The transition from the Income-tax Act, 1961 (ITA 1961) to the Income-tax Act, 2025 (ITA 2025) marks a significant shift in the direct tax regime. While the legislative intent is to simplify and modernize tax administration, the changeover inevitably raises several practical and interpretational challenges for taxpayers and professionals alike.
Recognizing these concerns, the Central Board of Direct Taxes (CBDT) issued a set of Frequently Asked Questions (FAQs) in March 2026. These FAQs aim to address key practical issues, provide clarity, reduce uncertainty, and facilitate a smooth transition within the statutory framework. Tax professionals are advised to refer to these FAQs whenever difficulties arise in interpretation, operation, compliance, or assessment under the new law.
At the heart of the transitional framework lies Section 536 of the ITA 2025, titled “Repeal and Savings.” This provision comprehensively deals with various situations arising due to the repeal of the ITA 1961. However, in cases where Section 536 does not expressly cover a situation, recourse must be taken to Section 6 of the General Clauses Act, 1897, which governs the effect of repeal of statutes.
A key aspect of continuity is that existing PAN and TAN will remain valid under the new regime. Similarly, approvals, registrations, and recognitions granted under the ITA 1961 shall be deemed to have been granted under the ITA 2025, ensuring administrative and procedural continuity.
Despite these clarifications, several practical issues arise in day-to-day practice. Some of the important scenarios are discussed below:
1. Applicable Appeal Forms: Where an appeal is to be filed in May 2026 for Financial Year 2023–24, the question arises whether the new Form No. 99 or the old Form No. 35 is applicable. As per Section 536(2), the old Form No. 35 will apply. The determining factor is the provision under which the order appealed against has been passed.
2. Issuance of Notices for Past Assessment Years: If a notice is to be issued after 01.04.2026 for Assessment Year 2024–25, it must be examined whether the provisions of ITA 1961 or ITA 2025 apply. Section 536(2) clarifies that such notices shall be issued under the ITA 1961, i.e., under sections like 148 or 143(2), as applicable.
3. Set-Aside Proceedings by ITAT: Where the Income Tax Appellate Tribunal (ITAT) sets aside a matter for Assessment Year 2023–24 after 01.04.2027, the proceedings before the Assessing Officer (AO) will continue to be governed by the ITA 1961, based on the principle embedded in the transitional provisions.
4. Consolidated Orders for Assessment and Penalty: A notable procedural change is the requirement for consolidated orders covering both quantum assessment and penalty. Interestingly, this requirement applies even in transitional cases, as amendments have been made in both Section 274(4) of the ITA 1961 and Section 471 of the ITA 2025 to align this position.
5. Search Proceedings Initiated Post Transition: In cases where a search is initiated on or after 30.05.2026, the six-year assessment period will be governed by the provisions of the ITA 2025. Section 536(2)(v) specifically provides that the new Act shall apply in such cases.
6. Concept of Abatement: The concept of abatement continues to be relevant in search and reassessment proceedings. Its application under the new regime must be understood in light of both the repealed and the new provisions.
7. Adjustment of Refunds: Under the ITA 1961, Section 245 governs the adjustment of refunds against outstanding demands, while Section 438 of the ITA 2025 provides the corresponding mechanism. Both provisions have been suitably amended to ensure seamless adjustment of refunds during the transition phase.
8. Taxation of Capital Gains under Transitional Provisions: Consider a case where a capital asset is transferred in December 2023 and the net consideration is deposited in the Capital Gains Account Scheme. If the funds are not utilized within the stipulated period up to December 2026, the taxability in Tax Year 2026–27 becomes an issue. The applicable rate—whether 20% under the old regime or 12.5% under the new regime—must be determined with reference to Section 112 of the ITA 1961, Section 197 of the ITA 2025, and specifically Section 536(2)(h), which governs such transitional situations.
9. Changes in Compliance Forms: Another important area is compliance through forms. Under the ITA 1961, Form 26QB was used for reporting TDS on property transactions. Under the ITA 2025, the new Form 141 has been introduced, which is structured based on the number of buyers, indicating a shift in reporting methodology.
Conclusion
The transition from the ITA 1961 to the ITA 2025 is not merely a legislative change but a structural transformation. While Section 536 provides a robust framework to address most transitional issues, practical challenges will continue to emerge. A careful reading of the statutory provisions, supported by CBDT FAQs and general legal principles such as those contained in the General Clauses Act, is essential for navigating this phase effectively.
Active professional engagement and discussion on these issues will go a long way in ensuring a smooth and informed transition to the new tax regime.
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Author Detail: K.K. Singla, Advocate and President of the Patiala Tax Bar Association, can be reached at 98140-93274.
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