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.
Clauses (l) to (v) of section 536(2) of the Income-tax Act, 2025 say what happens to credits, losses, allowances and deductions that were brought forward or still to be claimed at the end of the tax years beginning before 1 April 2026. Sub-sections (3) and (4) deal with references to earlier tax years and with the General Clauses Act, 1897.
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 This is a section where the Act itself speaks of the Income-tax Act, 1961, called "the repealed Income-tax Act"; its section numbers are quoted as printed and nothing more is said about that Act. Clauses (a) to (k) are in our note on section 536(1) and (2)(a) to (k).
Credit for tax paid under two named sections of the repealed Act is deemed eligible under the corresponding provisions of this Act or section 206(3) or (4). Brought-forward losses under five heads in the Table are set off and carried forward in the manner of the repealed Act; capital losses carry forward for up to eight financial years. Other clauses carry over allowances, deferred revenue expenditure, the bad-debt provision balance, schemes and search proceedings. Section 536(2)(l)(i) and (ii) are printed as substituted by the Finance Act, 2026, with effect from 1 April 2026. For return-related questions see income tax return filing.
Clause (l): credit for tax paid
Any amount of credit in respect of tax paid, allowable to be carried forward in the case of an assessee, under section 115JAA or 115JD of the repealed Income-tax Act for a tax year beginning before the 1st April, 2026, had the 1961 Act not been repealed:
- (i) is deemed to be the amount eligible for credit under the corresponding provisions or section 206(3) or (4) of this Act, as the case may be, in the case of the assessee; and
- (ii) credit for the tax paid under the repealed Act is allowed under this Act for the period for which it would have been allowed under the repealed Act, if the assessee otherwise continues to satisfy the conditions in the corresponding provisions or section 206(3) or (4) of this Act, as the case may be, in those tax years.
Sub-clauses (i) and (ii) are printed as substituted by the Finance Act, 2026, with effect from 1 April 2026 (footnote 36 in the copy consulted); read them as printed. The minimum tax and alternate minimum tax provisions of this Act are in our note on section 206.
Clause (m): brought-forward losses, with the Table
Any amount of loss under the source or head of income in column B of the Table, referred to in the section of the repealed Act in column C, brought forward for a tax year beginning before the 1st April, 2026, had the repealed Act not been repealed, shall be set off and carried forward against the income computed under this Act, in the manner provided in the respective section of the repealed Act specified in column C, for tax years beginning on or after the 1st April, 2026.
| Serial number | Source or head of income under the repealed Income-tax Act (column B) | Section of the repealed Income-tax Act (column C) |
|---|---|---|
| 1 | Income from house property | 71B |
| 2 | Profits and gains of business or profession | 72 |
| 3 | Speculation business | 73 |
| 4 | Specified Business | 73A |
| 5 | Activity of owning and maintaining race horses | 74A |
The Table is printed across a page break with the column heads repeated; every cell in the five rows is legible in the copy consulted. The rows are quoted as printed. The cross-references are column C's section numbers of the repealed Act and are not explained further.
Clause (n): capital losses
Any loss under the head capital gains, whether on a long-term or a short-term capital asset, referred to in section 74 of the repealed Act, brought forward from a tax year beginning before the 1st April, 2026, had the 1961 Act not been repealed, shall be carried forward and set off, in accordance with the manner provided in the repealed Act, against the income under the head "Capital gains" computed under this Act for any tax year beginning on or after the 1st April, 2026, up to eight financial years immediately succeeding the financial year in which the loss was first computed under the repealed Act.
Clauses (o) and (p): amalgamation and co-operative banks
- (o) Any set off of loss or allowance for depreciation made in a tax year beginning before the 1st April, 2026 in the hands of the amalgamated company, successor company or successor limited liability partnership, in accordance with section 72A of the repealed Act, is deemed to be the income of that company or partnership, chargeable to tax under this Act for the year in which any of the conditions in that section are not complied with.
- (p) Any set off of accumulated loss or unabsorbed depreciation allowed in a tax year beginning before the 1st April, 2026 to the successor co-operative bank, in accordance with section 72AB of the repealed Act, is deemed to be the income of the successor co-operative bank, chargeable to tax under this Act for the year in which any of the conditions in that section are not complied with.
Clause (q): transfers not charged as capital gains
Profits or gains from a transfer of a capital asset not charged under "capital gains" by virtue of section 47(iv), (v), (xiii), (xiiib) or (xiv) of the repealed Act in a tax year beginning before the 1st April, 2026, are deemed to be income chargeable under "Capital gains" under this Act for the tax year:
- (A) in which the transfer took place, if any of the conditions in section 47A(1)(i) or (ii) of the repealed Act are satisfied; or
- (B) in which any of the conditions in section 47(xiii), (xiiib) or (xiv) of the repealed Act are not complied with, as the case may be.
Clauses (r), (s) and (t): allowances, deferred expenditure and the bad-debt provision
- (r) Where an allowance or part of it under section 32(2) or 35(4) of the repealed Act is to be carried forward to the tax year beginning on 1 April 2026, it is added to the capital allowances referred to in the corresponding provisions of this Act for that tax year and deemed to be part of that allowance, or, if there is no such allowance for that tax year, is deemed to be the allowance for that tax year.
- (s) The deduction referred to in sections 35ABA, 35ABB, 35D, 35DD, 35DDA, 35E or the first proviso to section 36(1)(ix) of the repealed Act continues to be allowed under this Act for tax years beginning on or after 1 April 2026, on fulfilment of the conditions in those provisions, and is added to the deferred revenue expenditure allowance of the corresponding provisions of this Act, or, if none, is deemed to be that allowance for that tax year.
- (t) The credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia) of the repealed Act, standing on the last day of the tax year beginning on 1 April 2025, is added to the amount credited to the provision for bad and doubtful debts accounts referred to in the corresponding provisions of this Act for the tax year beginning on 1 April 2026 and deemed to be part of that amount, or, if there is no such amount credited, is deemed to be the amount credited for that tax year.
Clauses (u) and (v): schemes and searches
- (u) Any scheme notified under the repealed Act with a view to eliminating the interface with the assessee or any other person is deemed to have been made under the corresponding provisions of this Act, or under section 532 where there is no corresponding provision, and continues in force. Section 532 is in our note on sections 532 to 535.
- (v) Where a search has been initiated under section 132 or a requisition made under section 132A before commencement, the provisions of the repealed Act continue to apply to proceedings connected with that search or requisition, as if this Act had not been enacted.
Sub-section (3): references to earlier tax years
Where any reference is made in this Act to any tax year commencing on the 1st April, 2025 or to any earlier tax year, it is construed as a reference to the corresponding previous year under the repealed Income-tax Act. (Here the Act itself uses the term "previous year" for the repealed Act's year; this note otherwise uses the term "tax year".)
Sub-section (4): General Clauses Act, 1897
Without prejudice to sub-section (2), the provisions of section 6 of the General Clauses Act, 1897 (10 of 1897) apply with regard to the effect of repeal. That Act is another law; check it separately.
| Clause | Subject | Carried over as |
|---|---|---|
| (l) | Credit under section 115JAA or 115JD of the repealed Act | Credit under corresponding provisions or section 206(3) or (4) |
| (m) | Losses in the Table | Set off and carried forward in the manner of the repealed Act |
| (n) | Capital losses under section 74 | Up to eight financial years from the year first computed |
| (o) | Section 72A set offs | Deemed income if conditions not complied with |
| (p) | Section 72AB set offs | Deemed income of the successor co-operative bank if conditions not complied with |
| (q) | Section 47 transfers | Deemed capital gains in the stated tax year |
| (r) | Allowances under section 32(2) or 35(4) | Added to capital allowances |
| (s) | Specified deductions | Added to deferred revenue expenditure allowance |
| (t) | Bad-debt provision balance | Added to the provision credited for 1 April 2026 |
| (u) | Interface schemes | Deemed made under corresponding provision or section 532 |
| (v) | Searches under section 132 or 132A | Repealed Act continues for connected proceedings |
A worked example (names and figures assumed)
Mrs. Lakshmi has a business loss of Rs. 6,00,000 brought forward from a tax year beginning before 1 April 2026, and a long-term capital loss of Rs. 2,00,000 first computed in a financial year earlier than that. (The amounts and the facts are assumed.)
- Business loss: serial number 2 of the Table applies, with column C pointing to section 72 of the repealed Act. Under clause (m) it is set off and carried forward against income computed under this Act, in the manner provided in that section.
- How much of the Rs. 6,00,000 can be set off in a given tax year, and for how long, is governed by the repealed section named in column C; section 536 itself prints no limit for this row. The text consulted therefore gives no figure for the carry-forward period of this loss.
- Capital loss: clause (n) allows carry forward against capital gains computed under this Act, up to eight financial years immediately succeeding the financial year in which the loss was first computed.
Need help with brought-forward losses and credits?
Whether a loss or credit survives, and under which section's manner it is set off, depends on what was computed in the earlier tax years. Our income tax return filing team can trace the amounts and apply clause (m) or (n) to your return.
Key takeaways
- Credit for tax paid under section 115JAA or 115JD of the repealed Act is deemed eligible for credit under the corresponding provisions or section 206(3) or (4) (clause (l), as substituted by the Finance Act, 2026).
- Losses of five kinds in the Table are set off and carried forward in the manner of the repealed Act (clause (m)).
- Capital losses carry forward up to eight financial years from the year first computed (clause (n)).
- Amalgamation, successor company and co-operative bank set offs become income on non-compliance (clauses (o), (p)).
- Allowances, deferred revenue expenditure and the bad-debt provision balance are added to the corresponding items of this Act (clauses (r), (s), (t)).
- Sub-section (3) reads a reference to an earlier tax year as a reference to the corresponding year under the repealed Act; sub-section (4) applies section 6 of the General Clauses Act, 1897.
Read next
- Section 536(1) and (2)(a) to (k): repeal and savings for proceedings
- Schedule II: agricultural income and life insurance policy receipts
- Section 206: minimum tax and alternate minimum tax
- Section 108: set-off of losses within a head
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.