Understanding Section 536 and the saving-clause principles that determine whether the old or new Act applies to your case

The Core Transition Rule

The Income-tax Act, 2025 came into force on 1 April 2026, but it does not wipe the slate clean for every pending matter. Section 536(2)(c) of the new Act expressly provides that the provisions of the repealed Income-tax Act, 1961 shall continue to apply to any proceeding that was already pending on the date the new Act commenced. This saving clause is the single most important provision for anyone trying to work out which law — old or new — governs a particular assessment or reassessment.

As a general principle, the reassessment provisions of the 2025 Act (Sections 279 to 286) apply to Tax Year 2026-27 and subsequent tax years. For any tax year beginning before 1 April 2026, reassessment continues to be governed by the corresponding provisions of the 1961 Act, provided the relevant proceeding was validly initiated (or remains within limitation) under that Act.

Worked Illustrations

Where a show-cause notice under the erstwhile Section 148A(1) was issued before 1 April 2026 and a subsequent notice under Section 148 followed shortly after, the entire proceeding — including the final reassessment order — continues to be governed by the 1961 Act, even if that final order is actually passed after the 2025 Act has come into force. The date of initiation, not the date of the final order, generally fixes which Act applies.

Conversely, where no notice had been issued under the old regime before 1 April 2026, and the department seeks to reopen an assessment for an earlier year after that date, it must proceed under the 1961 Act's own conditions and limitation period (principally Section 149 of that Act) if it is reopening a pre-2026-27 tax year, since the 2025 Act's reassessment machinery is prospective for Tax Year 2026-27 onward. The department cannot use the new Act's timelines to revive a claim that was already time-barred under the old Act.

Circulars, Approvals and Instructions Also Carry Over

The transition is not confined to pending proceedings alone. Section 536(2)(j) separately preserves the continued validity of circulars, notifications, instructions and approvals issued under the 1961 Act, to the extent they do not conflict with the 2025 Act. Read together with Section 536(2)(c), this means that a taxpayer or practitioner working through a transition-period case must check at least two things independently: whether the specific proceeding itself is governed by the old or new Act, and separately, whether any administrative guidance being relied upon by either side remains valid under the new regime.

Why This Distinction Matters

The 1961 Act and the 2025 Act differ in material respects — the wording of the reopening trigger, the structure and length of limitation periods, the sanctioning hierarchy, and the pre-notice procedural safeguards are not identical between the two regimes. Applying the wrong Act's standard, even inadvertently, can materially affect whether a notice is valid, whether a defence is available, and what the applicable limitation period actually is.

A Practical Decision Tree for Transition-Period Cases

For a taxpayer or advisor trying to quickly triage a transition-period case, a simple, sequential decision tree is useful. First, ask whether any notice, show-cause, or order was issued in relation to the matter before 1 April 2026; if so, the proceeding is very likely already 'pending' for the purposes of Section 536(2)(c), and the 1961 Act governs it in its entirety, including its own limitation period, sanction hierarchy and procedural safeguards, regardless of when the final order is eventually passed. Second, if no such prior action was taken and the matter concerns Tax Year 2026-27 or a later year, the 2025 Act applies in full, including its own distinct limitation and sanction framework described elsewhere in this series. Third, and the case most prone to error, if no prior action was taken before 1 April 2026 but the matter concerns a tax year earlier than 2026-27, the department must still proceed under the 1961 Act's own conditions and time limits to reopen that year — it cannot invoke the fresh, later-running limitation periods of the 2025 Act to revive a claim for a pre-2026-27 year that would otherwise already be time-barred under the old Act.

This third scenario is the one most likely to generate disputes in the coming years, precisely because it is the least intuitive: a taxpayer might reasonably (but incorrectly) assume that any notice received after 1 April 2026 is automatically governed by the shiny new Act simply because of the date on the notice itself, when in fact the governing law is determined by the tax year under examination and the procedural history of that specific year, not by the calendar date the notice happens to bear.

Relevant Case Laws

State of Punjab v. Mohar Singh (1955) SCR 893 (SC) — remains the classical starting point for interpreting savings clauses on the repeal of a statute. The Supreme Court held that whether a repeal saves pending proceedings and rights accrued under the old law depends on the intention of the legislature as expressed in the repealing and saving provisions, and that courts should lean towards preserving rights and liabilities that had already accrued unless a contrary intention clearly appears. This general principle underlies the specific, express saving found in Section 536(2)(c) of the 2025 Act.

Shenoy & Co. v. Commercial Tax Officer (1985) 155 ITR 178 (SC) — (discussed in Article 1 of this series) is equally relevant here: because Article 141 of the Constitution binds all courts and tribunals to Supreme Court precedent, the interpretive principles developed for savings clauses under earlier repealed tax statutes continue to guide how Section 536 of the 2025 Act should be read and applied.

CIT v. Shah Sadiq & Sons (1987) 166 ITR 102 (SC) — held, in the context of a repeal of a different tax statute, that a right or liability that had already accrued under the repealed enactment is not automatically extinguished by the repeal unless the new enactment demonstrates a clear intention to that effect, and that beneficial provisions in a saving clause should be construed to protect accrued rights rather than to defeat them; this general orientation supports reading Section 536(2)(c) of the 2025 Act as intended to preserve, rather than disturb, the procedural position of proceedings and rights that had already crystallised under the 1961 Act before the transition date.

Precautions to Be Taken

1.      Before responding to any notice received on or after 1 April 2026, first determine whether the underlying proceeding was already pending (i.e., a notice had already been issued) under the 1961 Act before that date.

2.      If your case relates to a tax year prior to 2026-27, do not assume the new Act's more favourable or less favourable provisions automatically apply — check whether Section 536(2)(c) preserves the old Act's regime for your specific proceeding.

3.      Where a proceeding straddles both regimes, verify the applicable limitation period under the correct Act — using the wrong Act's timelines to assess whether a notice is time-barred is a common and consequential error.

4.      Separately check whether any circular, instruction or approval being relied upon (by either side) remains valid under Section 536(2)(j), rather than assuming all 1961-Act administrative guidance survives automatically.

5.      Keep clear, dated records of every notice and order issued in your case, since the precise date of initiation is often the deciding factor in determining which Act's procedural safeguards apply.

6.      Do not rely on general commentary or news articles alone for the old-to-new section correspondence in your specific matter; verify the mapping against the actual text of both Acts or a reliable, updated concordance for your particular provision.

7.      Consult a tax professional experienced in both the 1961 Act and the 2025 Act before conceding any point on applicable law, since transition-period disputes are already generating significant litigation on precisely this question.

8.      Where the department appears to be applying the new Act's timeline or procedure to a proceeding that should be governed by the 1961 Act (or vice versa), raise this as a specific, formal objection at the earliest possible stage.

9.      Apply the three-step decision tree — was action already taken before 1 April 2026; if not, does the matter concern Tax Year 2026-27 or later; if not, what does the 1961 Act's own limitation permit — to every transition-period notice before assuming which Act governs it.

10.  Be especially alert to the scenario where a notice bearing a post-1 April 2026 date in fact relates to a pre-2026-27 tax year with no prior action taken; the calendar date on the notice does not by itself determine the governing law.

11.  Where the department appears to be using the 2025 Act's limitation period to reopen a pre-2026-27 year that would already be time-barred under the 1961 Act's own Section 149, raise this as a specific, standalone jurisdictional objection at the earliest opportunity.

 Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.