal. Section 536(2) carries each of them into the new Act through its own clause, with its own rules. This post sets out what each clause says, how the carry-forward periods are counted, and where the new Act changes how a brought-forward item can be used. In this post, Section 536 and sections 110 to 121, 200, 201, 206 and 263 are sections of the Income-tax Act, 2025; other section numbers are of the Income-tax Act, 1961.

Key Takeaways

• Brought-forward losses under sections 71B, 72, 73, 73A and 74A move into the new Act under Section 536(2)(m). Capital losses under section 74 move under Section 536(2)(n). Unabsorbed depreciation moves under Section 536(2)(r). MAT and AMT credit move under Section 536(2)(l).
• The carry-forward period does not restart on 1 April 2026. It keeps running from the year in which the loss was first computed under the 1961 Act.
• Unabsorbed depreciation under section 32(2) still has no time limit. It is added to the capital allowances of tax year 2026-27 under the new Act.
• Brought-forward MAT credit under section 115JAA can be used by a domestic company under the amended Section 206(3) only if it opts for the concessional regime under section 200 or 201 of the Income-tax Act, 2025, and only up to 25% of its tax for the year.
• A loss from a return that did not meet section 80 of the 1961 Act cannot be carried forward under the new Act. Section 536 does not revive it.

Which Act Governs Which Year

Income of FY 2025-26 is assessed in AY 2026-27 under the Income-tax Act, 1961, even though the return is filed after 1 April 2026. Income earned from 1 April 2026 falls in tax year 2026-27 under the Income-tax Act, 2025. The CBDT transition FAQs confirm there is no missing or overlapping year (FAQ Q1.12 and Q3.5).

Where the new Act refers to a tax year beginning on or before 1 April 2025, Section 536(3) reads it as the corresponding previous year under the 1961 Act. So “tax year 2024-25” means previous year 2024-25, which is AY 2025-26.

This matters for carry-forward. Losses and credits of AY 2026-27 and earlier are determined under the 1961 Act, including the loss of FY 2025-26. They are then used against income computed under the 2025 Act from tax year 2026-27 onwards.

The Saving Clauses at a Glance

Item brought forward	1961 Act provision	Saving clause in the Income-tax Act, 2025	What the clause provides
House property, business, speculation, specified business and race horse losses	Sections 71B, 72, 73, 73A, 74A	Section 536(2)(m)	Set off and carried forward against income computed under the new Act, in the manner provided in the relevant 1961 Act section
Short-term and long-term capital losses	Section 74	Section 536(2)(n)	Set off in the 1961 Act manner against “Capital gains” computed under the new Act, up to eight financial years after the year the loss was first computed
Unabsorbed depreciation and unabsorbed scientific research capital expenditure	Sections 32(2), 35(4)	Section 536(2)(r)	Added to the capital allowances for tax year 2026-27 and deemed part of that allowance
MAT credit and AMT credit	Sections 115JAA, 115JD	Section 536(2)(l)	Deemed eligible credit under the corresponding provisions or Section 206(3) or (4), for the period it would have been allowed under the 1961 Act, if the conditions of the new provisions are met
Loss set off in an amalgamation, conversion or co-operative bank merger	Sections 72A, 72AB	Section 536(2)(o) and (p)	The amount set off is taxed under the new Act in the year a condition is breached

Section 536(2)(b) separately protects any right accrued under the 1961 Act. The CBDT FAQs describe carry-forward of losses as one such right (FAQ Q3.21).

Business and Other Losses: Section 536(2)(m)

Clause (m) lists five heads and sources in a table. For each, the brought-forward loss is set off and carried forward against income computed under the new Act “in the manner provided in the respective section of the repealed Income-tax Act”. The 1961 Act time limits and set-off restrictions therefore continue to apply.

Loss	1961 Act section	Can be set off against	Carry-forward limit	New Act section for fresh losses
House property loss	71B	Income from house property only	8 assessment years after the year first computed	110
Business loss (not speculation)	72	Profits of any business or profession	8 assessment years after the year first computed	112
Speculation business loss	73	Profits of a speculation business only	4 assessment years after the year first computed	113
Loss of a specified business under section 35AD	73A	Profits of a specified business only	No time limit in section 73A	114
Loss from owning and maintaining race horses	74A(3)	Income from that activity only	4 assessment years after the year first computed	115

The CBDT FAQs confirm that the carry-forward period is not interrupted or restarted by the transition (FAQ Q3.23). They also confirm that old losses keep their original character and are not reclassified under a different head (FAQ Q8.7).

Illustration: business loss from AY 2022-23

This follows the example in FAQ Q3.23, with figures added. A company has an unabsorbed business loss of Rs 50 lakh first computed in AY 2022-23. Under section 72(3), it can be carried forward for eight assessment years, AY 2023-24 to AY 2030-31.

• AY 2023-24 to AY 2026-27 (four years, under the 1961 Act): business profit of Rs 20 lakh in total is set off. Rs 30 lakh remains.
• Tax year 2026-27 to tax year 2029-30 (the remaining four years, under the 2025 Act): the Rs 30 lakh can be set off against business income computed under the new Act.
• Any part still unabsorbed after tax year 2029-30 lapses. Tax year 2029-30 is the year that corresponds to AY 2030-31.

Capital Losses: Section 536(2)(n)

A capital loss brought forward under section 74 is carried forward and set off “in accordance with the manner provided in the repealed Income-tax Act” against “Capital gains” computed under the new Act. The limit is eight financial years immediately after the financial year in which the loss was first computed under the 1961 Act.

The 1961 Act manner is in section 74(1). A short-term capital loss can be set off against gains on any other capital asset. A long-term capital loss can be set off only against gains on long-term capital assets.

Illustration: short-term capital loss from FY 2023-24

An individual has a short-term capital loss of Rs 8 lakh first computed in FY 2023-24 (AY 2024-25), with nothing set off so far. In tax year 2026-27 she has a long-term capital gain of Rs 5 lakh computed under the new Act. The short-term loss can be set off against it, leaving Rs 3 lakh to carry forward. The last year for set-off is FY 2031-32, the eighth financial year after FY 2023-24. If her brought-forward loss had been long-term instead, it could not be set off against a short-term gain.

Unabsorbed Depreciation: Section 536(2)(r)

Where an allowance under section 32(2) or 35(4) of the 1961 Act would have been carried forward to the tax year beginning on 1 April 2026, clause (r) adds it to the capital allowances under the corresponding provisions of the new Act for that tax year and treats it as part of that allowance. If there is no such allowance that year, it is treated as the allowance for that year.

The CBDT FAQs confirm that unabsorbed depreciation of years before 2026 keeps its character and its absence of a time limit (FAQ Q8.32).

Order of set-off matters. Under section 72(2) of the 1961 Act, where unabsorbed depreciation is to be carried forward, effect is given first to the set-off of brought-forward business loss. Section 112(3) of the Income-tax Act, 2025 contains the same priority for allowances carried forward under its section 33(11). The time-limited business loss is therefore used before the unabsorbed depreciation, which has no time limit.

MAT Credit: Section 536(2)(l) and the Amended Section 206

Clause (l) covers credit that could have been carried forward under section 115JAA of the 1961 Act from a tax year beginning before 1 April 2026. The credit is deemed eligible under the corresponding provisions or Section 206(3) or (4) of the new Act. It is allowed for the period it would have been allowed under the 1961 Act, if the company continues to satisfy the conditions of those provisions. Under section 115JAA(3A), that period ends with the fifteenth assessment year after the year the credit first became allowable. The CBDT FAQs describe this as a total of 15 years (FAQ Q2.25 and Q2.26).

The Finance Act, 2026 amended Section 206 of the Income-tax Act, 2025 with effect from 1 April 2026. It omitted the clauses of Section 206(1) that allowed credit for MAT paid under the new Act, and set out separate rules for brought-forward section 115JAA credit:

• Domestic companies, Section 206(3): the sub-section applies only to a domestic company that has exercised the option under section 200(5) or 201(2) for a tax year beginning on or after 1 April 2026. Such a company can set off brought-forward credit in a tax year up to 25% of the tax payable on its total income computed under the other provisions of the Act. The rest is carried forward, but not beyond the fifteenth tax year after the tax year in which the credit first became allowable under section 115JAA.
• Foreign companies, Section 206(4): brought-forward credit is set off in a tax year when tax on total income exceeds the MAT computed under Section 206(1), up to that excess, within the same fifteen-year limit.
• LLP conversion: Sections 206(3)(d) and 206(4)(d) provide that the set-off does not apply to a limited liability partnership that succeeds a private company or unlisted public company on conversion.

The amended Section 206 contains no other route for setting off brought-forward section 115JAA credit. A domestic company that stays outside sections 200 and 201 should read Section 206 closely before counting on the credit. Under section 115JAA(8) of the 1961 Act, section 115JAA already did not apply to a company that had exercised the section 115BAA option.

Illustration: domestic company opting for section 200

A domestic company has Rs 60 lakh of MAT credit under section 115JAA as on 31 March 2026, all of it first allowable for AY 2021-22. It exercises the option under section 200(5) for tax year 2026-27. Its tax payable on total income for that year is Rs 1 crore.

• Maximum set-off in tax year 2026-27: 25% of Rs 1 crore = Rs 25 lakh.
• Credit carried forward to tax year 2027-28: Rs 60 lakh minus Rs 25 lakh = Rs 35 lakh.
• Last year for set-off: tax year 2035-36, the fifteenth tax year after tax year 2020-21 (previous year 2020-21, relevant to AY 2021-22).

AMT Credit: Section 536(2)(l) and Section 206(2)

Credit under section 115JD of the 1961 Act is saved by the same clause (l). Under the new Act, AMT applies to persons other than companies under Section 206(2). Under Section 206(2)(g), AMT credit is set off in a year when regular income-tax exceeds alternate minimum tax, up to that excess. For credit brought forward from the 1961 Act, the period remains the one allowed by section 115JD(4): up to the fifteenth assessment year after the year the credit became allowable.

Conditions That Still Decide Whether a Loss Survives

• Return within the due date. Under section 80 of the 1961 Act, a loss under sections 72(1), 73(2), 73A(2), 74(1) or (3) or 74A(3) is carried forward only if determined in a return filed under section 139(3). If the loss return for AY 2024-25 was filed late, the loss cannot be carried into the new Act. Section 536 preserves only validly determined losses (FAQ Q8.8). Section 80 does not list section 71B or unabsorbed depreciation. For losses of tax year 2026-27 onwards, section 121 of the new Act requires a return under section 263(1) (FAQ Q3.22).
• Change in shareholding of a closely held company. Section 79 of the 1961 Act blocks the set-off of earlier losses unless shares carrying at least 51% of the voting power on the last day of the year are held by the persons who held at least 51% on the last day of the loss year. There is a separate test for eligible start-ups. A change during FY 2025-26 is tested under section 79 for AY 2026-27. Section 119(3) of the Income-tax Act, 2025 contains the same 51% test for a change during a tax year under the new Act.
• Change in constitution of a firm. Section 78(1) of the 1961 Act, and section 119(1) of the new Act, deny carry-forward of the loss proportionate to a retired or deceased partner’s share, to the extent it exceeds that partner’s share of profits for the year.
• Undisclosed income. Section 120 of the new Act, like section 79A of the 1961 Act, bars set-off of any loss or unabsorbed depreciation against undisclosed income found in a search, requisition or survey (FAQ Q8.9).

Restructurings Done Under the 1961 Act

Three clauses deal with tax-neutral restructurings completed before 1 April 2026 whose conditions must still be met afterwards:

• Section 536(2)(o): loss or depreciation set off by an amalgamated company, successor company or successor LLP under section 72A is taxed as income under the new Act in the year any section 72A condition is not complied with. FAQ Q8.6 applies this to an amalgamation in FY 2024-25 with a breach in FY 2026-27.
• Section 536(2)(p): the same rule applies to a successor co-operative bank under section 72AB.
• Section 536(2)(q): gains not charged because of section 47(iv), (v), (xiii), (xiiib) or (xiv) become “Capital gains” under the new Act. The year is the year of transfer where section 47A(1)(i) or (ii) is triggered, or the year in which a condition of section 47(xiii), (xiiib) or (xiv) is not complied with.

FAQs

Can a loss incurred in FY 2025-26 be carried into the new Act?

Yes. The loss is determined in the AY 2026-27 return under the 1961 Act. If that return is filed within the due date, the loss can be set off in tax year 2026-27 and later years under the new Act, subject to the same conditions (FAQ Q3.21).

If an appeal for an old year is decided after 1 April 2026 and changes a loss or MAT credit, which Act applies?

The appeal is decided under the 1961 Act (Section 536(2)(c) and (e)). The revised carry-forward survives under Section 536, but its use in tax year 2026-27 and later years is governed by the Income-tax Act, 2025 (FAQ Q8.20).

Related Posts

• Depreciation and unabsorbed depreciation in the transition year
• Reassessment of years before April 2026 under the 1961 Act
• ITR forms for AY 2026-27: returns for FY 2025-26 under the 1961 Act

Need a Review of Your Loss and MAT Credit Carry-Forward Position?

If you carry forward business losses, capital losses, unabsorbed depreciation or MAT or AMT credit from years under the Income-tax Act, 1961, and want your carry-forward schedule and tax year 2026-27 set-off plan reviewed, talk to an expert from the Tax Update India team.

Sources: Income-tax Act, 2025, as amended by the Finance Act, 2026 (sections 110 to 115, 119 to 121, 206 and 536); Income-tax Act, 1961, as amended by the Finance Act, 2026 (sections 32, 71B, 72 to 74A, 78 to 80, 115JAA and 115JD); CBDT, FAQs on Interplay and Transition from the Income Tax Act, 1961 to the Income Tax Act, 2025 (updated 2 April 2026).

Disclaimer: This article is for general information only and does not constitute legal or tax advice. Tax positions depend on the facts of each case. Section numbers refer to the Income-tax Act, 1961 unless otherwise stated. Consult a qualified professional before acting on any information here.