The enactment of the Income-tax Act, 2025 (Act-2025), effective from midnight on 31st March 2026, marks a watershed moment in Indian fiscal jurisprudence. However, contrary to the presumption that this represents a legislative rupture from the past, the reality confronting tax practitioners is far more nuanced and, indeed, complex. The question that bears examination, Whether practitioners have to maintain simultaneous proficiency in two distinct enactments, or does the transition permit a migration from the old regime to the new?, is not merely academic when we deep dive.
The answer, unequivocally, is that practitioners must indeed have to sail in two boats—not as a matter of choice, but of professional necessity and statutory mandate.
The Legislative Architecture of Transition: Section 536 as the Fulcrum
Act-2025, through Section 536 titled “Repeal and savings,” establishes a sophisticated transitional mechanism that ensures continuity while facilitating change. Sub-section (1) effects the formal repeal of the Income-tax Act, 1961 (Act-1961), but it is sub-section (2), with its twenty-two clauses, that constitutes the true architecture of transition, showing more meticulous drafting skills that were demonstrated by legislature in the year 1961.
This provision operates on the fundamental principle that while the old enactment stands repealed, its substantive and procedural provisions continue to govern all matters pertaining to tax years concluding on or before March 31, 2026. The operative phrase “as if this Act had not been enacted,” appearing repeatedly throughout Section 536(2), underscores the legislative intent to maintain the full vigour and applicability of the repealed Act for antecedent years.
Mastery of these provisions is foundational to competent practice in the dual-act era. Practitioners who thrive will treat Section 536 as their primary reference tool, maintain meticulous records of transitional obligations, and determine which Act governs before citing provisions or developing arguments.
The Temporal Bifurcation: Understanding the Demarcation Line
The demarcation is clear but its implications are profound:-
For Assessment Years up to and including AY 2026-27:
All assessments, reassessments, recomputations, and rectifications shall be governed by the Act-1961
All appellate proceedings, revisions, and references shall proceed under the repealed Act
All penalty and prosecution proceedings shall be initiated and concluded per the 1961 Act
Time limitations, procedural requirements, and substantive provisions of the old Act remain operative.
For Tax Years beginning April 1, 2026 (Tax Year 2026-27 onwards):
New Act-2025 will take its charge for all the compliances which will happen on or after its dawn, all procedural frameworks, all computations, assessments, proceedings, and of course substantive provisions.
Terminology, section numbering, and structural organization follow the new enactment
This temporal bifurcation is not merely a transitional convenience but a testimony of beautiful craftsmanship and a statutory imperative under Section 536(2)(c) and (e).
The Bridging Section 536(2): Your Navigational Chart with Twenty-Two Transitional Clauses
Section 536(2) contains twenty-two distinct clauses that serve as the operational manual for navigating the transition between the two Acts. These clauses are not mere technical formalities; they represent the practical framework that will govern your daily practice for years to come. Each clause addresses specific transitional scenarios, and practitioners must develop granular familiarity with their scope and application. The success of your practice in managing dual-act compliance depends on understanding not just what these clauses say, but how they interact with each other and with the substantive provisions of both Acts.
Preservation of the Past: Clauses (a) and (b)
The foundational principle of the transition is captured in the opening clauses: all orders passed, actions taken, rights accrued, and liabilities incurred under the 1961 Act remain completely undisturbed. This is the bedrock guarantee of legal continuity. No taxpayer loses a benefit already earned, no assessment already completed is disturbed, and no right already vested is taken away merely because a new Act has come into force.
The Master Procedural Clause: Clauses (c) and (e)
Clause (c) is perhaps the most significant provision for litigation practice, and its scope extends far beyond what might initially appear. This clause governs procedural continuity not just for pending proceedings but for all future proceedings relating to assessment years up to 2026-27, regardless of when those proceedings are initiated. A reassessment notice for AY 2024-25 issued three years after the new Act comes into force will be governed entirely by Sections 147-153 of the 1961 Act, including all time limitations, conditions precedent, procedural safeguards, and appeal provisions.
Penalty Proceedings: Clause (d)
Penalty proceedings for any assessment year up to 2026-27 may be initiated even after April 1, 2026, and must be conducted under the penalty provisions of the 1961 Act. The Department retains full authority to levy penalties under the old regime for defaults relating to those years, and taxpayers retain all defences, time limitations, and procedural protections available under those provisions.
Elections and Options Carried Forward: Clause (f)
Any election, declaration, or option exercised under the 1961 Act that remains in force on March 31, 2026 is deemed to have been made under the corresponding provision of the 2025 Act. Elections such as u/s 115BAC for the optional new tax regime, presumptive taxation options under Sections 44AD, 44ADA, and 44AE, and accumulation options for charitable trusts under Section 11(2), among others, are covered by this provision.
The practical effect is that taxpayers need not re-elect or re-declare their choices; the transition happens automatically by operation of law, but at the same time one has to comply with the terms and conditions attached to these elections/options under the new Act, as while the election carries forward, the regulatory framework governing its continued application may have evolved.
Split Interest Computation: Clause (g)
Clause (g) addresses the split in interest calculations where refunds or defaults span the transition date. Where refunds fall due or defaults in payment occur after April 1, 2026 concerning assessment years up to 2026-27 also, interest provisions of the 2025 Act apply prospectively from April 1, 2026 onward. As such, the interest rate, calculation methodology, and any caps or restrictions applicable may differ between the two periods, reminding practitioners to perform dual calculations under both regimes.
Conditional Exemptions: Clause (h)
Clause (h) demands particular vigilance and systematic record-keeping because it creates long-tail compliance obligations that extend far beyond the transition date. Where exemptions or deductions were allowed under the 1961 Act subject to conditions, violations of those conditions occurring after April 1, 2026 trigger taxation under the 2025 Act in the year of violation, though under the same head of income as would have applied under the 1961 Act. For example, this provision covers exemptions under Sections 54, 54EC, 54F, etc., and deductions under Sections 35(2)(iia), 35D, 35AD, etc.
Recovery Mechanism: Clause (i)
This clause addresses the continuity of revenue recovery machinery and represents a critical enforcement provision. Any sum payable under the repealed Income-tax Act, 1961, whether it be tax arrears, interest, penalty, or any other levy, may be recovered under the recovery provisions of the Income-tax Act, 2025 without prejudice to any action already initiated under the repealed Act. The operative phrase “without prejudice to” is significant: it preserves the efficacy of all recovery proceedings already set in motion under the old regime (including attachment of property, garnishee orders, or proceedings before the Tax Recovery Officer) while simultaneously enabling the revenue authorities to invoke the recovery machinery of the new Act.
No Additional Lifeline: Clause (k)
This clause operates as an anti-abuse provision to prevent the artificial revival of time-barred remedies. Where the limitation period prescribed under the Income-tax Act, 1961 for filing any application, appeal, reference, or revision had already expired on or before April 1, 2026, the taxpayer cannot invoke any longer limitation period or condonation provision available under the Income-tax Act, 2025 to resurrect that remedy.
The legislative intent is unambiguous: the new Act shall not breathe fresh life into remedies that had already become time-barred under the old regime.
Practitioners must therefore conduct immediate audits of all pending limitation periods as of March 31, 2026, and ensure that remedies are invoked under the applicable time limits of the 1961 Act itself, rather than gambling on potentially favorable provisions of the new Act reviving defunct rights. The corollary is equally important: where limitation periods had not expired as of April 1, 2026, the time limits prescribed under the 1961 Act continue to govern per Clause (c), and the taxpayer cannot be prejudiced by any shorter limitation period that might be prescribed under the 2025 Act for prospective matters.
MAT and AMT Credits: Clause (l)
MAT credit under Section 115JAA and AMT credit under Section 115JD continue to be available for carry forward and set-off under the 2025 Act, provided the taxpayer continues to satisfy the conditions specified in the corresponding provisions of the new Act. The credit is allowed against regular tax liability computed under the 2025 Act, subject to satisfaction of eligibility conditions, which may evolve under the new Act’s framework.
Loss Carry Forward: Clauses (m) and (n)
Losses under various heads of income brought forward from assessment years up to 2026-27 carry forward and set off against income computed under the 2025 Act in the manner provided in the respective sections of the 1961 Act, whereby carry forward period and set-off restrictions specified in the 1961 Act continue to apply even though the income against which set-off is claimed is computed under the 2025 Act.
Corporate Restructuring Obligations: Clauses (o), (p), and (q)
Loss set-offs allowed to amalgamated companies, successor companies, successor LLPs, or successor co-operative banks under Sections 72A and 72AB, etc., and exemptions enjoyed under such restructuring, carry continuing obligations that extend beyond the transition date. It is mandated that if conditions specified in these sections are violated after April 1, 2026, the losses previously set off are deemed to be income chargeable to tax under the 2025 Act in the year of non-compliance. This creates a perpetual compliance obligation for restructured entities that must maintain minimum asset holdings, ensure business continuity, retain specified numbers of employees, and satisfy any other conditions that were attached to the loss set-off benefit.
Transitioning Capital and Revenue Allowances: Clauses (r) and (s)
Unabsorbed depreciation under Section 32(2) and scientific research allowances under Section 35(4) being carried forward from AY 2026-27 are added to the capital allowances under the corresponding provisions of the 2025 Act and deemed to be part of that allowance for the relevant tax year. This ensures seamless continuation of these perpetual carry-forward benefits without any loss or interruption. Similarly, deferred revenue expenditure deductions being claimed in instalments 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 2025 Act and are added to the deferred revenue expenditure allowance under corresponding provisions of the new Act.
Bank specific Provisions: Clause (t)
The credit balance in the provision for bad and doubtful debts account maintained under Section 36(1)(viia) by banks and financial institutions as on March 31, 2026 carries forward and is deemed to be part of the provision maintained under the corresponding provision of the 2025 Act.
Administrative Schemes: Clause (u)
Here, all schemes notified under the 1961 Act for eliminating interface with taxpayers, including the faceless assessment scheme, faceless appeal scheme, and faceless penalty scheme, are deemed to have been made under corresponding provisions of the 2025 Act or under Section 532 where no corresponding provision exists. This ensures that the procedural reforms and technological implementations achieved under the old regime continue seamlessly under the new Act without requiring fresh notifications or disrupting established administrative processes so long as the legislature so desires.
Search and Seizure Continuity: Clause (v)
Where search under Section 132 or requisition under Section 132A is initiated before April 1, 2026, all connected proceedings including assessment of undisclosed income, penalty proceedings, and prosecution, etc., are to be conducted entirely under the provisions of the 1961 Act. This creates a complete package of continuity whereby substantive and procedural rights of both the Department and the taxpayer are determined by the Act in force when the search was initiated, regardless of how many years the subsequent proceedings may take.
The Jurisprudential Continuum: Preservation of Settled Law
At the same time while dealing with new act in its own field, One of the most critical questions, practitioners may face, the applicability of judicial precedents decided under the 1961 Act to disputes arising under the 2025 Act. This question admits of particular urgency given that the Statement of Objects and Reasons explicitly clarifies that the new enactment effects “no major tax policy changes” and prioritizes “textual and structural simplification for improved clarity and coherence.”
Where legislative provisions remain substantively identical despite linguistic reformulation, the doctrine of interpretative continuity mandates that judicial precedents construing the earlier provision shall continue to bind.
However, certain transitions such as replacement of “may be charged” with “shall be charged” in Sections 102-106 may pose some real challenges or may be defended citing old jurisprudence such as the Hon’ble Supreme Court in CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570, whereby Assessing Officer discretion was recognized where circumstances warrant forbearance.
Additionally, constitutional constraints under Article 14 require interpretations preserving reasonableness and natural justice. Mandatory additions without regard to factual contexts would raise serious arbitrariness concerns. Where provisions admit dual interpretations, courts consistently prefer constructions avoiding constitutional difficulties while ensuring administrative fairness.
Section 536(4): The invocation of Section 6 of the General Clauses Act, 1897 (10 of 1897) operates as a savings clause of the widest amplitude, preserving not merely rights and liabilities but the entire interpretative framework developed under the repealed enactment.
Section 536(2)(j): This clause deems all circulars, directions, instructions, notifications, orders, and rules issued under the repealed Act to continue in force under corresponding provisions of the new Act, “so far as it is not inconsistent” with the 2025 Act. By necessary implication, if administrative interpretations survive transition, judicial interpretations, which carry greater constitutional and legal weight, must similarly endure. The explicit disclaimer of policy changes and the emphasis on mere simplification constitute a clear legislative mandate that the substantive content of taxation law remains unchanged. Consequently, the accumulated wisdom of six decades of judicial interpretation cannot be jettisoned on the altar of renumbering and linguistic refinement.
Conclusion: The Path Forward
Despite the unequivocal legislative declaration of “no policy change,” practitioners must realistically anticipate sustained resistance from field formations of the Income Tax Department. These may include assertions that linguistic deviations between corresponding provisions signify substantive alteration; that structural re-arrangement disrupts the mechanical applicability of existing precedents; or that the substitution of permissive language such as “may” with mandatory expressions like “shall” reflects a conscious policy shift. Such arguments will predictably be deployed to expand the revenue’s interpretative boundaries wherever expedient-just as practitioners may rely on similar nuances when circumstances permit.
In such evolving landscape, practitioners must arm themselves with a coherent and formidable defence architecture, anchored in four inter-linked pillars:
- Clear legislative intent explicitly affirming the absence of policy change;
- The statutory mandate under Section 536, which reinforces continuity of law;
- The settled doctrine against implied repeal, deeply rooted in constitutional jurisprudence; and
- The substantive identity test, ensuring that mere linguistic or structural re-drafting is not mistaken for legislative transformation.
Together, these principles offer a comprehensive and resilient framework to counter arguments that seek to equate linguistic modernisation with substantive policy reorientation.
At its core, the practitioner’s role in this transition is the defence of settled law against attempts to use structural reorganisation as a conduit for substantive change. In essence, the Act of 2025 must be positioned—and persistently demonstrated—as an evolution, not a revolution: a modernisation of form and structure that preserves the foundational substance of Indian tax law.
The challenge is undeniable, yet entirely manageable for practitioners who recognise the dual-Act reality, invest in disciplined preparation, and remain anchored to first principles. Beneath the new legislative packaging lies the familiar and enduring vintage of Indian tax jurisprudence. Ultimately, regardless of outcome, it is informed action-rather than apprehension, that must prevail.
At this juncture, one is reminded of the timeless wisdom of the Shreemad Bhagavad Gita which defines that to act with clarity, detachment, and precision, treating disciplined advocacy itself is the highest form of professional excellence:-
बुद्धियुक्तो जहातीह उभे सुकृतदुष्कृते।
तस्माद्योगाय युज्यस्व योगः कर्मसु कौशलम्।। (2.50)
(Endowed with wisdom, one rises above both good and evil results in this world. Therefore,
devote yourself to disciplined action-excellence in action is yoga.)
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