Navigating Income-tax Act, 2025 and Income-tax Act, 1961 Together: A Practical Roadmap for Professionals

With the Income-tax Act, 2025 (Act-2025) scheduled to come into force from midnight of 31 March 2026, Indian direct tax practice is entering a phase where one legal regime will not simply replace another overnight. Instead, professionals will operate for several years in a dual-regime environment, where both the Income-tax Act, 1961 (Act-1961) and Act-2025 remain simultaneously relevant.

This is not a temporary academic curiosity but a practical reality: for a long stretch, every file, every proceeding, and every opinion will first need to answer one fundamental question:

Which Act applies to this issue – Act-1961 or Act-2025?

The clear legislative answer, embedded in Section 536 of the Act-2025, is that professionals must be fluent in both enactments at the same time. The transition is not a simple “shift” but a carefully designed overlap, and sailing in two boats is not optional – it is mandated by statute.

Section 536: The Cornerstone of Transition

The entire transition mechanism is constructed around Section 536 titled “Repeal and savings”. While Section 536(1) formally repeals the Income-tax Act, 1961, the real operative power lies in Section 536(2), which contains twenty-two clauses that preserve, extend, and regulate the continued role of Act-1961.

The unifying theme across these clauses is the repeated use of the expression “as if this Act had not been enacted”. This phrase makes it abundantly clear that, for specific past years and defined situations, Act-1961 will continue to function in full force even though it stands formally repealed.

Professionals who wish to stay ahead in this environment should:

  • Treat Section 536 as the primary navigation tool for all transition-related questions.
  • Maintain detailed documentation of which years, proceedings, rights, and liabilities fall under which Act.
  • Always determine the governing legislation first, before citing sections, drafting responses, or formulating litigation strategies.

Time-Line Split: The Core Demarcation Between Old and New Law

The transition is built around a temporal bifurcation. Although simple to state, its implications are significant.

1. For Assessment Years up to and including AY 2026-27

For all tax years ending on or before 31 March 2026, and the corresponding Assessment Years (including AY 2026-27), the following will continue to be governed entirely by the Income-tax Act, 1961:

  • Assessments and reassessments
    All original assessments, reassessments, and recomputations will proceed under the provisions of Act-1961.

  • Rectifications and revisions
    Corrections, rectifications of mistakes, and revisional powers will be exercised under the repealed Act.

  • Appeals and references
    All first appeals, second appeals, revisions, and references will follow the appellate structure and procedures of Act-1961.

  • Penalties and prosecutions
    Initiation and adjudication of penalty and prosecution proceedings for these years will remain under Act-1961.

  • Time limits and procedures
    All periods of limitation, procedural steps, and substantive conditions will be those provided under Act-1961.

2. For Tax Years Beginning on or after 1 April 2026 (Tax Year 2026-27 onwards)

Starting 1 April 2026, Act-2025 becomes the exclusive governing law for:

  • Computation of income and tax liability
  • Procedural and administrative frameworks
  • Assessments, reassessments, and related proceedings
  • Searches, surveys (under new corresponding provisions)
  • All compliance obligations and enforcement for those tax years

The section numbering, terminology, and structure of Act-2025 will apply for these years alone.

This time-based division is not merely a drafting convenience. Under Section 536(2)(c) and Section 536(2)(e), it operates as a binding statutory rule that courts, assessees, and the Department must follow.

Reading Section 536(2): The 22-Clause Transition Map

Section 536(2) is the detailed operational manual of the dual-regime period. Each clause addresses a specific situation where the old and new laws interact. Professionals must move beyond a surface reading and understand:

  • What each clause permits or preserves
  • Which years and types of proceedings are covered
  • How it works with other clauses and substantive provisions

Below is a structured walkthrough of the most critical clauses.

Clauses (a) and (b) uphold the principle that events under the old Act remain fully valid:

  • Orders already passed under Act-1961 stay intact.
  • Rights that have vested, such as exemptions, deductions, reliefs, or refunds, remain protected.
  • Liabilities determined under the old Act do not disappear because Act-2025 has come into force.

In effect, completed actions under Act-1961 are ring-fenced. No assessee loses a valid relief, and no completed assessment becomes void merely due to the enactment of Act-2025.

2.