The Finance Bill, 2026 proposes a clarificatory amendment to section 536(2)(h) of the Income-tax Act, 2025 to address gaps in the repeal and savings framework after the transition from the Income-tax Act, 1961. Under the existing provision, amounts earlier allowed as deductions or excluded from total income under the repealed law were deemed income in a later year only where specified conditions were violated. However, certain provisions of the repealed Act required such amounts to be taxed in later years even without any breach of conditions, which the current clause did not cover. To resolve this, the amendment provides that any sum allowed as a deduction or excluded earlier shall be deemed income in a subsequent tax year if, under the repealed Act, it would have been taxable in that year had the Act not been repealed, whether due to violation of conditions or for any other reason. The amount will be taxed under the same head of income. The amendment applies from 1 April 2026.
Clarifying repeal and savings clause where amount allowed as deduction earlier is to be treated as income in a later year
Section 536(2)(h) of the Act provides that where any deduction has been allowed or any amount has not been included in the total income under the repealed Income-tax Act, 1961, subject to fulfilment of certain conditions, then on violations of such conditions, such amount will be deemed to be income in the tax year in which violation takes place.
2. However, there are provisions in the repealed Act, where any deduction allowed or any income which has not been included in the total income under the repealed Income-tax Act, 1961 may have to be included as income as per the provisions of the Income-tax Act, 1961 under the provisions of Income-tax Act, 2025, even without violations of any conditions. Section 536(2)(h) presently does not cover these cases.
3. Thus, to include such situations, it is proposed that where any sum has been allowed as deduction or has not been included in the total income under the repealed Income-tax Act, 1961, such sum will be deemed to be income under Income-tax Act, 2025, even without violations of any conditions, if it was to be included in the total income under the provisions of Income-tax Act, 1961 had it not been repealed.
4. It is proposed to amend section 536(2)(h) of the Act.
5. The amendment will take effect from the 1st day of April, 2026 and will, accordingly, apply to tax year 2026-27 and subsequent tax years.
[Clause 107]
Extract of Relevant Clauses of Finance Bill, 2026
Clause 107 of the Bill seeks to amend section 536 of the Income-tax Act, 2025 relating to repeal and savings.
The said section provides for the circumstances where deduction has been allowed under the repealed Income-tax Act, 1961, but on violation of the conditions mentioned in the respective sections of the said Act, it will become income after the enactment of the Income-tax Act, 2025.
It is proposed to substitute clause (h) of sub-section (2) of the said section so as to provide that 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 fulfillment 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.
It is further proposed to substitute sub-clauses (i) and (ii) of clause (l) of sub-section (2) of the said section so as to include reference of section 206(3) or (4).
These amendments will take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-2027 and subsequent years.
Extract of Relevant Amendment Proposed by Finance Bill, 2026
107. Amendment of section 536.
In section 536 of the Income-tax Act, in sub-section (2),––
(i) in the opening portion, for the word, brackets and figure “sub-section (3)”, the word, brackets and figure “sub-section (4)” shall be substituted;
(ii) for clause (h), the following clause shall be substituted, namely:—
“(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 fulfillment 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;”;
(iii) in clause (l), for sub-clauses (i) and (ii), the following sub-clauses shall be substituted, namely:––
“(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;”.
