Repeal and Savings Under the Income Tax Act 2025: Which Old-Law Proceedings Continue (Section 536)

Section 536 of the Income-tax Act, 2025 repeals the Income-tax Act, 1961, and then saves a long list of things from the repeal. Proceedings that were pending on 1 April 2026, and proceedings started on or after that date for any tax year that began before 1 April 2026, continue under the 1961 Act and its procedure. Brought-forward losses, tax credits, elections and deductions are carried across into the new Act on the terms the section sets out.

This guide goes through section 536 clause by clause: what stays under the old law, what moves to the new Act, and what that means for a notice, a penalty, a refund or a loss carried forward. Every point below comes from the text of section 536 as amended by the Finance Act, 2026. Last reviewed against that text on 10 November 2026.

What does section 536 of the Income Tax Act 2025 do?

Section 536(1) repeals the 1961 Act (called the "repealed Income-tax Act" in the section). Section 536(2) then says that, despite the repeal, nothing affects the earlier working of the old Act, or any right, privilege, obligation or liability that was acquired, accrued or incurred under it (clauses (a) and (b)).

Section 536(3) adds a drafting rule. Where the new Act refers to the tax year beginning 1 April 2025 or any earlier tax year, that is read as the corresponding "previous year" under the old Act. Section 536(4) makes section 6 of the General Clauses Act, 1897 apply to the effect of repeal, without cutting down anything in sub-section (2).

Which cases are decided under the old law and which under the new?

The test in section 536(2)(c) is about the tax year the proceeding relates to, not the date the notice is issued. If the tax year began before 1 April 2026, the 1961 Act continues to apply, even if the notice or order is dated after 1 April 2026. The procedure is the old Act's procedure as well.

The saved matters sit in section 536(2) under these clauses:

Clause	What it saves
(a), (b)	Earlier operation of the old Act, and rights, obligations and liabilities that arose under it
(c)	Old Act continues for proceedings pending on commencement, and for proceedings started on or after 1 April 2026 for a tax year beginning before that date (notices, assessment, reassessment, recomputation, rectification, penalty, reference, revision, appeals), using the old procedure
(d)	Penalty proceedings for a tax year beginning before 1 April 2026 may be started and penalty imposed under the old Act
(e)	Pending applications, appeals, references and revisions before any income-tax authority, the Appellate Tribunal or a court are continued and disposed of as if the new Act had not been enacted
(f)	Elections, declarations and options in force are deemed made under the corresponding provision of the new Act
(g)	Interest on refunds and on defaults for old-year proceedings, with rates replaced by the new Act's rates
(h)	Deductions or exclusions of earlier years that must later be brought back to tax
(i)	Sums payable under the old Act can be recovered under the new Act, without prejudice to recovery already begun
(j)	Agreements, approvals, circulars, notifications, rules and schemes continue if not inconsistent with the new Act
(k)	Expired time limits for applications, appeals, references or revisions are not revived
(l)	Carry forward of tax credit under sections 115JAA and 115JD of the old Act
(m), (n)	Carry forward and set-off of brought-forward losses
(o), (p), (q)	Reversal of amalgamation, successor co-operative bank and certain capital-asset transfer exemptions when conditions are broken
(r), (s), (t)	Unabsorbed allowances, deferred revenue expenditure deductions, and the bad and doubtful debts provision balance
(u), (v)	Faceless schemes carry on; search and requisition cases begun before commencement stay under the old Act

Can a notice be issued after 1 April 2026 for an old year?

Yes, under clause (c) the old Act continues to apply to proceedings initiated on or after 1 April 2026 for a tax year that began before that date. The clause lists notices, assessment, reassessment, recomputation, rectification, penalty, reference, revision and appeals. Whether a particular notice is still within time, and on what grounds, is decided by the 1961 Act, since that is the law the section keeps alive. This article does not restate those old-Act limits.

Under clause (v), a search under section 132 or a requisition under section 132A made before commencement keeps all connected proceedings under the old Act.

What happens to a penalty for an old year?

Clause (d) lets penalty proceedings for a tax year beginning before 1 April 2026 be started, and the penalty imposed, under the old Act "as if this Act had not been enacted". So a return filed late for the year ending 31 March 2026 is dealt with under the old law, not under the penalty provisions of the 2025 Act.

Can an old tax demand be recovered, and do old approvals still work?

Clause (i) says any sum payable under the 1961 Act may be recovered under the 2025 Act, without prejudice to recovery action already taken under the old Act. So an old demand does not lapse with the repeal, and recovery steps already taken stay valid.

Clause (j) keeps old agreements, appointments, approvals, recognitions, circulars, notifications and rules in force, deemed made under the corresponding provision of the new Act, but only so far as they are not inconsistent with it. If a circular or approval conflicts with the new Act, the new Act prevails.

Section 536 does not list filing a return or a statement for a tax year ending 31 March 2026 as a separate item. What it does say is that obligations and liabilities that arose under the old Act are saved (clause (b)), and that references in the new Act to 2025-26 or earlier years mean the corresponding previous year (sub-section (3)). For a specific due date, read the old-Act provision that created the obligation.

Which interest rules apply to refunds and defaults?

Under clause (g), where a proceeding relates to a tax year beginning before 1 April 2026 and a refund falls due on or after that date, or a default in paying a sum due occurs on or after that date, the old Act's provisions on interest apply for the period from that date. One change is built in: the old Act's rate is replaced by the rate in the corresponding provision of the new Act, from the date that rate is modified under the new Act.

The Finance Act, 2026 rewrote this clause. The earlier text applied the new Act's interest provisions after commencement. The amended text keeps the old Act's interest provisions with the new rates substituted. The section does not state the rates, so check the corresponding provision of the 2025 Act for the actual percentage.

Do my old losses carry forward?

Yes. Clauses (m) and (n) protect brought-forward losses from tax years beginning before 1 April 2026. They are set off against income computed under the new Act for tax years beginning on or after 1 April 2026, in the manner of the old section named in the table below.

Sl. No.	Loss under the old Act	Old section that governs set-off and carry forward
1	Income from house property	71B
2	Profits and gains of business or profession	72
3	Speculation business	73
4	Specified business	73A
5	Owning and maintaining race horses	74A
6	Capital gains (long-term or short-term), old section 74	Set off against capital gains under the new Act, up to eight financial years after the year the loss was first computed

For the other losses in the table the section sends you to the old section for how long and against what the loss can be carried. It does not repeat those rules, so read the named old section in the 1961 Act. Our guide to set-off and carry forward of losses under the 2025 Act covers the new Act's own rules for losses arising from 2026-27.

Worked example 1: a brought-forward capital loss

Assumptions: Ravi, an individual, computed a short-term capital loss of Rs 4,00,000 in FY 2022-23 under the old Act and had no set-off against other capital gains in the years since. In tax year 2026-27 (new Act) he has a capital gain of Rs 1,50,000 and, in 2027-28, a further gain of Rs 3,00,000. Both gains are assumed to be of a kind against which the old section 74 allows set-off.

Step	Working	Amount (Rs)
1. Loss brought forward into 2026-27	Computed in FY 2022-23	4,00,000
2. Capital gain of tax year 2026-27	Computed under the new Act	1,50,000
3. Set off in 2026-27	Lower of loss and gain	1,50,000
4. Balance loss carried to 2027-28	4,00,000 - 1,50,000	2,50,000
5. Capital gain of 2027-28	New Act	3,00,000
6. Set off in 2027-28	Lower of 2,50,000 and 3,00,000	2,50,000
7. Taxable gain in 2027-28 after set-off	3,00,000 - 2,50,000	50,000

The loss window runs up to eight financial years after FY 2022-23, which is up to FY 2030-31, so both set-offs fall inside it. The tax rate on the remaining gain is not covered by section 536 and is left out here.

Worked example 2: a deduction that has to be brought back

Clause (h), as substituted by the Finance Act, 2026, covers a sum that was allowed as a deduction, or left out of total income, for a tax year beginning before 1 April 2026, subject to conditions. If the old Act would have required that sum to be added to the income of a later year because a condition was broken, then it is deemed to be the income of that later year. It is included under the same head of income as the old Act would have used.

Assumptions: Meena claimed a deduction of Rs 5,00,000 in FY 2024-25 (old Act) subject to a condition. She breaks the condition in tax year 2027-28, a year in which the old Act, had it stayed, would have taxed the sum.

Step	Working	Amount (Rs)
1. Deduction allowed in FY 2024-25	Old Act	5,00,000
2. Condition broken in 2027-28	Old Act would have required inclusion	5,00,000
3. Deemed income of tax year 2027-28	Clause (h)(i)	5,00,000
4. Head of income	Same head as the old Act would have used (clause (h)(ii))	Same head

The earlier wording of clause (h) made the sum income of the year in which the violation takes place. The amended wording says "such subsequent tax year", which reaches a year in which the old Act would have brought the sum back, including years from 2026-27 onward. If you hold such a deduction, check the conditions under the old provision that allowed it.

Real-life examples

A reopening notice for an old year. Kiran received a notice in June 2026 about income of the year ending 31 March 2025. That year began before 1 April 2026, and the notice was initiated after commencement. Under clause (c) the 1961 Act and its procedure apply, so Kiran replies under the old Act, not under the 2025 Act.

An appeal already before the Tribunal. Anita's appeal was pending before the Appellate Tribunal on 31 March 2026. Under clause (e) it continues and is disposed of as if the 2025 Act had not been enacted.

A missed appeal window. Sunil's period for filing an appeal under the old Act ended before commencement. Clause (k) says the longer periods in the new Act do not by themselves reopen it. The window stays closed.

An option made under the old Act. A company had exercised an option under a provision of the old Act that was in force immediately before commencement. Under clause (f) the option is deemed made under the corresponding provision of the new Act, so the company does not need to opt again to keep it.

What about tax credit, depreciation and other carry-forwards?

• Tax credit (clause (l)). Credit under old sections 115JAA or 115JD that could have been carried forward is treated as eligible credit under section 206(3) or (4) of the new Act, as the case may be. Credit continues for the period it would have run under the old Act, if the assessee still meets the conditions of the corresponding provisions.
• Unabsorbed allowances (clause (r)). An allowance under old section 32(2) or 35(4) that would have been carried forward to the tax year starting 1 April 2026 is added to the capital allowances of the new Act for that year.
• Deferred revenue expenditure (clause (s)). Deductions under old sections 35ABA, 35ABB, 35D, 35DD, 35DDA, 35E or the first proviso to section 36(1)(ix) continue on fulfilment of their conditions, added to the new Act's deferred revenue expenditure allowance.
• Bad and doubtful debts (clause (t)). The credit balance in the provision under old section 36(1)(viia) on the last day of the tax year beginning 1 April 2025 is added to the corresponding provision amount for the tax year beginning 1 April 2026.
• Amalgamation and successor cases (clauses (o), (p), (q)). A set-off allowed earlier under old section 72A or 72AB becomes income under the new Act in the year the conditions of that section are not complied with (clauses (o), (p)). Profits not charged as capital gains under old section 47(iv), (v), (xiii), (xiiib) or (xiv) become capital gains under the new Act for the year of transfer if the conditions in old section 47A(1)(i) or (ii) are met, or for the year in which the conditions of 47(xiii), (xiiib) or (xiv) are not complied with (clause (q)).

Quick reference

Question	Answer under section 536
Cut-off date	1 April 2026 (commencement)
Which proceedings stay under the old Act	Pending ones, and new ones for a tax year beginning before 1 April 2026 (clause (c))
Penalty for an old year	Old Act (clause (d))
Capital loss carry forward	Up to eight financial years after the year first computed (clause (n))
Past search or requisition	Old Act continues (clause (v))
Tax year 2025-26 references in the new Act	Read as the corresponding previous year of the old Act (sub-section (3))

Common mistakes

• Going by the date of the notice. The test is the tax year the proceeding relates to, not the date it was issued.
• Using new-Act time limits for old-year cases. Clause (c) keeps the old Act's procedure, and clause (k) stops a longer new period from reviving an expired one.
• Dropping brought-forward losses from the 2026-27 working. Clauses (m) and (n) let them set off against income computed under the new Act.
• Assuming the new Act's interest rate applies without checking the date. Clause (g) applies from the date a refund falls due or a default occurs, on or after 1 April 2026, using the new Act's substituted rate.
• Forgetting that old conditions can bite later. Clause (h) can turn a past deduction into income of a later year.

Where this is in the Act

• Section 536(1): repeal of the Income-tax Act, 1961
• Section 536(2)(a) to (v): savings, including (c) proceedings, (d) penalty, (g) interest, (h) deductions brought back, (l) credit, (m) and (n) losses
• Section 536(3): references to tax year 2025-26 and earlier
• Section 536(4): section 6 of the General Clauses Act, 1897
• Section 206(3) and (4): credit for tax paid under old sections 115JAA and 115JD
• Section 532: faceless schemes that have no corresponding provision

For a CA firm, the hard part is tracking which clients still have open old-year matters, brought-forward losses and credits, and which deadlines come from which Act. Finexo's practice management software keeps those matters and dates against each client in one place. It does not assess the legal position or file anything for you.

This article is information, not tax or legal advice. For a live notice, read the old-Act provision it relies on and take professional advice.