CBDT FAQ on the Income-tax Act 2025 Transition: What Section 536 Saves From the 1961 Act

The Income-tax Act, 2025 came into force on 1 April 2026 and repealed the Income-tax Act, 1961. To deal with the questions this raises, the CBDT has published “FAQs on Interplay and Transition from the Income Tax Act, 1961 to the Income Tax Act, 2025”, a 99-page compilation prepared by the Directorate of Income Tax (Organisation and Management Services) and updated on 2 April 2026. This post sets out what the FAQ covers and what Section 536 of the Income-tax Act, 2025, the repeal and savings provision, keeps alive from the 1961 Act: income up to 31 March 2026, pending and future proceedings for earlier years, tax payments and refunds, TDS, and brought-forward losses and credits.

Key Takeaways

• Income earned from 1 April 2025 to 31 March 2026 is governed by the 1961 Act and assessed as assessment year (AY) 2026-27. Income from 1 April 2026 is governed by the Income-tax Act, 2025 as tax year 2026-27 (CBDT FAQ Q1.12).
• Section 536 of the Income-tax Act, 2025 has four sub-sections. Only sub-section (2) is divided into clauses: 22 of them, (a) to (v), each saving a specific item.
• Under Section 536(2)(c) of the Income-tax Act, 2025, proceedings pending on 1 April 2026, and proceedings started later for any tax year beginning before that date, follow the 1961 Act and its procedure. This includes assessment, reassessment, rectification, penalty, revision and appeals.
• For TDS, the Act is fixed by the earlier of credit or payment: on or before 31 March 2026 the 1961 Act applies, on or after 1 April 2026 the Income-tax Act, 2025 applies (CBDT FAQ Q6.1).
• Brought-forward losses under the 1961 Act carry into the Income-tax Act, 2025 under Section 536(2)(m) and (n) of that Act, in the manner provided in the 1961 Act. Unabsorbed depreciation and MAT/AMT credit carry over under Section 536(2)(r) and (l).

What the CBDT FAQ Covers

The FAQ is arranged in ten topics: general philosophy of transition; tax payments, collection and refunds; furnishing of returns; other forms and compliance statements; reassessment; TDS compliance; appeals, revision and alternate dispute resolution; set-off and carry forward of losses and deductions; issues concerning non-resident Indians; and miscellaneous. Questions are numbered by topic, for example Q5.12 is the twelfth question in the reassessment topic.

The FAQ’s own disclaimer says it “is for general guidance only and does not constitute a binding interpretation of law”, and that “in case of any conflict, the statutory provisions shall prevail”. The statute is therefore the authority to cite. The FAQ is useful because it applies Section 536 to specific situations.

How Section 536 Is Built

• Section 536(1): repeals the Income-tax Act, 1961.
• Section 536(2): despite the repeal, lists 22 savings in clauses (a) to (v), set out in the table below.
• Section 536(3): a reference in the Income-tax Act, 2025 to the tax year commencing on 1 April 2025, or any earlier tax year, is read as a reference to the corresponding previous year under the 1961 Act. The FAQ example (Q1.11): “tax year 2024-25” means previous year 2024-25, which is AY 2025-26.
• Section 536(4): without prejudice to sub-section (2), Section 6 of the General Clauses Act, 1897 applies to the effect of the repeal. FAQ Q1.16 describes this as the cover for situations the clauses of sub-section (2) do not directly address.

The 22 clauses of Section 536(2)

Clause	What it saves
536(2)(a)	The previous operation of the 1961 Act, and orders or anything duly done or suffered under it.
536(2)(b)	Any right, privilege, obligation or liability acquired, accrued or incurred under the 1961 Act or orders under it.
536(2)(c)	Application of the 1961 Act, and its procedure, to proceedings pending on 1 April 2026 and to proceedings initiated on or after that date (including notices, assessment, reassessment, recomputation, rectification, penalty, reference, revision and appeals) for any tax year beginning before 1 April 2026.
536(2)(d)	Penalty proceedings for any tax year beginning before 1 April 2026, which may be initiated, and the penalty imposed, under the 1961 Act as if the 2025 Act had not been enacted.
536(2)(e)	Proceedings pending on commencement before any income-tax authority or other authority constituted under the 1961 Act, the Appellate Tribunal or any court, by way of application, appeal, reference or revision or by any other means, which continue and are disposed of as if the 2025 Act had not been enacted.
536(2)(f)	Elections, declarations and options made under the 1961 Act and in force immediately before commencement, which are deemed made under the corresponding provision of the 2025 Act.
536(2)(g)	Interest on refunds falling due, and on defaults occurring, on or after 1 April 2026 in proceedings for earlier tax years: the 1961 Act interest provisions apply, with the 2025 Act rate substituted from the date a rate is modified under the 2025 Act.
536(2)(h)	Amounts deducted, or kept out of total income, for a tax year before 1 April 2026 that the 1961 Act would have taxed in a later year (for example on breach of a condition). They are deemed income of that later tax year, under the same head.
536(2)(i)	Recovery under the 2025 Act of sums payable under the 1961 Act, without prejudice to recovery action already taken.
536(2)(j)	Agreements, appointments, approvals, recognitions, circulars, directions, instructions, notifications, orders, rules and schemes under the 1961 Act, so far as not inconsistent with the corresponding provisions of the 2025 Act.
536(2)(k)	The bar on reviving an application, appeal, reference or revision whose time limit had expired on or before commencement, merely because the 2025 Act allows a longer period.
536(2)(l)	MAT and AMT credit under Sections 115JAA and 115JD, treated as eligible credit under the corresponding provisions or Section 206(3) or (4) of the 2025 Act.
536(2)(m)	Brought-forward losses under Sections 71B (house property), 72 (business), 73 (speculation), 73A (specified business) and 74A (race horses), set off and carried forward in the manner of those sections.
536(2)(n)	Brought-forward capital losses under Section 74, set off against capital gains under the 2025 Act up to eight financial years after the financial year in which the loss was first computed.
536(2)(o)	Section 72A set-off in amalgamation and succession cases: if a condition is not complied with later, the amount is deemed income of that year under the 2025 Act.
536(2)(p)	The same rule for set-off allowed to a successor co-operative bank under Section 72AB.
536(2)(q)	Gains not charged by virtue of Section 47(iv), (v), (xiii), (xiiib) or (xiv), which are deemed capital gains under the 2025 Act if the conditions in Section 47A(1)(i) or (ii) are satisfied, or if the conditions in Section 47(xiii), (xiiib) or (xiv) are not complied with.
536(2)(r)	Unabsorbed allowance under Section 32(2) or 35(4), added to the capital allowance under the 2025 Act for the tax year beginning 1 April 2026.
536(2)(s)	Continuing deductions under Sections 35ABA, 35ABB, 35D, 35DD, 35DDA, 35E and the first proviso to Section 36(1)(ix), added to the deferred revenue expenditure allowance.
536(2)(t)	The credit balance in the provision for bad and doubtful debts under Section 36(1)(viia) on the last day of the tax year beginning 1 April 2025, which is added to the amount credited to that provision under the corresponding provisions of the 2025 Act for the tax year beginning 1 April 2026.
536(2)(u)	Schemes notified to eliminate interface with the assessee or any other person, such as the faceless schemes, deemed made under the corresponding provisions of the 2025 Act, or under Section 532 of that Act where there is no corresponding provision.
536(2)(v)	Proceedings connected with a search under Section 132 or a requisition under Section 132A initiated before commencement, which remain under the 1961 Act.

The Dividing Line: 1 April 2026

The FAQ states that there is “no missing year or overlap” (Q1.12):

Period of income	Governing Act	Reference
1 April 2025 to 31 March 2026	Income-tax Act, 1961	AY 2026-27
1 April 2026 to 31 March 2027	Income-tax Act, 2025	Tax year 2026-27

The return for income of FY 2025-26 is therefore filed for AY 2026-27 under the 1961 Act, even though it is filed after 1 April 2026 (FAQ Q3.5), and on the forms prescribed under the 1961 Act (FAQ Q1.22). Under Explanation 2 to Section 139(1), as substituted by the Finance Act, 2026, the due date is 31 July, 31 August, 31 October or 30 November of the assessment year, depending on the category of assessee. Revised, belated and updated returns for AY 2026-27 remain under Sections 139(5), 139(4) and 139(8A) (FAQ Q3.7 to Q3.9). The tax audit report for FY 2025-26 is furnished in Form 3CA or 3CB with Form 3CD (FAQ Q3.25).

The FAQ confirms that a taxpayer does not file two returns in FY 2026-27. The return for tax year 2026-27 falls due only after that tax year ends, in 2027 (FAQ Q3.4).

Pending and Future Proceedings for Earlier Years

Section 536(2)(c) of the Income-tax Act, 2025 is the main clause. It covers two groups: proceedings already pending on 1 April 2026, and proceedings initiated on or after that date “in respect of any tax year beginning before the 1st April, 2026”. Both are “carried out as per the procedure specified in the repealed Income-tax Act”. In practice:

• Scrutiny and rectification: a scrutiny notice under Section 143(2) for AY 2026-27 or an earlier year is completed under the 1961 Act (FAQ Q3.19). Rectification of such orders is under Section 154 of the 1961 Act (FAQ Q10.8).
• Reassessment: AY 2026-27 and earlier years are reopened only under Sections 147 to 151 of the 1961 Act, including notices issued after 1 April 2026 (FAQ Q5.6 and Q5.11). The time limits are those in Section 149: a show-cause notice under Section 148A within 3 years from the end of the AY (5 years where escaped income is Rs 50 lakh or more), and a Section 148 notice within 3 years and 3 months (5 years and 3 months) (FAQ Q5.7). Sections 279 to 286 of the Income-tax Act, 2025 apply from tax year 2026-27.
• Penalty: under Section 536(2)(d) of the Income-tax Act, 2025, penalty for any tax year beginning before 1 April 2026 may be initiated and imposed under the 1961 Act (FAQ Q5.16).
• Pending appeals: under Section 536(2)(e) of the Income-tax Act, 2025, an appeal pending before the Commissioner (Appeals), the Tribunal or a court continues under the 1961 Act, and no new appeal is needed (FAQ Q7.4 and Q7.11).
• New appeals: an appeal filed after 1 April 2026 for AY 2026-27 or an earlier year is governed by the 1961 Act (FAQ Q7.5). A time limit that had already expired is not revived by the 2025 Act, under Section 536(2)(k) (FAQ Q7.6).
• Revision: an application under Section 264 pending on 1 April 2026 is disposed of under the 1961 Act (FAQ Q7.25). A fresh revision under Section 263 for an earlier year can be started after 1 April 2026 only within the Section 263(2) limit (FAQ Q7.22).
• Search: where a search under Section 132 or a requisition under Section 132A was initiated before 1 April 2026, all connected proceedings remain under the 1961 Act, including the block-period return under Section 158BC, under Section 536(2)(v) of the Income-tax Act, 2025 (FAQ Q3.15 and Q10.11).

The Assessing Officer can run a 1961 Act proceeding for an earlier year and a 2025 Act assessment for tax year 2026-27 for the same assessee at the same time (FAQ Q5.15).

Tax Payments, Demands and Refunds

• Advance tax: the 15 March 2026 instalment for AY 2026-27 is governed by the 1961 Act (FAQ Q2.16), and interest for any shortfall is under Sections 234B and 234C of the 1961 Act even if levied in FY 2026-27 (FAQ Q2.17). Advance tax for tax year 2026-27, starting with the 15 June 2026 instalment, is paid under the Income-tax Act, 2025 (FAQ Q2.19).
• Self-assessment tax: tax for AY 2026-27 paid after 1 April 2026 is paid under Section 140A of the 1961 Act (FAQ Q2.22). On the challan, select AY 2026-27 for FY 2025-26 income and tax year 2026-27 for FY 2026-27 income, so that credit goes to the right year (FAQ Q2.23).
• Old demands: tax payable under the 1961 Act remains payable and can be recovered using the machinery of the Income-tax Act, 2025, under Section 536(2)(i). Attachments and recovery actions already taken remain effective (FAQ Q2.27 to Q2.29).
• Refunds: a refund entitlement for a year before 1 April 2026 survives the repeal as a right saved by Section 536(2)(b) of the Income-tax Act, 2025 (FAQ Q1.17 and Q2.30). A deductor’s claim for refund of excess TDS for FY 2024-25 is filed in Form 26B under the Income-tax Rules, 1962, within two years from the end of the financial year in which the tax was deductible, and is processed under the 1961 Act (FAQ Q2.31).
• Interest on refunds and defaults: under Section 536(2)(g) of the Income-tax Act, 2025, as substituted by the Finance Act, 2026, where a refund falls due or a default occurs on or after 1 April 2026 in a proceeding for an earlier tax year, the interest provisions of the 1961 Act apply for the period from that date. If a rate is modified under the 2025 Act, the new rate replaces the 1961 Act rate from the date of that modification.

TDS Across the Cut-Over

For non-salary payments, the Act that applies depends on the earlier of credit or payment (FAQ Q2.6 and Q6.1). If that event occurs on or before 31 March 2026, the 1961 Act applies. If it occurs on or after 1 April 2026, the Income-tax Act, 2025 applies. TDS on salary is deducted at the time of payment, so March 2026 salary paid on 31 March 2026 falls under the 1961 Act and April 2026 salary paid on 30 April 2026 falls under the 2025 Act (FAQ Q6.22).

Item	Position	Source
Deposit of tax deducted in March 2026	By 30 April 2026 for non-government deductors; by 7 April 2026 for government deductors paying by challan	FAQ Q2.8
Challan for tax on a sum paid or credited on or before 31 March 2026	1961 Act challan and payment codes, even if deposited after 1 April 2026	FAQ Q2.9
Payment after 1 April 2026 of a sum credited, with TDS, before that date	No second deduction	FAQ Q2.10
Quarterly statement for January to March 2026	Forms 24Q, 26Q, 27Q or 27EQ under the 1961 Act, due 31 May 2026	FAQ Q6.10
Quarterly statement for April to June 2026	Forms 138 (salary), 140 (non-salary), 144 (non-resident) and 143 (TCS) under the Income-tax Rules, 2026, due 31 July 2026	FAQ Q6.10
Certificates for FY 2025-26	Form 16 and Form 16A (January to March 2026) by 15 June 2026	FAQ Q6.15
Section number on payments from 1 April 2026	The relevant table item of Section 393 (Section 394 for TCS) of the Income-tax Act, 2025, not Section 194C, 194J or 194H	FAQ Q2.5
Correction statements for FY 2025-26 or earlier	Filed under the 1961 Act framework	FAQ Q6.10 and Q6.14

Illustration. A company credits a contractor’s bill to the contractor’s account on 25 March 2026 and pays it on 10 April 2026. The earlier event, the credit, falls before 1 April 2026, so TDS is under Section 194C of the 1961 Act and is due at the time of credit. The tax is deposited by 30 April 2026 using the 1961 Act challan and reported in the January to March 2026 Form 26Q by 31 May 2026. If the same bill had first been credited or paid on 5 April 2026, the company would quote Section 393(1) [Table: Sl. No. 6(i)] of the Income-tax Act, 2025 in its statement for April to June 2026 (FAQ Q2.5 and Q6.2).

A lower or nil deduction certificate issued under Section 197 of the 1961 Act remains valid for payments or credits on or after 1 April 2026 if it was issued for receipts projected for tax year 2026-27 (FAQ Q2.12).

Losses, Depreciation and Tax Credits

Section 536(2)(m) of the Income-tax Act, 2025 carries forward losses brought forward under Sections 71B, 72, 73, 73A and 74A of the 1961 Act. They are set off against income computed under the 2025 Act “in the manner provided in the respective section of the repealed Income-tax Act”. Section 536(2)(n) does the same for capital losses under Section 74. The FAQ confirms that losses keep their original character (Q8.7) and that the carry-forward period does not restart (Q3.23 and Q8.2).

The repeal does not cure defects. If a loss return for an earlier year was filed late and did not meet Section 139(3) read with Section 80, that loss cannot be carried into the 2025 Act (FAQ Q8.8).

Illustration. A business loss of Rs 20 lakh is first computed for AY 2024-25 in a return filed within the Section 139(1) due date. No business income arises in AY 2025-26 or AY 2026-27. In tax year 2026-27 the business earns Rs 12 lakh. Rs 12 lakh of the loss is set off, and Rs 8 lakh (Rs 20 lakh minus Rs 12 lakh) is carried forward. Under Section 72(3), a loss cannot be carried forward for more than eight assessment years immediately succeeding the year in which it was first computed. For AY 2024-25 the eighth such year is AY 2032-33, which corresponds to tax year 2031-32. That is the last year in which the remaining Rs 8 lakh can be set off.

• Unabsorbed depreciation: unabsorbed allowance under Section 32(2) or 35(4) is added to the capital allowance for tax year 2026-27 under Section 536(2)(r) of the Income-tax Act, 2025. The FAQ confirms that its character, and the absence of a time limit, remain intact (Q8.32).
• MAT and AMT credit: credit under Sections 115JAA and 115JD is treated as eligible credit under the Income-tax Act, 2025, under Section 536(2)(l), and is allowed for the period it would have been allowed under the 1961 Act, if the conditions continue to be met. The FAQ puts the total period at 15 years from the year the credit first became available (Q2.25 and Q2.26).
• Amortised deductions: balances under Sections 35ABA, 35ABB, 35D, 35DD, 35DDA and 35E continue for the remaining years under Section 536(2)(s) of the Income-tax Act, 2025 (FAQ Q8.30).

Options, Approvals and Circulars

• Options: under Section 536(2)(f) of the Income-tax Act, 2025, an option exercised under the 1961 Act and in force immediately before 1 April 2026 is treated as exercised under the corresponding provision of the 2025 Act. It survives only where such a corresponding provision exists (FAQ Q8.17). A taxpayer who opted into the new tax regime under the 1961 Act does not need to opt again (FAQ Q10.2).
• Approvals and registrations: approvals and recognitions granted under the 1961 Act, such as a charitable trust’s registration or provisional approval, continue under Section 536(2)(j), so far as they are not inconsistent with the 2025 Act (FAQ Q1.19 and Q4.35). A registration application pending on 31 March 2026 is disposed of under the 1961 Act (FAQ Q4.37).
• Circulars and notifications: these also continue under Section 536(2)(j) where not inconsistent. The FAQ’s example is a circular on the meaning of “work” under Section 194C, which continues to apply to Section 393 of the Income-tax Act, 2025 (Q1.20). An advance pricing agreement signed under the 1961 Act continues on the same basis (Q10.12).
• Faceless schemes: schemes notified to eliminate interface continue under Section 536(2)(u) of the Income-tax Act, 2025 (FAQ Q1.21).

Conditions Breached After 1 April 2026

Some benefits taken under the 1961 Act depend on conditions that run past 1 April 2026. Section 536(2)(h) of the Income-tax Act, 2025 provides that where the 1961 Act would have brought a deducted or excluded amount to tax in a later year, that amount is deemed income of that later tax year, under the same head. The FAQ’s example (Q8.27): a house bought in March 2025 to claim exemption under Section 54 is sold in May 2027, within three years. The exempted gain is taxed in tax year 2027-28, and the trigger and the amount are worked out under Section 54. Section 536(2)(o), (p) and (q) of the Income-tax Act, 2025 apply the same approach to breaches of the conditions in Sections 72A, 72AB and 47 (FAQ Q8.6 and Q8.29).

Common Errors in Transition Work

• Citing Section 536 by a clause that does not exist. The provision has sub-sections (1) to (4), and only sub-section (2) has lettered clauses, (a) to (v).
• Citing sections of the Income-tax Act, 2025 in a reply, return or appeal for AY 2026-27 or an earlier year. Those years stay under the 1961 Act under Section 536(2)(c).
• Quoting Section 194C, 194J or 194H for a payment or credit on or after 1 April 2026, which the FAQ warns can cause processing errors and require a correction statement (Q6.4).
• Selecting the wrong year on a challan: AY 2026-27 for FY 2025-26 tax, tax year 2026-27 for FY 2026-27 tax (FAQ Q2.23).

FAQ

Do PAN and TAN change under the Income-tax Act, 2025?

No. Existing PAN and TAN numbers remain valid. The new Forms 93, 94, 95, 96, 134 and 135 apply only to fresh applications filed on or after 1 April 2026 (FAQ Q1.14 and Q4.5).

Does a business need to change its accounting year because of the “tax year” concept?

No. A tax year is aligned with the financial year, so no change in accounting year or financial statements is required (FAQ Q1.13).

Can a tax year be shorter than twelve months?

Yes. For a business set up, or a source of income that comes into existence, during a financial year, the tax year runs from that date to the end of the financial year. The FAQ’s example is a business set up on 1 December 2026, whose first tax year runs to 31 March 2027 (Q1.10).

Related Posts

• Reopening pre-April 2026 years under Sections 147 to 151 and Section 536(2)(c)
• Depreciation and unabsorbed allowances across the 2026 transition
• ITR forms for AY 2026-27: why FY 2025-26 returns are filed under the 1961 Act

Need a Review of Your Transition Position?

If you have returns, TDS statements, notices or appeals for AY 2026-27 or earlier years running alongside tax year 2026-27 compliance, and want the governing Act and the correct Section 536 clause reviewed, talk to an expert from the Tax Update India team.

Sources: Income-tax Act, 2025, Sections 1 and 536 (as amended by the Finance Act, 2026); Income-tax Act, 1961, Sections 72, 80, 139 and 149 (as amended by the Finance Act, 2026); CBDT, FAQs on Interplay and Transition from the Income Tax Act, 1961 to the Income Tax Act, 2025 (updated 2 April 2026), Topics 1 to 10.

Disclaimer: This article is for general information only and does not constitute legal or tax advice. Tax positions depend on the facts of each case. Section numbers refer to the Income-tax Act, 1961 unless otherwise stated. Consult a qualified professional before acting on any information here.