Every filing season brings portal issues, but the AY 2025-26 ITR-2 utility had a particularly dangerous one: a bug that causes capital losses to be duplicated in the carry forward schedule. If you filed ITR-2 with brought-forward capital losses for FY 2024-25, this bug may have inflated your Schedule CFL - and could trigger a Section 143(1) adjustment notice in the months ahead.
This guide documents the three known bugs, explains the risk, and provides step-by-step workarounds for taxpayers and CAs managing income tax return filing with capital losses.
Bug 1: BFLA-CFL Duplication (The Main Issue)
What happens: When brought-forward capital losses are set off against current year capital gains in Schedule BFLA, the utility correctly shows the loss as "adjusted." However, the same amount also appears in Schedule CFL (Carry Forward of Losses) as still available for carry forward - instead of showing zero or the reduced balance.
Reported by: CA Aditi Bhardwaj on X (formerly Twitter), confirmed by CA (Dr.) Suresh Surana via ET Wealth Online. Multiple CAs reported similar observations.
Real example: Taxpayer reported LTCG Rs 1,44,108. STCL Rs 6,585 adjusted (intra-head). Net LTCG Rs 1,37,523. Brought-forward loss Rs 48,233 from AY 2023-24 adjusted via BFLA. Balance Rs 89,290 (exempt under Section 112A). Schedule BFLA correctly shows Rs 48,233 as fully absorbed. But Schedule CFL still shows Rs 48,233 as carried forward - it should show zero.
Why it matters: This duplication means your next year's ITR will show an inflated brought-forward loss that was already used. When CPC cross-verifies, it will find a mismatch and may issue a Section 143(1) adjustment or demand notice.
Bug 2: Missing "Set Off" Button
What happened: In previous AY versions of the ITR-2 utility, there was a "Set Off" button that allowed taxpayers to manually reconcile loss adjustments between Schedule BFLA and Schedule CFL. In the AY 2025-26 utility, this button was removed.
Impact: Without the manual reconciliation option, taxpayers have no way to override the CFL duplication within the online utility. The only options are: (a) wait for a portal fix, (b) try the offline utility (JSON/Excel), or (c) file with the error and rectify later.
Bug 3: Negative Values in Table F (Schedule CG)
What happens: Schedule CG → Table F requires quarterly breakup of capital gains for Section 234C advance tax interest calculation. But the utility does not accept negative values (losses) in individual quarters - even when the full-year result is a net gain.
Example: Q1: STCL Rs 50,000. Q2: STCG Rs 2,00,000. Full year: Net STCG Rs 1,50,000. The utility rejects the Rs -50,000 entry for Q1, causing a mismatch with Schedule BFLA and potentially incorrect 234C interest computation.
Workaround: Enter Rs 0 for the loss quarter and the full gain in the profit quarter. This avoids the validation error but may slightly affect 234C interest calculation. Document the actual quarterly figures for your records. For capital gains reporting details, refer to ITR for capital gains.
Risk Assessment: What Could Go Wrong
| Risk | Likelihood | Impact | When It Hits |
|---|---|---|---|
| Section 143(1) adjustment notice | High - automated CPC processing flags CFL mismatch | Demand notice for incorrect carry forward amount | 3-12 months after filing |
| Incorrect brought-forward loss in next year ITR | High - CFL feeds into next year's prefilled data | Inflated BF loss in AY 2026-27/TY 2026-27 → cascading error | Next filing season |
| Section 234C interest miscalculation | Medium - if Table F has incorrect quarterly allocation | Interest charged or refund delayed | During processing |
| Scrutiny selection | Low - unless amounts are very large | Assessment proceedings if CPC flags repeated anomalies | 6-18 months after filing |
What to Do: Step-by-Step Workarounds
If You Have NOT Filed Yet
- Download the latest offline utility (JSON/Excel) from the e-filing portal - some CAs report the offline version handles CFL correctly
- Manually compute your correct Schedule CFL outside the utility (on paper or Excel) showing the actual remaining carry forward after BFLA adjustments
- If online utility still shows duplication, try clearing the form and re-entering capital gains data from scratch
- Cross-verify: Schedule BFLA "amount set off" should EQUAL the reduction in Schedule CFL. If CFL shows more than it should, the bug is active
- Consider using a professional filing platform (ClearTax, Tax2Win, etc.) - some have implemented their own CFL correction logic
If You Have Already Filed With the Bug
- Download your filed ITR acknowledgment and verify Schedule CFL amounts
- If CFL shows an inflated (duplicated) amount, file a revised return under Section 139(5) with the correct CFL
- The revised return deadline for AY 2025-26 is 31 December 2025 (note: this has passed for AY 2025-26; if you missed it, you may need to file a rectification request under Section 154)
- For AY 2025-26 returns filed in 2025, the revised return window has closed. Monitor for 143(1) notices and respond promptly with the correct computation
- Maintain documentation showing the correct BFLA adjustment and the intended CFL amount - useful if the Department raises a query
Professional tax planning services can review your filed return and assess whether a rectification or response to 143(1) notice is needed.
Pre-Filing Checklist for Capital Loss Filers
| Check Item | What to Verify | Where in ITR-2 |
|---|---|---|
| Current year CG computation | STCG, LTCG, STCL, LTCL separately computed and correct | Schedule CG |
| Intra-head set-off | STCL adjusted against STCG/LTCG correctly; LTCL only against LTCG | Schedule CYLA |
| Brought-forward loss amount | Matches prior year's Schedule CFL exactly | Schedule BFLA - opening balance |
| BF loss adjustment | Amount absorbed in BFLA = prior year loss minus current year set-off | Schedule BFLA - amount set off |
| CFL balance | BFLA opening − BFLA set-off = CFL remaining. If CFL > this, bug is active. | Schedule CFL |
| Table F quarterly breakup | No negative values. Workaround: enter 0 for loss quarters. | Schedule CG → Table F |
| Section 112A exemption | Rs 1.25 lakh LTCG exemption correctly applied before loss set-off | Schedule 112A |
| Due date compliance | Filing by 31 July/31 August 2026 for carry forward eligibility | Part A General |
For salaried individuals with capital losses, refer to ITR filing for salary for form selection guidance between ITR-1 (no CG loss) and ITR-2 (with CG loss).
Lessons for AY 2026-27 (Tax Year 2026-27)
The AY 2025-26 ITR-2 bugs serve as a cautionary tale for the upcoming Tax Year 2026-27 filing season:
- New ITR forms under ITA 2025 are expected to have different schedules - verify that CFL correctly maps old loss types to new section numbers
- Pre-2026 losses carried forward must follow old Act rules (Section 536(2)(m)(n)) - the new ITR utility must correctly implement this bridge
- Always cross-verify Schedule CFL independently before filing - do not blindly trust portal auto-computation
- The "Set Off" manual reconciliation button should be restored or replaced with equivalent functionality
- File early in the season to catch bugs before the due date rush - portal fixes typically come mid-season
Ensure TDS return filing is complete before ITR filing to ensure accurate TDS credit matching in the return.
Key Takeaways
The AY 2025-26 ITR-2 utility had a critical BFLA-CFL duplication bug: losses shown as adjusted in BFLA still appeared in CFL as carried forward. This inflates the carry forward amount and can trigger Section 143(1) notices.
Two additional bugs: the "Set Off" manual reconciliation button was removed, and Table F in Schedule CG rejects negative values for quarterly capital loss breakup.
If you filed with the bug: monitor for 143(1) notices, file rectification under Section 154 if needed, and maintain documentation of correct CFL computation.
If you have not filed: use the offline utility, manually verify CFL, and consider professional filing platforms that have implemented corrections.
Always independently verify Schedule CFL before filing - do not trust portal auto-computation for capital loss carry forward. This applies to AY 2025-26, AY 2026-27, and every future year.
Need Help with Income Tax Return Filing?
Filing ITR-2 with capital losses requires careful schedule verification, bug awareness, and correct CFL computation. Professional CA assistance ensures your return is accurate despite portal glitches.
Explore our income tax return filing services for expert filing support.
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