Section 536 Income Tax Act, 2025 -Repeal and Savings- Clause-by-Clause Analysis with Practical Examples – Effective from April 1st, 2026
Overview: What is Section 536?
The Income-tax Act, 2025 (ITA 2025) replaced the Income Tax Act, 1961 with effect from 1st April 2026. With a law that governed India’s taxation for over 60 years suddenly being repealed, it was critical to ensure that no taxpayer’s rights were disturbed, no pending case was dropped, and no accumulated credit was lost.
Section 536 is the ‘Repeal and Savings’ clause – the legal bridge between the old and the new. It formally repeals the 1961 Act but simultaneously saves everything that was earned, accrued, pending, or initiated under it.
The section has 4 sub-sections and 22 sub-clauses under sub-section (2). Each one addresses a different transitional situation. This document explains each of them with a practical example.
| Old Act | New Act |
| Income Tax Act, 1961 | Income Tax Act, 2025 |
| 819 Sections, 47 Chapters | 536 Sections, 23 Chapters |
| Used terms: Previous Year + Assessment Year | Unified term: Tax Year |
| Repealed from 1 April 2026 | Effective from 1 April 2026 |
Sub-section (1) – The Repeal
| 536(1): The Income-tax Act, 1961 (43 of 1961) is hereby repealed. |
This is the simplest sub-section – just one line. It formally repeals the Income Tax Act, 1961 from 1st April 2026. From this date, the 1961 Act ceases to exist as a law. The new Income Tax Act, 2025 takes over.
| Practical Example
For income earned in FY 2026-27 (Tax Year 2026-27), a salaried employee will now file returns under ITA 2025. There is no reference to the old Act for this year. The old Act simply does not apply. |
Important: The repeal is only prospective. It does not disturb anything that happened in the past. That is the job of sub-section (2).
Sub-section (2) – The Savings (22 Clauses)
This is the core of Section 536. Despite repealing the 1961 Act, sub-section (2) says that the following things are protected. It has 22 clauses, each covering a different transitional situation.
Clause (a) – Past Operation is Untouched
Nothing shall affect the previous operation of the repealed Income-tax Act and orders or anything duly done or suffered thereunder.
Any order passed, assessment made, or action taken under the old Act remains valid. The repeal does not reverse or undo anything that already happened.
| Practical Example
An AO passed a scrutiny assessment order in December 2025 for AY 2024-25 under the 1961 Act. That order stands. It does not need to be re-done under the new Act. The fact that the 1961 Act was repealed from April 2026 does not invalidate that order. |
Clause (b) – Rights, Privileges, Obligations and Liabilities Survive
| 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. |
Any right or obligation that arose under the old Act continues to exist even after the repeal. This works both ways – taxpayer rights and government claims are both preserved.
Practical Example
| A taxpayer is entitled to a refund of Rs. 2 lakhs for AY 2023-24 which has not been processed yet. Since this refund right accrued under the old Act, the taxpayer can still claim it. Similarly, if a taxpayer had an outstanding tax demand of Rs. 5 lakhs pending under the old Act, that liability continues and can be recovered. |
Clause (c) – All Pending Proceedings Continue Under the Old Act
| 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 1st April 2026 in respect of any tax year beginning before 1st April 2026. |
This is perhaps the most practically important clause. It covers: assessments, reassessments, rectifications, penalties, references, revisions, and appeals. If the matter relates to a pre-2026 tax year, the old law governs it – even if the proceeding starts after April 2026.
| Practical Example
In June 2026, an AO issues a notice for scrutiny assessment for AY 2025-26 (i.e., FY 2024-25 – a pre-2026 tax year). Even though the notice is issued after April 2026, the entire assessment will be conducted under the 1961 Act. The AO cannot apply ITA 2025 provisions to this case. |
Clause (d) – Penalties for Old Years Under the Old Law
| Any proceeding for the imposition of a penalty in respect of any tax year beginning before 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. |
Even after the new Act came into force, penalty proceedings for pre-2026 years will be governed by old Act penalty provisions – the quantum, procedure, and grounds remain the same.
| Practical Example
A taxpayer filed a return for FY 2022-23 with concealed income. The AO wants to levy penalty under Section 270A of the 1961 Act in August 2026. Clause (d) allows this – the penalty will be levied under Section 270A of the old Act even though it stands repealed. The new Act’s penalty provisions do not apply. |
Clause (e) – Matters Pending Before Courts & Tribunals Continue
| Any proceeding pending on the commencement of this Act before any income-tax authority, Appellate Tribunal, or any court by way of application, appeal, reference or revision shall be continued and disposed of as if this Act had not been enacted. |
Appeals before CIT(A), ITAT, High Courts, or the Supreme Court that were already pending on 1 April 2026 will be decided under the old law. There is no need to re-file or re-argue under new provisions.
| Practical Example
A company had filed an appeal before ITAT in February 2026 against a disallowance under Section 43B of the 1961 Act. On 1 April 2026, this appeal is still pending. ITAT will decide this appeal applying Section 43B of the old Act – not the corresponding section of ITA 2025. |
Clause (f) – Elections and Declarations Carry Over
| Any election or declaration made, or option exercised, by an assessee under any provision of the repealed Income-tax Act shall be deemed to have been an election or declaration made, or option exercised, under the corresponding provision of this Act. |
Taxpayers who had exercised specific options under the old Act (like opting for new tax regime, opting out of an exemption, or making declarations) do not need to re-exercise those options under the new Act.
| Practical Example
A company had exercised the option under Section 115BAA of the 1961 Act (22% concessional corporate tax rate) in FY 2023-24. After the new Act comes into force, this option is automatically treated as exercised under the corresponding provision of ITA 2025. The company does not need to file a fresh option form. |
Clause (g) – Interest on Refunds and Defaults for Old Proceedings
| Where in respect of any proceeding relating to any tax year beginning before 1st April 2026, a refund falls due or default is made on or after such date – the provisions of the repealed Act relating to interest shall apply, subject to the rate being updated as per the new Act from the date of modification. |
This clause was substituted by the Finance Act, 2026. It deals with interest – both interest payable by the government on refunds and interest payable by the assessee on defaults – for pre-2026 proceedings where the refund or default happens after 1 April 2026.
Simply put: old interest rate applies first. When the new Act modifies the interest rate, the new rate applies from that date of modification.
| Practical Example
An assessee is due a refund of Rs. 3 lakhs for AY 2024-25. The refund is processed in June 2026. Interest on this refund will be computed under Section 244A of the 1961 Act at the rate specified there – but if the new Act changes that rate, the revised rate applies from the date of that change. |
Clause (h) – Conditions-Based Deductions That Later Reverse
| Where any sum has been allowed as a deduction subject to fulfilment of certain conditions for any tax year beginning before 1st April 2026, and such conditions are violated in a subsequent tax year, such sum shall be deemed to be the income of such subsequent tax year under the same head of income. |
This clause was also substituted by the Finance Act, 2026. It ensures that deductions given under the old Act do not permanently escape taxation just because the Act changed. If the conditions attached to a deduction are violated after 1 April 2026, the amount gets added back to income in that later year.
| Practical Example
A company had claimed deduction under Section 35AD (capital expenditure on specified business) in FY 2023-24. The condition was that the asset must be used for specified purposes for 8 years. In FY 2027-28, the company sells the asset. The deduction amount previously allowed will now be added back as income in FY 2027-28 under the new Act. |
Clause (i) – Recovery of Outstanding Dues Continues
| 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 the repealed Income-tax Act. |
All outstanding tax demands, interests, penalties payable under the old Act can be recovered using the machinery under the new Act. No old dues are wiped out due to the repeal.
| Practical Example
A taxpayer had an outstanding demand of Rs. 10 lakhs under the 1961 Act. The TRO (Tax Recovery Officer) had attached the taxpayer’s bank account in March 2026 but the recovery was incomplete. After April 2026, the recovery proceedings continue – the TRO can use the new Act’s recovery machinery to complete it. |
Clause (j) – Circulars, Notifications, Approvals Continue
| Any agreement, appointment, approval, recognition, circular, direction, instruction, notification, order, rule or scheme 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 issued under the corresponding provision of this Act and shall continue in force. |
This is a highly practical clause. All the thousands of CBDT circulars, exemption notifications, approvals given to trusts, recognitions given to provident funds, etc. remain valid. They don’t need to be re-issued under the new Act.
| Practical Example
CBDT had issued a circular under Section 194C of the 1961 Act clarifying the meaning of ‘work’ for TDS purposes. The corresponding provision in the new Act is Section 393. The old circular automatically applies to Section 393 as well – no fresh circular is needed. Similarly, approvals granted to scientific research institutions under Section 35 of the old Act continue under the new Act’s corresponding section. |
Clause (k) – Expired Time Limits Are Not Revived
| 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 a longer period being prescribed. |
If a taxpayer missed a deadline under the old Act before 1 April 2026, the new Act cannot be used as an excuse to revive that missed opportunity – even if the new Act provides a longer time period.
| Practical Example
A taxpayer’s deadline to file an appeal against an assessment order expired on 31 January 2026. He did not file. On 1 April 2026, the new Act comes in. Even if the new Act allows a longer appeal filing period, the taxpayer cannot now file that appeal. The time had already lapsed. Clause (k) blocks any such argument. |
Clause (l) – MAT / AMT Credit Carries Forward
| Any amount of credit in respect of tax paid, allowable to be carried forward under Section 115JAA or 115JD of the repealed Income-tax Act for the tax year beginning before 1st April 2026 – shall be deemed to be eligible for credit under Section 206(3) or (4) of this Act. |
MAT (Minimum Alternate Tax) credit and AMT (Alternate Minimum Tax) credit that companies and LLPs had accumulated under the old Act are preserved. Under the new Act, these are available under Section 206. The credit period and conditions mirror the old Act.
| Practical Example
A manufacturing company had accumulated MAT credit of Rs. 85 lakhs under Section 115JAA of the 1961 Act (over 5 previous years). When the new Act comes into force, this entire Rs. 85 lakhs is automatically treated as credit under Section 206 of ITA 2025. The company can utilize it against future regular tax liability in the same manner as it would have under the old Act. |
Clause (m) – Brought-Forward Business Losses Carry Forward
| Any amount of loss under the source or head of income specified in the table below, brought forward for the tax year beginning before 1st April 2026, 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. |
Losses brought forward under specific heads – house property, business, speculation, specified business, race horses – continue to be available for set-off under the new Act, but following old Act rules for that set-off.
| Sl. | Head of Income | Old Act Section |
| 1. | Income from house property | Section 71B |
| 2. | Profits and gains of business or profession | Section 72 |
| 3. | Speculation business | Section 73 |
| 4. | Specified Business | Section 73A |
| 5. | Owning and maintaining race horses | Section 74A |
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| Practical Example
A startup had business losses of Rs. 40 lakhs in FY 2023-24 and Rs. 25 lakhs in FY 2024-25 (both pre-2026 years). These losses are carried forward under new Act, but the rules for set-off – like: business loss can be set off only against business income, and carry forward is for 8 years – continue to be applied as per Section 72 of the old Act. |
Clause (n) – Capital Losses Carry Forward
| Any amount of loss under the head capital gains, whether long-term or short-term, brought forward from the tax year beginning before 1st April 2026, shall be carried forward and set off in accordance with Section 74 of the repealed Income-tax Act, for up to eight financial years. |
Capital losses (both LTCL and STCL) from pre-2026 years are preserved. The old Act rules for set-off apply – LTCL can only be set off against LTCG, STCL can be set off against both STCG and LTCG.
| Practical Example
An individual sold shares in FY 2024-25 at a long-term capital loss of Rs. 3 lakhs. She could not set it off in that year. This loss is brought forward. From FY 2026-27 onwards, she can set it off only against Long Term Capital Gains – following old Act rules – for up to 8 years (i.e., up to FY 203233). |
Clause (o) – Amalgamation / Merger: Conditions Violated After 2026
| Any set off of loss or allowance for depreciation made in any tax year beginning before 1st April 2026 in the hands of the amalgamated company under Section 72A of the repealed Income-tax Act, shall be deemed to be the income of the amalgamated company chargeable to tax under this Act for the year in which any conditions specified in that section are not complied with. |
When a company was merged/amalgamated under the old Act and availed loss set-off benefits – if those conditions are violated in a post-2026 year, the set-off amount becomes taxable income in the year of violation, under the new Act.
| Practical Example
Company A was amalgamated with Company B in FY 2022-23. Company B (the amalgamated entity) got loss set-off of Rs. 15 lakhs under Section 72A. A condition was that the business must continue for 5 years. In FY 2027-28, Company B shuts down that business. The Rs. 15 lakhs becomes income of FY 2027-28, taxable under ITA 2025. |
Clause (p) – Co-operative Bank Mergers
| Any set off of accumulated loss or unabsorbed depreciation allowed in any tax year beginning before 1st April 2026 to the successor co-operative bank, in accordance with 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 conditions are not complied with. |
Same concept as clause (o), but specific to co-operative banks that merged before April 2026. The protected losses get reversed if conditions under Section 72AB are violated after 1 April 2026.
| Practical Example
A cooperative bank (the successor) had availed unabsorbed depreciation of a merged bank under Section 72AB in FY 2021-22. One of the conditions was maintaining a certain number of branches. In FY 2028-29, the successor bank reduces its branches below the threshold. The depreciation set-off amount becomes taxable income in FY 2028-29 under the new Act. |
Clause (q) – Exempt Transfers That Later Attract Conditions
| Any profits or gains arising from transfer of capital asset not charged under the head ‘capital gains’ by virtue of Section 47(iv), (v), (xiii), (xiiib) or (xiv) of the repealed Income-tax Act in any tax year beginning before 1st April 2026, shall be deemed to be income under capital gains under this Act – in the year the conditions are not met. |
Certain transfers under the old Act were exempt under Section 47 (like gifts within a group, HUF partitions, transfers to LLPs). If the exemption was availed before 2026 but the conditions are later violated, the gains become taxable under the new Act.
| Practical Example
A company converted into an LLP in FY 2023-24 – the conversion was exempt under Section 47(xiiib) of the old Act. One condition was that the company’s shareholders must retain the same proportional interest in the LLP for 5 years. In FY 2027-28, one partner transfers his stake. The capital gain that was originally exempted now becomes taxable under the new Act for FY 2027-28. |
Clause (r) – Unabsorbed Depreciation Merges into New Act
| Where any allowance under Section 32(2) or 35(4) of the repealed Income-tax Act is to be carried forward to tax year beginning on 1st April 2026, such allowance shall be added to the amount of capital allowances referred to in the corresponding provisions of this Act for the tax year beginning on 1st April 2026. |
Unabsorbed depreciation or scientific research expenditure carried forward under old Sections 32(2) and 35(4) is automatically merged into the opening capital allowance pool under the new Act for FY 2026-27.
| Practical Example
A company had unabsorbed depreciation of Rs. 18 lakhs under Section 32(2) of the old Act as of end of FY 2025-26. When ITA 2025 comes into force, this Rs. 18 lakhs is directly added to the capital allowance balance under the new Act for FY 2026-27. No separate claim is needed – it automatically forms part of the depreciation pool. |
Clause (s) – Multi-Year Scientific Research and Infrastructure Deductions Continue
| Deductions 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 conditions, continue to be allowed under this Act for tax years beginning on or after 1st April 2026. |
Many deductions under the old Act were spread over multiple years (like preliminary expenses deductible over 5 years, spectrum fees over the licence period). Those multi-year deductions continue even though the Act has changed. They get merged into the deferred revenue expenditure allowance framework of the new Act.
| Practical Example
A company incurred preliminary expenses of Rs. 10 lakhs in FY 2022-23, claimable 1/5th each year under Section 35D of the old Act. By FY 2025-26, it had claimed Rs. 8 lakhs (4 years). The remaining Rs. 2 lakhs (5th year installment) is automatically carried into and claimable under ITA 2025 for FY 2026-27 – no fresh claim or separate approval is required. |
Clause (t) – Bad and Doubtful Debt Provision Balance Carries Over
| 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 1st April 2025, shall be added to the corresponding provision under this Act for the tax year beginning on 1st April 2026. |
Banks and financial institutions were allowed deductions for provisions for bad debts under Section 36(1)(viia) of the old Act. The balance standing in that provision account as on 31st March 2026 automatically merges into the new Act’s framework for FY 2026-27.
| Practical Example
A scheduled commercial bank had a provision for bad debts credit balance of Rs. 50 crores as of 31 March 2026 under Section 36(1)(viia) of the old Act. From 1 April 2026 onwards, this Rs. 50 crores becomes the opening balance of the bad debt provision under the corresponding section of ITA 2025. No separate journal entry or tax adjustment is needed. |
Clause (u) – Faceless Schemes Continue
| Any scheme notified under the provisions of the repealed Income-tax Act with a view to eliminating the interface between the assessee and tax authorities shall be deemed to have been made under the corresponding provisions of this Act, or under Section 532 where there is no corresponding provision, and shall continue in force. |
Faceless Assessment Scheme, Faceless Appeal Scheme, Faceless Penalty Scheme – all notified under the old Act – continue without any break. Taxpayers do not need to re-register or re-comply. These schemes are deemed to have been made under the new Act.
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| Practical Example
A taxpayer is under faceless assessment for AY 2024-25. The entire process is paperless – notices, responses, hearings – all done online under the Faceless Assessment Scheme notified under Section 144B of the old Act. After 1 April 2026, this scheme continues seamlessly. The AO does not restart the process, and the taxpayer does not need to do anything differently – the same portal, the same procedures. |
Clause (v) – Search Cases Entirely Under the Old Law
| 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 the 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. |
Search and seizure operations are complex, multi-year proceedings. If a search was initiated before 1 April 2026, the entire proceeding – including block assessment, penalty, and appeals – continues under the 1961 Act from start to finish.
| Practical Example
Income Tax Department conducted a search under Section 132 of the 1961 Act at a businessman’s premises in January 2026. The block assessment arising out of this search will be conducted under the old Act – Section 153A, 153C, the penalty provisions, and appeals – all under the 1961 Act. The new Act is entirely out of the picture for this case. |
Sub-section (3) – Terminology Bridge
| 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. |
The new Act uses the term ‘Tax Year’ while the old Act used ‘Previous Year’ (with a separate ‘Assessment Year’). Sub-section (3) simply bridges this terminology. When the new Act refers to Tax Year 2024-25, it means the previous year 2024-25 (i.e., FY 2024-25 / AY 2025-26) under the old Act.
| Practical Example
ITA 2025 says ‘where in tax year 2024-25 a loss was incurred…’ – this should be read as ‘where in previous year 2024-25 (i.e., AY 2025-26) a loss was incurred.’ There is no change in the underlying meaning – just a terminology alignment so there is no confusion while reading provisions that refer to old-era years. |
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| ITA 2025 (New) | ITA 1961 (Old) | Calendar Equivalent |
| Tax Year 2024-25 | Previous Year 2024-25 (AY 2025-26) | 1 Apr 2024 – 31 Mar 2025 |
| Tax Year 2025-26 | Previous Year 2025-26 (AY 2026-27) | 1 Apr 2025 – 31 Mar 2026 |
| Tax Year 2026-27 | First year under New Act | 1 Apr 2026 – 31 Mar 2027 |
Sub-section (4) – General Clauses Act as Safety Net
| 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. |
Section 6 of the General Clauses Act, 1897 is a standard provision that prevents a repeal from accidentally wiping out accrued rights, pending actions, or liabilities – unless expressly stated. Sub-section (4) makes this backup net explicit.
Even if sub-section (2) missed any specific situation (which is unlikely given its 22 clauses), Section 6 of the General Clauses Act will still protect it. This is the catch-all provision.
| Practical Example
Suppose a very specific type of proceeding or right is not explicitly listed in any of the 22 clauses of sub-section (2). A taxpayer argues it was lost due to the repeal. Sub-section (4) steps in – Section 6 of the General Clauses Act 1897 ensures that the repeal does not extinguish any right or liability that isn’t specifically addressed. Courts can rely on this to protect such cases. |
Quick Reference Summary: All Clauses at a Glance
| Clause | Subject | In one line |
| 536(1) | Repeal | ITA 1961 formally repealed from 1 April 2026 |
| 2(a) | Past operation | Past actions under old Act remain valid liabilities |
| 2(b)
2(c) |
Rights & obligations
Pending proceedings |
Accrued rights and survive repeal Old Act governs pre-2026 year proceedings |
| 2(d) | Penalty for old years | Penalties can still be levied under old Act |
| 2(e) | Court/tribunal matters | Cases pending before ITAT/Courts decided under old law |
| 2(f) | Elections/options | Options exercised under old Act continue under new Act |
| 2(g) | Interest on refunds/ defaults | Old Act interest rate applies, updated by new Act rate when changed |
| 2(h) | Reversal of deductions | Deductions reversed if conditions violated post-2026 |
| 2(i) | Recovery of dues | Old Act dues can be recovered under new Act |
| 2(j) | Circulars/notifications | Old CBDT circulars continue to apply |
| 2(k) | Expired time limits | Cannot revive lapsed deadlines via new Act |
| 2(l) | MAT/AMT credit | Old MAT/AMT credit preserved under Sec 206 of new Act |
| 2(m)
|
Business/HP losses losses | Brought-forward losses set off under old Act rules forward for |
| 2(n)
2(o) |
Capital Amalgamation benefits | LTCL/STCL carry using old Act rules 8 years Merged company loses set-off if conditions violated post-2026 |
| 2(p) | Co-operative bank mergers | Same as (o) for co-operative bank successors |
| 2(q) | Exempt transfers Unabsorbed |
Exempted gains under Sec 47 become taxable if conditions breached into for |
| 2(r) | depreciation | Merges new Act’s capital allowance pool FY 2026-27 |
| 2(s)
|
R&D/infra deductions Bad debt | Multi-year deductions continue under new Act Balance Mar into Act framework |
| 2(t)
2(u) |
provision
Faceless schemes |
as of 31 2026 merges new All faceless schemes continue under new Act seamlessly |
| 2(v) | Search cases | Pre-2026 searches governed entirely by old Act |
| 536(3) | Terminology bridge | Tax Year in new Act = Previous Year in old Act |
| 536(4) | Safety net | General Clauses Act 1897 fills any gaps |
Key Principle to Remember
The repeal changes the law going forward – not backwards.
Old years + old rights + old proceedings = governed by the old law.
New income + new transactions + new tax years = governed by the new law.
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