Treatment of Tax Loss Carry forwards under the Finance Act, 2025: Legal Implications and Tribunal Guidance

The Finance Act, 2025 reinstates a five-year limitation on the carry forward of tax losses, reversing the indefinite regime introduced in 2021, but provides no transitional guidance for previously accumulated losses. Although KRA has sought to apply the new limit retrospectively, the Tax Appeals Tribunal in Patel v KRA (2025) ruled this approach unlawful. The Tribunal affirmed that tax losses constitute vested rights acquired under the law in force when they arose and cannot be extinguished without clear legislative intent. Consequently, losses incurred before 1 July 2025 remain available for offset under the prior regime, pending any future legislative changes.
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