Carry Over Provisions Under Income-Tax Act, 2025

V K Subramani – [2026] 182 taxmann.com 122 (Article)

The Income-tax Act, 1961 which remained in force for the last 6 decades or so, is now replaced by the Income-tax Act, 2025 w.e.f 01.04.2026. There are many far reaching changes made in the new Act and any serious practitioner of income-tax law would be somewhat nervous since the old Act which was so familiar to him goes out of the usage and he has to understand the new law. Even when in deep sleep when one is asked to wake up and explain certain simple legal provisions it could be done comfortably. Now the familiar matters covered in sections like sections 43B , 44AB , 44AD , 56(2) , 80C etc when posed it would be embarrassing since the new section numbers are not yet familiar and the changes are also not fully comprehended. Of course, it is too early and we have about 3 months i.e. last quarter of F.Y. 2025-26 to catch up with the changes or refer the parallel mapping of legal provisions to wade through the legal provisions to appreciate whether there is, any upside-down changes made in the law. It is with respect and with lot of circumspection it is stated that the new law carries forward all the legacies of the old law including controversial interpretations and legal decisions.

Instead of pick and choose of each of the legal provisions with microscopic analysis, at least how the erstwhile legal provisions of the Income-tax Act, 1961 will have a bearing while applying the Income-tax Act, 2025 is sought to be analyzed in this write up.

1. Legal provision

Section 536 of the Income-tax Act, 2025 has the title “Repeal and savings”. Section 536 is the last legal provision which is succeeded to by the Schedules forming part of the Act.

Sub-section (1) of section 536 says that the Income-tax Act, 1961 is hereby repealed. Sub-section (2) of the Income-tax Act virtually deals with various scenarios of how the provisions of the repealed Act would impact the taxpayers after the Income-tax Act, 2025 becomes operational.

2. Past orders [Section 536(2)(a) and (b)]

As per clauses (a) and (b) of section 536(2) the provisions of the Income-tax Act, 2025 shall not affect the previous operation of the repealed Income-tax Act and orders or anything duly done or suffered thereunder.
Any right, privilege, obligation or liability, acquired, accrued or incurred under the repealed Income-tax Act or orders under such repealed Act will not be affected by anything contained in the Income-tax Act, 2025.

3. Pending and fresh proceedings under the repealed Act [Section 536(2)(c)]

The provisions of the Income-tax Act, 1961 shall continue to apply to any proceeding pending on the date of commencement of this Act i.e. from 01.04.2026. Also, any proceedings initiated on or after 1st day of April, 2026 including notices, assessment, re-assessment, recomputation, rectification, penalty, reference, revision and appeals in respect of the assessment year up to 2026-27 shall be carried out as per the procedure specified in the repealed Income-tax Act, 1961.

4. Penalty proceedings [Section 536(2)(d)]

Any proceeding for the imposition of penalty up to and including the assessment year 2026-27 may be initiated and any such penalty shall be imposed under the repealed Income-tax Act, 1961 as though the Income-tax Act, 2025 had not been enacted.

5. Pending proceedings before income-tax authority and appellate authorities [Section 536(2)(e)]

Any proceeding pendingas on 1st day of April, 2026 before any income-tax authority or any other authority such as appellate tribunal or any court, by way of application, appeal, reference or revision or by any other means, shall be continued and disposed of as per the provisions of the Income-tax Act, 1961 (as though the Income-tax Act, 2025 had not been enacted).

6. Any election or option exercised [Section 536(2)(f)]

Any election or declaration made, or option exercised, by an assessee under any provision of the Income-tax Act, 1961 and in force immediately before the commencement of the Income-tax Act, 2025 shall be deemed to have been an election or declaration made or option exercised, under the corresponding provision of the Income-tax Act, 2025. (Example: Trust giving option for accumulation or presumptive income determination provisions contained in section 44AD of the repealed Act).

7. Refund and default of tax [[Section 536(2)(g)]

In respect of any proceedings relating to any assessment year up to and including the assessment year 2026-27, where a refund falls due after the commencement of the 2025 Act or default is made after such commencement in the payment of any sum due under such proceeding as per the provisions of the 2025 Act relating to interest payable by the Central Government and interest payable by the assessee for default, shall apply for the period after the commencement of the 2025 Act. (Refund up to the assessment year 2026-27 and any tax due in respect of any proceeding up to the assessment year 2026-27, interest payable thereon from 1st day April, 2026 shall be as per the provisions of the Income-tax Act, 2025).

8. Deduction claimed [Section 536(2)(h)]

Where any deduction has been allowed or any amount has not been included in the total income of any person subject to fulfilment of certain conditions for any assessment year up to the assessment year 2026-27, and in case of violation of such condition after 1st day of April, 2026 any sum which was allowed as deduction or exemption was required to be included in the total income of the assessee in the subsequent year under the Income-tax Act, 1961 shall apply as if it had not been so repealed. Thus, the sum shall be deemed to the income of the tax year in which the violation takes place and 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, 1961. Example: A capital gain exemption under section 54 or section 54F availed in the assessment year 2023-24 is to be taxed in the tax year 2027-28 due to breach of conditions contained in the repealed Act.

9. Tax arrear recovery [Section 536(2)(i)]

Any sum payable under the repealed Income-tax Act, 1961 may be recovered under the Income-tax Act, 2025 without prejudice to any action already taken for the recovery of such sum under the repealed Income-tax Act. Example: Tax arrear and recovery proceedings of the assessment year 2024-25 could be pursued under the Income-tax Act, 2025 without prejudice to any action previously taken under the repealed Act.

10. DTAAs, Circulars and Notifications [Section 536(2)(j)]

Any agreement entered into, appointment made, approval given, recognition granted, circular, direction, instruction, notification, order or rule or any scheme framed therein issued under any provision of (the repealed) the Income-tax Act, 1961 in so far as it is not inconsistent with the provisions of the Income-tax Act, 2025 shall be deemed to have been entered into, made, granted, given or issued under the corresponding provisions of this Act and shall continue in force accordingly. Example: All circulars, DTAAs, approvals (trust), recognition, notifications under the Income-tax Act, 1961 would continue to be relevant under the Income-tax Act, 2025 unless it is inconsistent with the relevant provisions of the Act.

Click Here To Read The Full Article