Section 536 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 536 of the Income-tax Act, 2025 repeals the Income-tax Act, 1961 and saves what was done under it. This note covers sub-section (1) and clauses (a) to (k) of sub-section (2): continuing proceedings, penalties for earlier tax years, refund and default interest, sums that must be added back, recovery, options, notifications and expired time limits. The carry-forward of tax credits, losses and deductions in clauses (l) to (v), and sub-sections (3) and (4), are in our note on the rest of section 536.
This explanation is as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026. Under section 1(3) the Act came into force on the 1st April, 2026, save as otherwise provided. Later amendments, rules and notifications should be checked. This is the one section where the Act itself speaks of the Income-tax Act, 1961, calling it "the repealed Income-tax Act"; the references below are explained exactly as printed.
Section 536(1) repeals the Income-tax Act, 1961. Subject to sub-section (4), the repeal does not affect earlier operation, orders or rights and liabilities. The repealed Act continues to apply to proceedings pending on the commencement of this Act and to proceedings begun on or after 1 April 2026 for any tax year beginning before 1 April 2026. Penalties for such tax years may be imposed under the repealed Act. Clauses (g) and (h) are printed as substituted by the Finance Act, 2026, with effect from 1 April 2026. Matters spanning both Acts may need legal dispute resolution advice.
Sub-section (1): repeal
The Income-tax Act, 1961 (43 of 1961) is hereby repealed. Everything in sub-section (2) is therefore a saving: it says what survives the repeal.
Sub-section (2): the savings (lead-in)
Irrespective of the repeal of the 1961 Act (called "the repealed Income-tax Act"), and subject to sub-section (4), the clauses that follow apply. The words "sub-section (4)" in this lead-in are printed as substituted by the Finance Act, 2026, with effect from 1 April 2026, in place of the earlier cross-reference.
Clauses (a) and (b): previous operation and accrued rights
- (a) Nothing affects the previous operation of the repealed Income-tax Act and orders or anything duly done or suffered under it.
- (b) Nothing affects any right, privilege, obligation or liability acquired, accrued or incurred under the repealed Act or orders under it.
Clause (c): proceedings continue under the repealed Act
The provisions of the repealed Income-tax Act continue to apply to:
- any proceeding pending on the date of commencement of this Act; and
- any proceedings initiated on or after the 1st April, 2026 (including notices, assessment, reassessment, recomputation, rectification, penalty, reference, revision and appeals) in respect of any tax year beginning before the 1st April, 2026,
and these proceedings are carried out as per the procedure specified in the repealed Income-tax Act.
Clause (d): penalty for earlier tax years
A proceeding for the imposition of a penalty in respect of any tax year beginning before the 1st April, 2026 may be initiated and the penalty imposed under the repealed Income-tax Act, as if this Act had not been enacted.
Clause (e): pending litigation
Any proceeding pending on commencement before any income-tax authority or other authority constituted under the repealed Act, the Appellate Tribunal or any court, by way of application, appeal, reference or revision or by any other means, continues and is disposed of as if this Act had not been enacted.
Clause (f): elections, declarations and options
Any election or declaration made, or option exercised, by an assessee under any provision of the repealed Act and in force immediately before commencement is deemed to have been an election, declaration or option under the corresponding provision of this Act.
Clause (g): refund and default interest (as substituted)
Where, for a proceeding relating to a tax year beginning before the 1st April, 2026, (i) a refund falls due on or after that date, or (ii) default is made on or after that date in paying a sum due under the proceeding, the provisions of the repealed Act on interest payable by the Central Government on refunds, or by the assessee for default, apply for the period on or after that date, subject to two points:
- (A) the rate of interest on the refund or default as provided in the repealed Act is substituted with the rate in the corresponding provisions of this Act; and
- (B) that substitution applies from the date on which such rate has been modified under this Act.
Clause (g) is printed as substituted by the Finance Act, 2026, with effect from 1 April 2026. Read the clause as printed here; the text it replaced is not law. This note states no rate of interest.
Clause (h): sums to be added back (as substituted)
Where a sum has been allowed as a deduction, or has not been included in the total income of any person, on account of fulfilment of certain conditions or for any other reason, for any tax year beginning before the 1st April, 2026, and the sum was required to be included in the total income of a subsequent tax year (including a tax year beginning on or after the 1st April, 2026) under the repealed Act, if it had not been repealed, on account of violation of the conditions or any other reason, then the sum is:
- (i) deemed to be the income of that subsequent tax year; and
- (ii) included in the total income of that person under the same head of income as it would have been under the repealed Act.
Clause (h) is also printed as substituted by the Finance Act, 2026, with effect from 1 April 2026.
Clause (i): recovery
Any sum payable under the repealed Act may be recovered under this Act, without prejudice to any action already taken for its recovery under the repealed Act.
Clause (j): agreements, approvals, notifications and rules
Any agreement entered into, appointment made, approval given, recognition granted, circular, direction, instruction, notification, order or rule, or any scheme framed, issued under any provision of the repealed Act, is, so far as not inconsistent with the corresponding provisions of this Act, deemed to have been entered into, made, granted, given or issued under the corresponding provision of this Act and continues in force.
Clause (k): time limits that had expired
Where the period provided for any application, appeal, reference or revision under the repealed Act had expired on or before the commencement of this Act, nothing in this Act enables such an application, appeal, reference or revision to be made under this Act by reason only of a longer period being prescribed, or provision being made for extension of time in suitable cases by the appropriate authority. (In the copy consulted, the closing words of clause (k) are printed after a page-end footnote; read the clause as continuous.)
| Clause | Subject | What it saves |
|---|---|---|
| (a), (b) | Previous operation, accrued rights | Orders, things done, rights, privileges, obligations, liabilities |
| (c) | Proceedings | Pending proceedings and proceedings from 1 April 2026 for tax years beginning before that date continue under the repealed Act's procedure |
| (d) | Penalty | Initiated and imposed under the repealed Act for such tax years |
| (e) | Pending litigation | Continues as if this Act had not been enacted |
| (f) | Elections and options | Deemed made under the corresponding provision of this Act |
| (g) | Refund and default interest | Repealed Act's provisions apply from the date, with this Act's rate substituted |
| (h) | Sums to be added back | Deemed income of the subsequent tax year, under the same head |
| (i) | Recovery | Recoverable under this Act |
| (j) | Instruments issued earlier | Deemed issued under the corresponding provision, if not inconsistent |
| (k) | Expired time limits | Not revived by a longer period in this Act |
For the wider picture of how the Act begins, see our note on the effective date and transition provisions. For how section 536 affects which Act governs a tax audit, there is a separate section 536 savings guide.
A worked example (names and facts assumed)
Mr. Tarun's assessment for a tax year beginning before 1 April 2026 was pending on 1 April 2026. (All facts are assumed.)
- Under clause (c) and (e), the proceeding continues under the repealed Income-tax Act and its procedure, as if this Act had not been enacted.
- If the authority wants to start penalty proceedings for that tax year after 1 April 2026, clause (d) allows the penalty to be initiated and imposed under the repealed Act.
- Suppose a refund for that tax year falls due after 1 April 2026. Under clause (g) the repealed Act's provisions on interest on refunds apply for the period from that date, but the rate is the one in the corresponding provisions of this Act, from the date that rate has been modified under this Act.
- Mr. Tarun had exercised an option under the repealed Act, in force immediately before 1 April 2026. Under clause (f) it is deemed to be an option under the corresponding provision of this Act.
- If his period for filing an appeal under the repealed Act had already expired before 1 April 2026, clause (k) means he cannot revive it merely because a longer period is available under this Act.
Need help with proceedings that straddle two Acts?
When a notice, penalty or appeal relates to a tax year beginning before 1 April 2026, the savings in section 536 decide which Act's procedure applies. Our legal dispute resolution team can read your notice against these clauses.
Key takeaways
- Section 536(1) repeals the Income-tax Act, 1961.
- Previous operation, orders and accrued rights are not affected (clauses (a), (b)).
- Pending proceedings, and proceedings from 1 April 2026 for tax years beginning before that date, continue under the repealed Act's procedure (clause (c)).
- Penalties for such tax years may be initiated and imposed under the repealed Act (clause (d)).
- Refund and default interest follow the repealed Act's provisions, with this Act's rate substituted (clause (g), as substituted by the Finance Act, 2026).
- Sums required to be added back become income of the subsequent tax year under the same head (clause (h), as substituted).
- Earlier elections, options, approvals and notifications are carried over where not inconsistent (clauses (f), (j)).
- Expired time limits are not revived (clause (k)).
Read next
- Section 536(2)(l) to (v), (3) and (4): tax credits, losses and deductions carried over
- Sections 532 to 535: schemes, rules, laying before Parliament and removal of difficulties
- Income-tax Act 2025: effective date and transition provisions
- Section 536 savings: which Act governs which tax audit
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.