Section 536: repeal and savings

The repeal

"The Income-tax Act, 1961 (43 of 1961) is hereby repealed." (Section 536(1))

What the repeal does not disturb

Despite the repeal, and subject to sub-section (4), Section 536(2) preserves a long list of things. Some of the key protections are:

• The previous operation of the repealed 1961 Act, and anything already duly done or suffered under it, is unaffected
• Any right, privilege, obligation or liability already acquired, accrued or incurred under the 1961 Act is unaffected
• Proceedings pending on the commencement date, and proceedings started on or after 1st April, 2026 for tax years beginning before that date (notices, assessment, reassessment, recomputation, rectification, penalty, reference, revision, appeals), continue to be carried out under the 1961 Act's procedure
• Penalty proceedings for a tax year beginning before 1st April, 2026 may still be initiated, and penalties imposed, under the 1961 Act, as if the new Act had not been enacted
• Proceedings already pending before any income-tax authority, the Appellate Tribunal or any court on commencement of the new Act continue to be disposed of as if the new Act had not been enacted
• An election, declaration or option made under the 1961 Act, and in force just before commencement, is deemed to have been made under the corresponding provision of the new Act

Interest on refunds and defaults

For proceedings relating to a tax year beginning before 1st April, 2026, where a refund falls due, or a default in payment occurs, on or after that date, the 1961 Act's provisions on interest payable by the Central Government on refunds, and interest payable by the assessee for default, apply for that period - except that the interest rate is replaced by the rate under the corresponding provision of the new Act, from the date that rate is modified under the new Act (Section 536(2)(g)).

Deductions or exclusions that later need to be reversed

Where a sum was allowed as a deduction, or left out of a person's total income, for a tax year before 1st April, 2026, subject to certain conditions, and under the 1961 Act (had it not been repealed) it would have had to be included in a later tax year's income - including a year beginning on or after 1st April, 2026 - because those conditions were violated or for any other reason, that sum is deemed to be the income of that later tax year, and is included under the same head of income as it would have been under the 1961 Act (Section 536(2)(h)).

Recovery, agreements and approvals carried forward

• Any sum payable under the 1961 Act can still be recovered under the new Act, without prejudice to recovery action already taken under the 1961 Act
• Agreements, appointments, approvals, recognitions, circulars, directions, instructions, notifications, orders, rules or schemes issued under the 1961 Act continue in force under the corresponding provision of the new Act, as long as they are not inconsistent with it
• Where the time limit for an application, appeal, reference or revision under the 1961 Act had already expired before the new Act commenced, the new Act does not revive it merely because it allows a longer period - unless the appropriate authority grants an extension in a suitable case

Carrying forward tax credit under sections 115JAA or 115JD of the 1961 Act

Tax credit under section 115JAA or 115JD of the 1961 Act, for a tax year beginning before 1st April, 2026, is deemed to be the amount eligible for credit under the corresponding provisions of the new Act - section 206(3) or (4) - and continues to be allowed for the period it would have been allowed under the 1961 Act, as long as the assessee keeps satisfying the relevant conditions (Section 536(2)(l)).

Carrying forward brought-forward losses

Losses brought forward from a tax year beginning before 1st April, 2026 under the following sources or heads of the 1961 Act are set off and carried forward against income computed under the new Act, in the manner provided in the corresponding 1961 Act section, for tax years beginning on or after 1st April, 2026:

Carrying forward capital losses

A loss under the head "Capital gains" (whether relating to a long-term or a short-term capital asset) brought forward under section 74 of the 1961 Act from a tax year beginning before 1st April, 2026 is carried forward and set off, in accordance with the manner provided under the 1961 Act, against income under the head "Capital gains" computed under the new Act - for up to eight financial years immediately succeeding the financial year in which the loss was first computed (Section 536(2)(n)).

Amalgamations, successor entities and asset transfers

• A set-off of loss or allowance for depreciation made, before 1st April, 2026, in the hands of an amalgamated company, successor company or successor limited liability partnership under section 72A of the 1961 Act is deemed to be the taxable income of that entity under the new Act for the year in which any of the conditions of section 72A are not complied with
• Similarly, a set-off of accumulated loss or unabsorbed depreciation allowed to a successor co-operative bank under section 72AB of the 1961 Act is deemed to be its taxable income under the new Act for the year in which any condition of section 72AB is not complied with
• Profits or gains on a transfer of a capital asset that escaped tax under section 47(iv), (v), (xiii), (xiiib) or (xiv) of the 1961 Act, in a tax year before 1st April, 2026, are deemed to be income chargeable under the head "Capital gains" under the new Act - for the year of transfer, if the conditions in section 47A(1)(i) or (ii) of the 1961 Act are satisfied, or for the year the conditions in section 47(xiii), (xiiib) or (xiv) are not complied with

Unabsorbed allowances and deferred deductions

• Any allowance, or part of it, under section 32(2) or 35(4) of the 1961 Act that was due to be carried forward to the tax year beginning 1st April, 2026 is added to the corresponding capital allowances under the new Act for that tax year
• Deductions under sections 35ABA, 35ABB, 35D, 35DD, 35DDA, 35E, or the first proviso to section 36(1)(ix), of the 1961 Act continue to be allowed under the new Act, on fulfilment of the conditions in those provisions, and are added to the corresponding deferred revenue expenditure allowance under the new Act
• The credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia) of the 1961 Act, standing on the last day of the tax year beginning 1st April, 2025, is added to the amount credited to the corresponding provision for bad and doubtful debts account under the new Act for the tax year beginning 1st April, 2026

Faceless schemes and pending searches

A scheme notified under the 1961 Act with a view to eliminating interface with the assessee or any other person is deemed to have been made under the corresponding provision of the new Act, or under section 532 where there is no corresponding provision, and continues in force accordingly. And where a search was initiated under section 132, or a requisition made under section 132A, of the 1961 Act before the new Act's commencement, the 1961 Act continues to apply to any proceedings connected with that search or requisition, as if the new Act had not been enacted (Section 536(2)(u) and (v)).

Reading "tax year" references, and the General Clauses Act

A reference in the new Act to a tax year commencing on 1st April, 2025 or to any earlier tax year is to be construed as a reference to the corresponding previous year under the 1961 Act (Section 536(3)).

Without prejudice to sub-section (2), section 6 of the General Clauses Act, 1897 - which governs the general legal effect of a repeal - continues to apply (Section 536(4)).

Frequently asked questions