[Opinion] Continuity of the Income-tax Act, 1961

If the new Income Tax Act, 2025 has covered the entire repealed law in simpler language and is more concise, then what is the need for any continuity or co-existence of the old law? The most important reason for that is that tax laws do not operate strictly within annual boundaries, for instance, assessments, appeals, penalties, refund of previous tax years are often considered in the current tax year. Therefore, there is a need for the savings clause that ensures that the legal continuity of the law is adhered to.

Section 536(1) formally repeals the Income Tax Act, 1961 with effect from 1^st April, 2026 and the new tax law of 2025 takes over. It is pertinent to note that this repeal does not have any retrospective effect thereby not altering anything that was done as per the old law.

Section 536(2) is the primary sub-section comprising of 22 clauses ensuring that all rights, privileges, obligations and liabilities of the old Act shall continue even though the Act has been repealed with effect from 1^st April, 2026.

The first two clauses i.e. (a) and (b), of Section 536(2) focus on emphasizing the fact the new Income Tax Act will have a prospective effect by stating that all previous operations of the old Income Tax Act will continue to remain valid and all rights, privileges, obligations and liabilities will also continue to exist even though the old tax law has been repealed. For instance, if an Assessing Officer had passed an order in January, 2026 for AY 2024-25, the same will continue to be valid even though the old law has been repealed. Similarly, any refund that is still pending to be processed can still be claimed by the assessee.

Clauses (c) of Section 536(2) is the most important clause which states that proceeding i.e. assessments, reassessments, rectifications, penalties, appeals that were pending on 1^st April, 2026 or any proceeding that is initiated after 1^st April, 2026 but pertains to the previous tax years will be covered by the provisions of the repealed tax law. Further, Clause (d) states that the any proceeding for the imposition of a penalty in respect of any tax year beginning before the 1st April, 2026, may be initiated and any such penalty may be imposed under the repealed Income-tax Act, as if this Act had not been enacted. For instance, an Assessing Officer has issued a notice in April, 2026 for AY 2024-25 then the proceedings will be governed under the old repealed law. Moreover, as per Clause (e), matters pending before the Courts and Tribunals shall also continue, i.e. appeals pending as on 1st April, 2026, before CIT(A), ITAT, High Courts and Supreme Court shall continue under the old law.

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