CBDT 99-Page FAQ on Income-tax Act 2025 Transition: How Section 536 Saving Clause Protects Pre-April 1, 2026 Income, Pending Assessments, Loss Carry-Forward, and TDS Compliance
Quick Summary (Key Takeaways)
- The Central Board of Direct Taxes (CBDT) has released a comprehensive 99-page FAQ titled “FAQs on Interplay and Transition”, the most authoritative practitioner-facing guide yet on moving from the Income-tax Act, 1961 to the Income-tax Act, 2025 (effective April 1, 2026).
- Section 536 of the new Act is the repeal-and-savings clause, structured into 22 sub-clauses that preserve every right, liability, proceeding, and notification born under the 1961 Act.
- The CBDT has confirmed the foundational principle: “no missing year and no overlap”. Income earned up to March 31, 2026 stays under the 1961 Act; income from April 1, 2026 onward falls under the 2025 Act.
- Pending assessments, reassessments, appeals, penalty proceedings, and prosecutions initiated before April 1, 2026 continue under the 1961 Act through to their statutory conclusion.
- The FAQ is organised into 10 focused chapters covering general philosophy, the Previous Year/Assessment Year vs Tax Year shift, forms and compliance, Section 148 reassessment, TDS transition, appeal continuity, loss carry-forward, NRI provisions, and miscellaneous practitioner queries.
- Action by CAs: Re-paper every active engagement letter and tax-position memo by May 31, 2026 to reflect the dual-statute framework, and update all client TDS deduction templates and Form 3CD/Form 26AS reconciliation worksheets to handle April 1, 2026 cut-overs.
Why This FAQ Matters: The First Real Operating Manual for the New Act
The Income-tax Act, 2025 received Presidential assent on August 21, 2025 and came into force on April 1, 2026, replacing the Income-tax Act, 1961 after 65 years. For the first 30+ days of the new regime, practitioners across India have been wrestling with a parallel-statute reality: returns for AY 2025-26 (Previous Year 2024-25) are still being filed and assessed under the 1961 Act, while every TDS challan, advance-tax computation, and fresh notice issued from April 1, 2026 onward sits under the 2025 Act.
The CBDT’s “FAQs on Interplay and Transition” document released by the Income Tax Department on its e-portal is the first comprehensive answer to the operating questions that had been clogging tax-help-desks since April 1. At 99 pages, it is structured exactly the way a Chartered Accountant or in-house tax counsel would expect: it walks through scenario by scenario, citing the relevant sub-clause of Section 536, the matching provision of the 1961 Act, and the corresponding section of the 2025 Act.
This advisory walks through what the FAQ says, the operational implications, and a 10-step compliance checklist that every practising CA should run with their portfolio before May 31, 2026.
Section 536: The Repeal-and-Savings Anchor of the Transition
Section 536 of the Income-tax Act, 2025 is the single most important provision for any practitioner during FY 2026-27. It is structured into 22 sub-clauses, each of which preserves a specific category of legal continuity from the 1961 Act. The principle is simple: nothing that arose under the old Act is extinguished merely because the old Act was repealed.
The four pillars of Section 536
| Pillar | What is preserved | Practitioner impact |
|---|---|---|
| Rights and liabilities | Every right (refund, deduction, exemption, credit) and every liability (tax, interest, penalty) accrued under the 1961 Act before April 1, 2026. | You can still claim refunds, set-offs, and carry-forwards earned under the 1961 Act. Demands from old years remain enforceable. |
| Pending proceedings | Assessments, reassessments, revisions, appeals, penalty proceedings, prosecutions, and search/survey actions in flight on April 1, 2026. | Old proceedings continue under old law to their conclusion. Do not file fresh assessments under the 2025 Act for periods up to March 31, 2026. |
| Subordinate legislation | Notifications, circulars, instructions, orders, and approvals issued under the 1961 Act (to the extent not inconsistent with the 2025 Act). | Section 80G approvals, 12A/12AA registrations, transfer-pricing safe-harbour notifications, and CBDT clarifications continue to bind taxpayers and AOs. |
| Forms and procedures | Forms used for filings under the 1961 Act for the period before April 1, 2026 (subject to the 2026 Rules). | Returns, TDS statements, and audit reports for FY 2025-26 (AY 2026-27 under old terminology) remain in old formats unless re-notified. |
Tax Year vs Previous Year and Assessment Year
The 2025 Act adopts a single concept called the “Tax Year” in place of the dual Previous Year / Assessment Year framework that has dominated Indian tax practice since 1922. The CBDT FAQ devotes an entire chapter to the cross-walk and confirms that:
- The Previous Year 2024-25 (April 1, 2024 to March 31, 2025) corresponds to Tax Year 2024-25 under the 2025 Act, but the income of that year is still assessed under the 1961 Act.
- The Previous Year 2025-26 (April 1, 2025 to March 31, 2026) corresponds to Tax Year 2025-26, also assessed under the 1961 Act because the income arose before April 1, 2026.
- Tax Year 2026-27 (April 1, 2026 to March 31, 2027) is the first full tax year governed end-to-end by the 2025 Act.
For practitioners this means three things: (a) returns to be filed during FY 2026-27 for prior years follow old forms and old law; (b) advance tax instalments due on June 15, 2026, September 15, 2026, December 15, 2026, and March 15, 2027 are computed under the 2025 Act because they relate to Tax Year 2026-27; and (c) any assessment/reassessment notice received during FY 2026-27 must be read with the year referenced in the notice, not the date of issue, to determine which Act governs.
What the FAQ Says About TDS, Refunds, and Set-Offs
TDS deducted before April 1, 2026 but deposited after
The FAQ confirms that the rate of TDS is determined by the date of credit or payment, whichever is earlier. If the deduction event occurred before April 1, 2026, the 1961 Act rate and provisions apply. The deposit mechanics, due date, and Form 26Q/24Q filing follow old rules. Quarter 4 of FY 2025-26 statements (due May 31, 2026) are filed in the 2025-Act-era but report transactions under the old law.
Refunds claimed for old years
Refunds for AY 2025-26 and earlier are processed under Section 237 to 245 of the 1961 Act (preserved through Section 536(7)). Interest under Section 244A continues to accrue at the rate prescribed under the 1961 Act for the period up to March 31, 2026 and at the corresponding 2025 Act rate from April 1, 2026 onward, even on the same refund.
Loss and depreciation carry-forward
The FAQ provides explicit guidance: unabsorbed losses and depreciation determined under the 1961 Act are carried forward and set off against income computed under the 2025 Act for Tax Year 2026-27 and beyond, subject to the time limits and conditions of the 1961 Act. The set-off does not lapse merely because the carrying statute changed.
Reassessment Under Section 148: The Big Open Question
Reassessment proceedings have been the most actively litigated area of income-tax practice between 2021 and 2026. The FAQ acknowledges this and clarifies that:
- A Section 148/148A notice issued before April 1, 2026 is governed by the 1961 Act through to assessment, appeal, and any consequential proceedings.
- A reassessment notice issued on or after April 1, 2026 for an income that escaped assessment in any year up to AY 2026-27 (Previous Year 2025-26) is issued under the relevant successor section of the 2025 Act, but the substantive computation refers back to the 1961 Act because the income arose under that statute.
- The 10-year outer time limit for reassessment under the new Act mirrors the limits in the post-Finance Act 2021 framework of the 1961 Act.
Practitioners should carefully read the issue date and the year referenced when they receive any reopening notice in FY 2026-27.
Appeals, Revisions, and Settlement Continuity
The FAQ confirms three operational rules for ongoing dispute work:
- Appeals filed before April 1, 2026 before CIT(A), ITAT, High Court, or Supreme Court continue under the 1961 Act provisions for hearing, evidence, and decision. The forum does not change merely because the underlying statute was repealed.
- Appeals filed on or after April 1, 2026 against orders passed under the 1961 Act are filed under the corresponding successor section of the 2025 Act, but the grounds and the substantive law applied is the 1961 Act.
- Section 264 revision applications pending or filed against pre-April 1, 2026 orders continue under the 1961 Act framework.
NRI Provisions and Foreign-Source Income
For non-resident clients, the FAQ confirms that the residential status, scope of total income, and the tax treatment of foreign-source income for any Tax Year up to and including 2025-26 follow the 1961 Act. From Tax Year 2026-27, the 2025 Act provisions take over. The savings clause specifically protects DTAA benefits, reliefs already granted, and Section 90/90A interpretations from the period before April 1, 2026.
Practical 10-Step Compliance Checklist for CAs (Before May 31, 2026)
- Map each client’s outstanding pre-April 1, 2026 income-tax demands and refunds and tag them with the governing statute (1961 Act).
- Review every active engagement letter and update the scope clause to reference both the 1961 Act and the 2025 Act with the April 1, 2026 cut-over.
- Update tax-position memos for FY 2025-26 returns to clarify that the underlying income falls under the 1961 Act despite being filed during the 2025 Act regime.
- Refresh TDS deduction templates so deductions on or after April 1, 2026 quote the corresponding section of the 2025 Act (with the 1961 Act successor reference for client comfort).
- Reconcile loss and depreciation carry-forward schedules for Tax Year 2026-27 to confirm continuity under Section 536(11).
- Pull pending reassessment notices and tag each by issue date and year referenced; identify which statute governs.
- Re-check Section 80G, Section 12A/12AA, and Section 35 approvals to confirm continuity under Section 536(13).
- Update advance-tax computation worksheets for the four 2026-27 instalment dates to use 2025 Act provisions.
- For NRI clients, refresh the residential-status and scope-of-income tracker and document the statute reference for each Tax Year.
- Issue an internal advisory note to your tax team summarising the 22 sub-clauses of Section 536 for ready reference.
FAQ: Practitioner Questions on the Transition
Q1: For a return filed in October 2026 for FY 2025-26, which Act applies?
A: The 1961 Act applies because the income arose during the Previous Year 2025-26 (April 1, 2025 to March 31, 2026). The fact that the return is filed during the 2025 Act regime does not move the income to the new statute.
Q2: I received a Section 148 notice on April 5, 2026 for AY 2020-21. Which Act governs?
A: The notice is procedurally issued under the corresponding successor provision of the 2025 Act. The substantive computation, deductions, and assessment refer to the 1961 Act because AY 2020-21 was governed by the old statute. The 10-year outer limit is preserved.
Q3: My client has unabsorbed business losses from AY 2024-25. Can they be set off against Tax Year 2026-27 income?
A: Yes. Section 536(11) preserves loss and depreciation carry-forward. The set-off is subject to the time limit (eight years for business loss) and conditions of the 1961 Act, computed against income determined under the 2025 Act for Tax Year 2026-27.
Q4: Are circulars and notifications issued by CBDT under the 1961 Act still binding?
A: Yes, to the extent they are not inconsistent with the 2025 Act. Section 536(13) preserves all subordinate legislation. Notifications under Section 80G, 12A, 35, and transfer-pricing safe harbours continue to apply.
Q5: TDS deducted on March 28, 2026 but deposited on April 7, 2026. Which Act and which rate?
A: The 1961 Act and the rate prevailing on March 28, 2026 apply because the deduction event was before April 1, 2026. The deposit and Form 26Q reporting follow the 1961 Act framework. Quarter 4 FY 2025-26 statement is the relevant filing (due May 31, 2026).
Q6: My CIT(A) appeal is pending on April 1, 2026. Do I have to refile under the 2025 Act?
A: No. Section 536 preserves pending appeals. The appeal continues under the 1961 Act provisions for hearing, evidence, and decision. No refiling required.
Q7: Do existing 80G donations made in FY 2025-26 still get the deduction in the return filed during FY 2026-27?
A: Yes. The donation deduction is computed for Tax Year 2025-26 (Previous Year 2025-26) under the 1961 Act because the income arose before April 1, 2026.
Q8: Where can I read the official CBDT FAQ?
A: The 99-page document titled “FAQs on Interplay and Transition” is hosted on the Income Tax Department portal under the Income-tax Act 2025 microsite. CAs should download and circulate it internally.
Cross-Reference to Related Tax Update India Coverage
This advisory builds on our earlier coverage of the new statute and its implementing rules:
- Section 92CE Secondary Adjustments under the Income-tax Act 2025 walks through the substantive transfer-pricing compliance carry-over from the old regime.
- CBDT Corrigendum to Income Tax Rules 2026 (Notification 64/2026) explains the rule-level fixes that accompany the 2025 Act framework.
- MCA21 V2 Portal Decommissioning June 30, 2026 is the corporate-law parallel of this transition for Companies Act compliance.
Get Expert Guidance
The Income-tax Act 2025 transition is the single most operationally complex statutory change in Indian tax practice in the last 30 years. A 30-day operating window has surfaced gaps that the CBDT FAQ now closes, but every practitioner needs to map the 22 sub-clauses of Section 536 to their own client portfolio. If your firm needs a structured transition memo, an updated engagement-letter template, or a tax-position note for a specific reassessment notice, schedule a strategy session with the Tax Update India advisory team.
Disclaimer: This article is for general information and educational purposes. It is not professional or legal advice. Specific tax positions depend on facts, the exact text of the 2025 Act, the 2026 Rules, and the CBDT FAQ. Readers should consult a qualified tax professional before taking action. Tax Update India and its contributors disclaim liability for any action taken on the basis of this article.