Section 121 of the Income-tax Act, 2025 provides that no loss which has not been determined in pursuance of a return filed under section 263(1) shall be carried forward and set off under sections 111, 112, 113, 114 or 115.
What section 121 does
Section 121 is one sentence long and is probably the most expensive provision in Chapter VII. It is the successor to section 80 of the Income-tax Act, 1961.
The rule: irrespective of anything contained in Chapter VII, no loss which has not been determined in pursuance of a return filed under section 263(1) shall be carried forward and set off under section 111(1), 112(1), 113(2), 114(2) or 115(2).
Two words carry the weight. Determined means the loss must be established through the return and its processing. And section 263(1) is the due date provision — a belated return does not satisfy the condition, however complete it is.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 80 | Loss must be returned in time to be carried forward | 121 |
| 139(1) | Due date for the return | 263(1) |
| 139(3) | Loss return | 263 |
| 74 | Capital loss carry forward | 111 |
| 72 | Business loss carry forward | 112 |
| 71B | House property loss — note it is NOT in the section 121 list | 110 |
Section 121 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
The rule and its reach
The section overrides the rest of Chapter VII. It applies to carry forward under section 111(1) (capital losses), section 112(1) (business losses), section 113(2) (speculation), section 114(2) (specified business) and section 115(2) (specified activity).
What 'determined in pursuance of a return' means
The loss must be determined — that is, established through a return that was filed and processed. A loss merely reflected in books, or claimed for the first time in an appeal or a revised computation, is not carried forward under this Chapter.
Why the due date is absolute
The reference is to a return filed under section 263(1), the provision setting the due date. A return filed after that date is not a section 263(1) return, so the losses listed above cannot be carried forward. There is no relief for a short delay and no discretion in the section.
What section 121 does not cover
The list does not include section 110 — carry forward of a house property loss. It also does not mention unabsorbed depreciation under section 33(11), which has its own scheme. Read those sections directly rather than assuming the section 121 bar extends to them.
The parallel bar in section 122(5)
Section 121 is not the only cost of a late return. Section 122(5) separately denies every Part C deduction of Chapter VIII where the return is not furnished by the section 263(1) due date. And section 270(1)(a)(iv) allows the set off of a loss to be disallowed at processing stage where the earlier return was late.
Worked example
A business incurs losses in tax year 2026-27. The section 263(1) due date is 31 October 2027.
| Scenario | Return filed | Outcome under section 121 |
|---|---|---|
| A | 25 October 2027 | Losses carried forward — business loss under section 112 and capital loss under section 111 |
| B | 3 November 2027, complete and accurate | Business and capital losses cannot be carried forward — the return is not a section 263(1) return |
| C | Not filed at all; loss claimed later in assessment proceedings | No carry forward — the loss was not determined in pursuance of a section 263(1) return |
In scenario B, a delay of three days permanently destroys the carry forward of, say, ₹40,00,000 of business loss and ₹6,00,000 of capital loss. The late filing fee under section 428 would be ₹5,000 — a rounding error next to the loss of the carry forward.
Note that a house property loss is not in the section 121 list, so the analysis for section 110 must be done by reading that section itself rather than assuming the same bar applies.
Compliance checklist and due dates
- Treat the section 263(1) due date as immovable in any year with losses.
- File the return even where there is no tax payable — the loss must be determined in pursuance of a return.
- Check which carry forward provision applies: sections 111, 112, 113, 114 and 115 are covered by section 121.
- Remember section 122(5) separately denies Part C deductions on a belated return.
- Expect a late-filed loss claim to be disallowed at processing under section 270(1)(a)(iv).
- Where the due date is at risk, prioritise filing over perfecting the computation — a revised return can follow.
Common mistakes
- Believing a belated return preserves losses because it is otherwise complete and accurate.
- Not filing at all in a loss year on the view that no tax is payable.
- Assuming section 121 covers every loss. House property loss under section 110 is not in the list.
- Claiming a loss for the first time in appeal and expecting it to be carried forward.
- Underestimating the cost of a short delay — the fee is small, the lost carry forward is not.
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.