(INDIA) — India’s new tax law will allow NRIs and other investors to keep using eligible stock and mutual fund capital losses computed under the old regime after it takes effect on 1 April 2026, preserving carry-forward losses that were valid under the Income-tax Act, 1961.

The Income-tax Act, 2025 replaces the 1961 Act from 1 April 2026. Section 536 of the new law preserves certain rights, liabilities, proceedings, deductions and losses arising under the repealed law, which means old capital losses do not lapse simply because Parliament has changed the statute.

That continuity comes with limits. The new Act does not create a fresh tax benefit, extend the original limitation period or revive loss claims that never qualified under the old law.

The issue matters for NRIs, returning residents, students abroad and professionals working overseas who still hold Indian investments. Many continue to own listed shares, equity mutual funds, debt mutual funds, ETFs, PMS holdings, ESOP-related investments, inherited Indian securities and assets held through NRE, NRO or resident accounts, depending on status and compliance.

Market losses on those assets often sit in earlier Indian tax returns, waiting to be set off against future gains. The transition to the Income-tax Act, 2025 does not erase those positions if they were properly created under the earlier law.

A taxpayer who booked a valid short-term or long-term capital loss under the Income-tax Act, 1961 can continue to carry it forward under the new law. The loss moves into the new regime with its original tax identity intact.

That point is central to how carry forward losses will work after the switch. A short-term capital loss remains short-term, and a long-term capital loss remains long-term, even after the Income-tax Act, 2025 comes into force.

The set-off rules also continue. Short-term capital loss can be set off against both short-term capital gains and long-term capital gains, while long-term capital loss can be set off only against long-term capital gains.

That distinction will continue to shape tax outcomes for investors selling Indian assets after 1 April 2026. Someone carrying a short-term loss from listed shares may use it against a wider range of gains than someone holding a long-term loss from mutual fund units.

The new law also leaves intact the existing time limit. Under the Income-tax Act, 1961, capital losses can be carried forward for eight assessment years immediately succeeding the assessment year for which the loss was first computed, and the Income-tax Act, 2025 does not restart that clock.

A loss first computed for AY 2023-24 will keep running from AY 2023-24. It does not get a fresh eight-year period from 1 April 2026, even though the underlying statute changes.

That means the transition preserves continuity, not a reset. Investors cannot argue that the arrival of the Income-tax Act, 2025 creates a new starting point for old losses.

The same logic applies to defective claims. Transition provisions protect validly determined losses, but they do not cure non-compliance under the old law.

Under the Income-tax Act, 1961, taxpayers generally had to file a return of loss within the prescribed due date to carry forward certain losses. If a return was filed late and the loss did not qualify for carry forward under the old Act, the Income-tax Act, 2025 will not bring it back to life.

That feature will matter for smaller investors and many NRIs who assumed a return was unnecessary because tax was deducted at source or because their India income was low. In capital-loss cases, that assumption can cost a future tax shield.

An NRI who sold Indian shares in FY 2024-25 at a short-term capital loss and reported that loss in a return filed within the due date under the Income-tax Act, 1961 can continue carrying it forward into the new regime. The balance remains subject to the original eight-year period and the existing set-off rules.

A taxpayer who booked a long-term capital loss on sale of mutual fund units before 1 April 2026 and validly carried it forward will also keep that benefit after the new law starts. But the loss retains its long-term character, so it can generally be set off only against long-term capital gains.

The opposite result applies where the old filing failed the old rules. A resident investor who incurred a capital loss in FY 2024-25 but filed the return belatedly cannot rely on the Income-tax Act, 2025 to convert that invalid claim into a valid one.

The same is true for the running time limit. If a capital loss was first computed for AY 2022-23, the taxpayer can use it only for the balance period still available under the original eight-year rule; no extra years arise from the legislative change.

Those examples turn a technical transition point into a practical filing question. Investors who plan future sales of Indian securities, mutual funds or property will need to know exactly what sits in their carry-forward schedule before they compute tax under the 2025 law.

That review starts with the return itself. Taxpayers should confirm that the loss was actually reported in the income-tax return, that the return was filed within the due date where required, and that the loss was accepted or processed in the tax records.

The character of the loss also needs checking. A short-term capital loss and a long-term capital loss do not work the same way, and any planned set-off must match the capital-gain rules that continue under the new Act.

The age of the loss matters just as much. Investors need to count how many years remain in the eight-year carry-forward period, rather than assume the law change has refreshed the timeline.

The planned future transaction matters too. A carry-forward capital loss can offset eligible capital gains, not any form of income, so the nature of the gain to be booked later will determine whether the old loss can still reduce tax.

NRIs face an additional compliance point. Residential status and the correct capital-gains schedule in the Indian return must match the taxpayer’s position for that year, because the new law preserves what was validly created earlier; it does not repair classification errors made at the time of filing.

That makes timing and accuracy more important than some overseas Indians may expect. A taxpayer who did not bother filing because TDS was deducted may discover later that the missing or defective return has blocked the ability to use a genuine market loss against a profitable sale.

The effect can be felt years later. An NRI who now holds Indian shares or mutual funds at a gain, or who expects to sell Indian property in a future year, may find that an old capital loss would have reduced tax if it had been properly preserved.

The Income-tax Act, 2025 therefore offers continuity, but not forgiveness. It carries existing lawful positions into a new statute without rewriting the conditions that created them in the first place.

That balance is likely to reassure investors worried that a wholesale legislative replacement would wipe the slate clean. The law does not cancel eligible carry forward losses merely because the 1961 Act is ending, and it does not alter the original short-term or long-term nature of those losses.

At the same time, the transition leaves no room to treat the new law as a second chance for old mistakes. A loss that failed under the old regime stays unusable under the new one, and a loss already partway through its eight-year life keeps moving toward expiry on the original timetable.

Taxpayers preparing returns around the shift to the Income-tax Act, 2025 will need to treat past records as the starting point. Reviewing earlier filings, matching carry forward losses to tax records and checking the intended set-off against future capital gains will determine whether those losses still deliver value after 1 April 2026.