Chapter XXIII - Miscellaneous

Section 536

Section 536: repeal and savings

Section 536 is the closing section of the Income-tax Act, 2025. Sub-section (1) formally repeals the Income-tax Act, 1961. The rest of the section is a long list of "savings" - rules that carry forward pending proceedings, accrued rights, brought-forward losses, tax credits, approvals and schemes from the 1961 Act into the new one, so the transition doesn't wipe out things that were already in motion.

Official text

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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.

Statutory text

Bare law

(1) The Income-tax Act, 1961 (43 of 1961) is hereby repealed.

(2) Irrespective of the repeal of the Income-tax Act, 1961 (43 of 1961) (herein referred to as the repealed Income-tax Act), and subject to sub-section (4)— (a) nothing shall affect the previous operation of the repealed Income-tax Act and orders or anything duly done or suffered thereunder; or (b) nothing shall affect any right, privilege, obligation or liability acquired, accrued or incurred under the repealed Income-tax Act or orders under such repealed Act; (c) the provisions of the repealed Income-tax Act shall continue to apply to any proceeding pending on the date of commencement of this Act and to any proceedings initiated on or after the 1st April, 2026 (including notices, assessment, reassessment, recomputation, rectification, penalty, reference, revision and appeals) in respect of any tax year beginning before the 1st April, 2026 and such proceedings shall be carried out as per the procedure specified in the repealed Income-tax Act; (d) any proceeding for the imposition of a penalty in respect of any tax year beginning before the 1st April, 2026, may be initiated and any such penalty may be imposed under the repealed Income-tax Act, as if this Act had not been enacted; (e) any proceeding pending on the commencement of this Act before any income-tax authority or any other authority constituted under the repealed Income-tax Act, Appellate Tribunal, or any court, by way of application, appeal, reference or revision or by any other means, shall be continued and disposed of as if this Act had not been enacted; (f) any election or declaration made, or option exercised, by an assessee under any provision of the repealed Income-tax Act and in force immediately before the commencement of this Act shall be deemed to have been an election or declaration made, or option exercised, under the corresponding provision of this Act; (g) where in respect of any proceeding relating to any tax year beginning before the 1st April, 2026,— (i) a refund falls due on or after such date; or (ii) default is made on or after such date, in the payment of any sum due under such proceeding, the provisions of the repealed Income-tax Act, relating to the interest payable by the Central Government on refunds or the interest payable by the assessee for default, shall apply for the period on or after such date, subject to the effect that— (A) the rate of interest on refund or on the default, as the case may be, as provided in the repealed Income-tax Act has been substituted with the rate as provided in the corresponding provisions of this Act; and (B) such substitution shall apply from the date on which such rate has been modified under this Act; (h) where any sum has been allowed as a deduction or has not been included in the total income of any person, either on account of fulfilment of certain conditions or for any other reason, for any tax year beginning before the 1st April, 2026, and such sum was required to be included in the total income of any subsequent tax year including beginning on or after the 1st April, 2026 under the repealed Income-tax Act, if it had not been so repealed, on account of violation of such conditions or for any other reason, then such sum shall be–– (i) deemed to be the income of such subsequent tax year; and (ii) included in the total income of the said person under the same head of income as it would have been included under the repealed Income-tax Act; (i) any sum payable under the repealed Income-tax Act may be recovered under this Act without prejudice to any action already taken for the recovery of such sum under repealed Income-tax Act; (j) any agreement entered into, appointment made, approval given, recognition granted, circular, direction, instruction, notification, order or rule or any scheme framed therein issued under any provision of the repealed Income-tax Act shall, so far as it is not inconsistent with the corresponding provisions of this Act, be deemed to have been entered into, made, granted, given or issued under the corresponding provision of this Act and shall continue in force accordingly; (k) where the period provided for any application, appeal, reference or revision under the repealed Income-tax Act had expired on or before the commencement of this Act, nothing in this Act shall be construed as enabling any such application, appeal, reference or revision to be made under this Act by reason only of the fact that a longer period therefor is prescribed or provision is made for extension of time in suitable cases by the appropriate authority; (l) any amount of credit, in respect of tax paid, allowable to be carried forward in the case of an assessee, under the provisions of section 115JAA or 115JD of the repealed Income-tax Act for the tax year beginning before the 1st April, 2026, had the Income-tax Act, 1961 (43 of 1961) not been repealed,— (i) shall be deemed to be the amount eligible for credit under corresponding provisions or section 206(3) or (4) of this Act, as the case may be in the case of said assessee; and (ii) credit for the tax paid under the repealed Income-tax Act shall be allowed under this Act for the period for which it would have been allowed under the repealed Income-tax Act if the assessee otherwise continues to satisfy the conditions as specified in the corresponding provisions or section 206(3) or (4) of this Act, as the case may be in such tax years; (m) any amount of loss under the source or head of income specified in column B of the Table given below and referred to in the section of the repealed Income-tax Act specified in column C of the said Table, brought forward for the tax year beginning before the 1st April, 2026 had the Income-tax Act, 1961 (43 of 1961) not been repealed, shall be set off and carried forward against the income computed under this Act, in the manner provided in the respective section of the repealed Income-tax Act specified in column C of the said table, for the tax years beginning on or after the 1st April, 2026:

Sl. No.	Source or head of income under the repealed Income-tax Act	Section of the repealed Income-tax Act
1	Income from house property.	71B.
2	Profits and gains of business or profession.	72.
3	Speculation business.	73.
4	Specified Business.	73A.
5	Activity of owning and maintaining race horses.	74A.

(n) any amount of loss under the head capital gains, whether related to a long-term capital asset or a short term capital asset, referred to in section 74 of the repealed Income-tax Act, brought forward from the tax year beginning before the 1st April, 2026 had the Income-tax Act, 1961 (43 of 1961) not been repealed, shall be carried forward and set off, in accordance with the manner provided in the repealed Income-tax Act, against the income under the head “Capital gains” computed under this Act for any tax year beginning on or after the 1st April, 2026 upto eight financial years immediately succeeding the financial year in which such loss was first computed under the repealed Income-tax Act; (o) any set off of loss or allowance for depreciation made in any tax year beginning before the 1st April, 2026 in the hands of the amalgamated company, successor company or the successor limited liability partnership, in accordance with the provisions of section 72A of the repealed Income-tax Act, shall be deemed to be the income of the amalgamated company, successor company or the successor limited liability partnership, as the case may be, chargeable to tax under this Act for the year in which any of the conditions specified in that section are not complied with; (p) any set off of accumulated loss or unabsorbed depreciation allowed in any tax year beginning before the 1st April, 2026 to the successor co-operative bank, in accordance with the provisions of section 72AB of the repealed Income-tax Act, shall be deemed to be the income of the successor co-operative bank chargeable to tax under this Act for the year in which any of the conditions specified in that section are not complied with; (q) any amount of profits or gains arising out of transfer of capital asset not charged under the head “capital gains” by virtue of the provisions contained in section 47(iv), (v), (xiii), (xiiib) or (xiv) of the repealed Income-tax Act in any tax year beginning before the 1st April, 2026 shall be deemed to be the income chargeable under the head “Capital gains” under this Act, for the tax year–– (A) in which the transfer took place if any of the conditions laid down in section 47A(1)(i) or (ii) of the repealed Income-tax Act are satisfied; or (B) in which any of the conditions laid down in section 47(xiii), (xiiib) or (xiv) of the repealed Income-tax Act are not complied with, as the case may be;(r) where any allowance or part thereof, under section 32(2) or 35(4) of the repealed Income-tax Act, is to be carried forward to tax year beginning on the 1st April, 2026, had the Income-tax Act, 1961 (43 of 1961) not been repealed, then, the allowance or part thereof shall be added to the amount of capital allowances referred to corresponding provisions of this Act for the tax year beginning on the 1st April, 2026 and deemed to be part of that allowance, or if there is no such allowance for that tax year, be deemed to be allowance for that tax year; (s) the deduction referred to in sections 35ABA, 35ABB, 35D, 35DD, 35DDA, 35E or the first proviso to section 36(1)(ix) of the repealed Income-tax Act, shall, on fulfilment of the conditions mentioned in the said provisions, continue to be allowed under this Act for tax year beginning on or after the 1st April, 2026 had the Income-tax Act, 1961 not been repealed and such deduction shall be added to the amount of deferred revenue expenditure allowance referred to corresponding provisions of this Act for the tax year beginning on or after the 1st April, 2026 and deemed to be part of that allowance, or if there is no such allowance for a tax year, be deemed to be that allowance for that tax year; (t) credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia) of the repealed Income-tax Act standing on the last day of the tax year beginning on 1st April, 2025 shall be added to the amount credited to the provision for bad and doubtful debts accounts referred to in the corresponding provisions of this Act for the tax year beginning on the 1st April, 2026 and deemed to be part of amount credited to the provision for bad and doubtful debts accounts, or if there is no such amount credited for that tax year, be deemed to be amount credited for that tax year; (u) any scheme which has been notified under the provisions of the repealed Income-tax Act with a view to eliminating the interface with the assessee or any other person, the said scheme shall be deemed to have been made— (i) under the corresponding provisions of this Act; or (ii) under section 532 where there is no such corresponding provision, and shall continue in force accordingly; and (v) where a search has been initiated under section 132 or requisition is made under section 132A prior to the commencement of this Act, the provisions of repealed Income-tax Act, shall continue to apply to any proceedings connected in respect of such search or requisition, as the case may be, as if this Act has not been enacted.

(3) Where any reference is made in this Act to any tax year commencing on the 1st April, 2025 or to any earlier tax year, the same shall be construed as a reference to the corresponding previous year under the repealed Income-tax Act.

(4) Without prejudice to the provisions of sub-section (2), the provisions of section 6 of the General Clauses Act, 1897 (10 of 1897) shall apply with regard to the effect of repeal.

Introduction

Section 536 repeals the 1961 Act while preserving specified earlier rights, liabilities, proceedings, elections, credits and carry-forwards. The first question for a transition issue is the tax year to which the item belongs, not simply the calendar date on which a notice or order arrives.

The savings rules are detailed and category-specific. A pending assessment, a brought-forward capital loss and an earlier approval do not all use the same transition rule.

Key takeaways

1961 Act repealed

Subsection (1) repeals the Income-tax Act, 1961.

Earlier years saved

The 1961 Act continues to govern pending or later-started proceedings concerning tax years beginning before 1 April 2026, subject to the savings provisions.

Rights and liabilities preserved

The repeal does not erase rights, obligations or liabilities already accrued or incurred under the earlier Act.

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

Clause (2)(h) applies where a sum was deducted or excluded from income for a tax year beginning before 1 April 2026, whether because conditions were fulfilled or for another reason, and the unrepealed 1961 Act would have required inclusion in a later tax year because conditions were violated or for another reason. That sum is income of the relevant subsequent year under the same head as under the 1961 Act. This rule is not confined to originally conditional deductions.

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
If the period for an application, appeal, reference or revision under the 1961 Act expired on or before commencement, the new Act does not revive it merely because the new Act provides a longer period or a power to extend time. Clause (2)(k) itself does not grant an extension; any other available remedy needs its own legal basis.

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:

Source or head of income	Section of the repealed 1961 Act
Income from house property	71B
Profits and gains of business or profession	72
Speculation business	73
Specified business	73A
Activity of owning and maintaining race horses	74A

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)).

Step-by-step flow for applying Section 536

1
Does the matter relate to a tax year beginning before 1 April 2026?
The 1961 Act is repealed by Section 536(1). A reference in this Act to a tax year commencing on 1 April 2025 or earlier means the corresponding previous year under the repealed Act (Section 536(3)).
- No: Apply this Act; skip to the carry-forward check (step 3).
- Yes: Go to the next step.
2
Is it a proceeding for such a tax year, or pending on commencement?
The repealed Act and its procedure apply to proceedings pending on commencement and to proceedings started on or after 1 April 2026 for a tax year beginning before that date (Section 536(2)(c)). Pending matters before an authority, the Appellate Tribunal or a court continue as if this Act had not been enacted (clause (e)). Proceedings for a search under section 132 or requisition under section 132A begun before commencement stay under the repealed Act (clause (v)).
3
Is there a loss, credit or allowance brought forward from the repealed Act?
Losses listed in the Table (house property, business, speculation business, specified business, race horses) are set off and carried forward in the manner of the 1961 sections named (clause (m)). Capital losses under section 74 of the 1961 Act carry forward up to eight financial years after the year first computed (clause (n)). Credit under section 115JAA or 115JD is deemed eligible under the corresponding provisions or section 206(3) or (4) (clause (l)). Allowances under section 32(2) or 35(4) are added to the capital allowance for the tax year beginning 1 April 2026 (clause (r)).
4
Is an earlier benefit to be reversed because a condition is later breached?
Sums allowed or not included before 1 April 2026 that the repealed Act would have brought back are income of the later tax year under the same head (clause (h)). Specific rules cover section 72A and 72AB set-offs and section 47 transfers (clauses (o), (p), (q)).
5
Do earlier elections, approvals, notifications and schemes continue?
Elections, declarations and options in force are deemed made under the corresponding provision (clause (f)). Agreements, approvals, recognitions, circulars, notifications, rules and schemes continue so far as consistent with this Act (clause (j)). Interface-free schemes are deemed made under the corresponding provision or Section 532 (clause (u)). Section 6 of the General Clauses Act, 1897 also applies to the repeal (Section 536(4)).

Practical checklist

Do

Record the tax year, commencement date and relevant 1961 Act provision before choosing the old or new procedure.
For a pending notice, appeal or penalty, identify which clause of section 536(2) preserves it and retain the earlier proceeding records.
For a loss, credit, deduction or approval carried into a later year, reconcile the amount, remaining period and continuing conditions under its specific savings clause.

Avoid

Do not assume repeal extinguishes a pre-commencement demand, liability or pending proceeding.
Do not treat a longer time limit in the 2025 Act as automatically reopening an already expired 1961 Act application or appeal.

Illustrative example

Worked example: a brought-forward capital loss and a reassessment

Hypothetical facts (illustration only, not a real taxpayer): A company had a capital loss of an assumed ₹12,00,000, first computed under the 1961 Act for the financial year 2023-24 and carried forward. In the tax year 2026-27 it has capital gains under this Act of an assumed ₹7,50,000. Assume the loss and the gain are of a kind that can be set off under the 1961 Act's rules. In June 2026 it also receives a reassessment notice for the tax year 2024-25.

Set-off
Under Section 536(2)(n), the loss is set off against the capital gains in the manner provided in the 1961 Act. Set-off: ₹7,50,000. Balance carried forward: ₹12,00,000 − ₹7,50,000 = ₹4,50,000.
Time limit for the balance
The loss can be carried forward for up to eight financial years after 2023-24, that is 2024-25 to 2031-32. The balance of ₹4,50,000 can be set off up to the tax year 2031-32.
Reassessment
The tax year 2024-25 began before 1 April 2026, so under Section 536(2)(c) the reassessment is made under the 1961 Act and follows its procedure, even though the notice is issued after that date.
Interest
If a refund falls due or a default occurs on or after 1 April 2026 in that proceeding, the 1961 Act's interest rules apply, with the rate replaced by the rate in the corresponding provision of this Act from the date that rate is modified under this Act (Section 536(2)(g)).

Outcome

₹7,50,000 of the loss is used in 2026-27 and ₹4,50,000 can be carried forward up to the tax year 2031-32.
The reassessment for 2024-25 runs under the 1961 Act.

Glossary

Repeal and savings: A repeal ends the earlier enactment's general operation while the savings clauses preserve specified prior effects and transition items.
Corresponding provision: The provision of the 2025 Act to which a saved 1961 Act approval, scheme, credit or other item is mapped where the savings clause so provides.
Pending proceeding: An assessment, appeal, reference, revision or other proceeding already in progress at commencement, addressed by the applicable section 536 savings clause.

Frequently asked questions

Does Section 536 repeal the Income-tax Act, 1961 completely?

Yes - Section 536(1) repeals the Income-tax Act, 1961, but sub-section (2) then preserves a wide range of rights, pending proceedings, losses, credits and approvals that existed under it.

What happens to a case that was already pending under the 1961 Act when the new Act came into force?

It continues to be carried out under the 1961 Act's procedure and is disposed of as if the new Act had not been enacted, under Section 536(2)(c) and (e).

Can capital losses from before the new Act still be carried forward?

Yes - Section 536(2)(n) allows a capital-gains loss brought forward under section 74 of the 1961 Act to be carried forward and set off against capital gains under the new Act, for up to eight financial years immediately succeeding the year the loss was first computed.

Is tax credit earned under section 115JAA or 115JD of the 1961 Act lost when the new Act takes over?

No - Section 536(2)(l) treats it as the amount eligible for credit under the corresponding new Act provisions (section 206(3) or (4)), continuing for the period it would have been available under the 1961 Act, as long as the assessee still satisfies the conditions.

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Last updated 10 October 2026

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