FAQs on Transitional Provisions of Legacy Act (Income-tax Act, 1961) under Income-tax Act, 2025
Income-tax 1961 to 2025: FAQs on the great handover
It felt nostalgic to call the Income-tax Act, 1961 a legacy law. For more than six decades, it governed India’s direct tax system, shaped fiscal policy, and guided both professionals and taxpayers through countless financial decisions. Like all things organic on earth, even statutes must eventually retire. Income Tax Act, 1961 is a legendary statute and it helped the nation’s growth, its security, its infrastructure, social welfare programmes etc., by mopping up trillions of rupees, during its life time. So, let us prepare to bid a respectful farewell to the Income-tax Act, 1961, and welcome the Income-tax Act, 2025.
The new Act will formally repeal its predecessor through Section 536(1): “The Income-tax Act, 1961 is hereby repealed.” Yet, in the very next breath, Section 536(2)(a)–(v) performs what can only be described as a legislative bypass surgery, granting the old Act, an afterlife.
This is where the concept of “repeal and savings” becomes crucial. It determines which actions under the old law will continue to have force, and from which point the new law will take over. Let us decode these provisions in a simple and practical way — through a set of FAQs.
1) Does the “tax year” in the New Act mean the same as “previous year” in the Old Act?
Yes. Section 536(3) clarifies that any reference to a tax year commencing on or before 1 April 2025 shall be read as the corresponding “previous year” under the 1961 Act.
2) When does the New Act come into force?
The Income-tax Act, 2025 takes effect from 1 April 2026. The 1961 Act stands repealed on the same date.
3) I have obligations under the 1961 Act which fall due after 1 April 2026. For instance, filing an SFT for FY 2024-25 by 31 May 2026. Which Act applies?
Such filings will be under the 1961 Act. Section 536(2)(b) saves obligations already created under the repealed law.
4) What about TDS for March 2026, which falls due for payment after repeal?
TDS deducted for March 2026 must be deposited by 30 April 2026 under the 1961 Act, even though the Act is repealed from 1 April 2026.
5) Which Act governs tax return (ITR) filing for FY 2025-26?
All the tax returns (ITRs) for FY 2025-26 (AY 2026-27) must be filed under the 1961 Act.
6) What happens to scrutiny assessments or pending assessments under the Old Act?
They continue under the 1961 Act. Section 536(2)(c) states that all proceedings for years upto FY 2025-26 will be completed under the repealed law.
7) What about penalty proceedings for FY 2025-26 or earlier years?
Penalties for tax years before 1 April 2026 can be initiated and imposed under the 1961 Act, as if the New Act had not been enacted.
8) Will appeals pending as on 1 April 2026 shift to the New Act?
No. All pending appeals before CIT(A), ITAT, High Courts or Supreme Court will be heard and decided under the 1961 Act.
9) What happens to companies that opted for the New Tax Regime under Section 115BAA of the Old Act?
The option is deemed to continue under Section 200 of the 2025 Act. Companies that did not opt earlier may choose under the New Act from FY 2026-27 onwards. Once chosen, the option is irrevocable under the New Act too.
10) If refunds for FY 2025-26 are issued after 1 April 2026, which Act governs interest?
If a refund falls due after commencement of 2025 Act, the provisions of New Act, relating to interest payable by the Central Government on refunds shall apply for the period after the commencement of the New Act.
11) If I default on tax dues for years before FY 2025-26, how is interest computed?
The provisions of New Act, relating to interest payable by the assessee for the default shall apply for the period after the commencement of New Act.
12) What if I claimed exemption for capital gains under Section 54F of the Old Act, but sell the new house in FY 2026-27?
The withdrawn exemption will be taxed as capital gains under the 2025 Act in the year of violation.
13) Can outstanding tax demands under the Old Act be adjusted against refunds under the New Act?
Yes. Any demand under the 1961 Act may be recovered against refunds due under the 2025 Act.
14) Do superannuation or similar schemes approved under the Old Act need re-approval under the New Act?
No. Approvals, notifications, and schemes under the Old Act continue under the New Act unless inconsistent with its provisions.
15) If limitation periods differ between the two Acts, can I take benefit of the longer period under the New Act?
No. Expired time limits under the 1961 Act cannot be revived simply because the New Act prescribes a longer period.
16) Will MAT credits from earlier years continue under the New Act?
Yes. MAT credits under Sections 115JAA/115JD of the 1961 Act will be carried forward as credits under the 2025 Act.
17) What about unabsorbed losses brought forward under the Old Act?
They will continue to be carried forward and set off under the respective provisions of the 2025 Act.
18) Our company transferred a business undertaking to its wholly owned subsidiary and claimed did not treat it as a transfer by claiming exemption of capital gains under Section 47(iv) of the Old Act. If the company ceases to hold the whole of the share capital of the subsidiary within eight years, will the income be taxed under the Old or New Act?
The income is chargeable as capital gains in the tax year in which the transfer of the undertaking took place, not in the year of the subsequent breach. Section 536(2)(q) of the Income-tax Act, 2025 currently deems profits or gains not charged as capital gains by virtue of Section 47(iv) of the repealed Act to be chargeable as capital gains under the New Act*.
*Author’s Note: We need to wait for clarification / an amendment to the effect that such capital gains will remain chargeable under the repealed Act for the tax year in which the transfer occurred, where the conditions in Section 47A(1) of the repealed Act are satisfied.
19) One of our subsidiaries was merged with our Company during FY 2024-25, and the unabsorbed depreciation of the subsidiary has been treated as the unabsorbed depreciation of our Company under Section 72A of the repealed Act. It is proposed to sell one of the undertakings of the subsidiary (constituting more than 90% of the book value acquired in the scheme of amalgamation) to another company during FY 2026-27. This constitutes non-fulfilment of the conditions mentioned in Section 72A(2). How should this situation be dealt with under the New Act?
In this scenario, the income shall be deemed to be that of the amalgamated company and is chargeable to tax under the New Act for the year in which any of the conditions specified in Section 72A are not complied with.
Similarly, non-fulfilment of conditions under Section 72AB (relating to carry forward and set-off of accumulated loss and unabsorbed depreciation in the reorganisation of co-operative banks) is also taxed in the year in which the conditions are breached, under the New Act.
20) What about unabsorbed depreciation under Section 32(2) of the Old Act?
It will be carried forward and deemed to be part of depreciation under Section 33(11) of the 2025 Act from FY 2026-27 onwards.
21) If preliminary expenses are amortised under Section 35D of the Old Act but the balance spills over after 1 April 2026, will deduction continue?
Yes. Such deductions will continue under the corresponding provisions of the 2025 Act for the balance period.
22) What happens to faceless assessment/appeal/penalty schemes notified under the Old Act?
They will be deemed to continue under the corresponding provisions of the 2025 Act, or under Section 532 where no direct provision exists.
23) If a search under Section 132 was initiated before 1 April 2026 but assessment is pending, which Act applies?
The entire proceeding will be completed under the 1961 Act.
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Disclaimer: Readers are advised to refer to the Income-tax Act, 1961 and the Income-tax Act, 2025 before taking any decision. The author is not responsible for consequences arising from reliance on these FAQs.
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