Income-tax Act 1961 vs 2025 Survival Clauses Explained: FAQ for Founders, CFOs and Individuals
The Income-tax Act 2025 replaced the Income-tax Act 1961 from 1 April 2026. But repeal does not mean erasure. Survival (savings) clauses in the new Act preserve old law for returns, notices, assessments and appeals that predate the switchover. This article maps exactly which law governs which situation — so founders, CFOs and individual taxpayers know what section to cite in every interaction with the tax department.
The Core Rule: Which Law Governs Which Year?
The guiding principle is that tax liability is determined by the law in force during the income year, not the year of filing or assessment. Because the Income-tax Act 2025 came into force on 1 April 2026, it governs income earned from Tax Year 2026-27 (April 2026 – March 2027) onwards.
For the connected rule or filing step, see Income-tax Act 2025 for Startup Founders With ESOPs.
| Income Period | Old Terminology | New Terminology | Governing Law |
|---|---|---|---|
| Apr 2025 – Mar 2026 | FY 2025-26 / AY 2026-27 | Pre-transition year | Income-tax Act 1961 |
| Apr 2026 – Mar 2027 | — | Tax Year 2026-27 | Income-tax Act 2025 |
| Apr 2024 – Mar 2025 | FY 2024-25 / AY 2025-26 | Pre-transition year | Income-tax Act 1961 |
| Any year before Apr 2026 (pending proceedings) | Previous AY under 1961 | Pre-transition year | Income-tax Act 1961 (via survival clause) |
What the Survival Clause in the New Act Says
The Income-tax Act 2025 contains the repeal and savings provision in Section 536, which preserves the 1961 Act for a defined set of situations. A point that's frequently misunderstood: Section 536(2)(c) covers not only proceedings that were already pending as of 1 April 2026, but also proceedings initiated on or after 1 April 2026, as long as they relate to a tax year beginning before 1 April 2026 — both categories are carried out under the old Act's procedure, not just matters that happened to already be in motion before the transition date. So a fresh notice issued in, say, 2027 for an old assessment year is still governed by the old Act if it falls within the applicable limitation period, even though the notice itself postdates the new Act coming into force. The key savings are:
- Pending and newly initiated assessments and reassessments for tax years beginning before 1 April 2026 continue under the old Act's procedural framework, whether the proceeding was already underway or starts after the transition date — subject always to the applicable limitation period for initiating that proceeding.
- Appeals, revisions and references for old-year assessment orders are decided under old Act provisions, whether filed before or after 1 April 2026.
- Search and seizure proceedings relating to pre-transition years continue under the old search assessment framework (old Sections 153A–153D), consistent with the same pending-and-newly-initiated logic.
- Refund claims for pre-transition years are processed under old Act provisions.
- Penalties and prosecutions for acts committed before 1 April 2026 are governed by old Act penalty sections.
- Circulars, notifications, approvals and registrations issued under the old Act remain valid under the new Act as long as they don't conflict with it (Section 536(2)(j)).
- Agreements, contracts and MoUs referencing old Act section numbers remain valid and are construed with reference to the corresponding new Act section.
Section Equivalence: Old Act → New Act
The Central Board of Direct Taxes (CBDT) has released a section-equivalence table. Key cross-references for daily use:
| Old Act Section | Topic | New Act Section |
|---|---|---|
| Section 2 (Definitions) | Key definitions | Section 2 |
| Section 10 (Exemptions) | Exempt income list | Section 10 (restructured) |
| Section 32(2) | Unabsorbed depreciation carry-forward | Section 33(2) |
| Section 37(1) | General business deductions | Section 34 |
| Section 43B | Actual payment deductions (MSME, ESI etc.) | Section 37 |
| Section 54 | LTCG exemption on residential property | Section 82 |
| Section 54F | LTCG exemption — other assets → house | Section 86 |
| Section 54EC | LTCG exemption — bonds | Section 85 |
| Section 71(3A) | HP loss set-off cap ₹2L (old regime only; the cap and the carry-forward-only-against-future-HP-income rule both continue in substance) | Renumbered equivalent within the new Act's set-off and carry-forward provisions (confirm the exact current section number against the Act text before citing it formally) |
| Section 79 | Shareholding continuity for company losses | Renumbered provision carrying forward the same 51% shareholding-continuity test (confirm the exact current section number against the Act text before citing it formally, as this project's research found inconsistent secondary-source numbering for this specific provision) |
| Section 80C | Investment deductions (old regime) | Chapter VI-A retained for old regime |
| Section 115BAC | New tax regime | Default regime under new Act |
| Section 132 | Search and seizure | Section 247 equivalent |
| Section 139 (general return-filing provision) | Filing of return of income | Section 263 |
| Section 139(8A) | Updated return (ITR-U) | Updated-return provision retained within the new Act's return-filing framework, with the filing window extended to 48 months from the end of the relevant tax year |
| Section 148 | Reassessment notice | Section 280 (notice itself); the broader reassessment framework — old Sections 147/148/148A/149/151 — is reorganised across new Sections 279–286 (e.g., old 147 income-escaping-assessment→279, old 148A show-cause procedure→281, old 149 time limit→282) |
| Section 234A/B/C | Interest on default/advance tax | Equivalent retained with same rates |
| Section 270A (under-reporting/misreporting of income — this replaced the older Section 271(1)(c) concealment penalty back in AY 2017-18, so 271(1)(c) only still applies to pre-AY-2017-18 years) | Penalty for under-reported or misreported income: 50% of tax on under-reported income; 200% of tax where the under-reporting amounts to misreporting (e.g., misrepresentation of facts, false entries) | Section 439 (carries forward the same 50%/200% under-reporting/misreporting structure) |
Case Study: Reassessment Notice for FY 2022-23
Ravi received a notice in May 2026 from the Income Tax Department seeking reassessment of his FY 2022-23 return (AY 2023-24) citing under-reporting of ₹12 lakh in cash sales detected through SFT data.
Since the income relates to FY 2022-23 and the notice was issued under the old Act, the entire reassessment — including Ravi's reply, the assessment order and any appeal — will be governed by the Income-tax Act 1961's survival clause, even though proceedings extend well into 2026 and beyond.
ITR Filing for FY 2025-26: Old Act Applies
The ITR for FY 2025-26 (income earned April 2025 to March 2026) will be filed as an assessment under the old Act. This means:
- Old section numbers (80C, 80D, 24(b), 10(14) etc.) apply to the ITR form and the ITR instructions.
- Deductions under Chapter VI-A of the 1961 Act (old regime) or the Section 115BAC new regime (as opted under old Act) are available.
- The due date for non-audit filers without business/professional income (ITR-1/ITR-2) is 31 July 2026. Non-audit filers with business/professional income (ITR-3/ITR-4) get 31 August 2026 — this staggered structure already applies for the current AY 2026-27 filing, not a future Tax Year.
- Form 16 for FY 2025-26 will reference old Act section numbers. Do not discard old-Act form 16s.
Deductions and Exemptions: Old vs New Act by Tax Year
| Deduction / Exemption | FY 2025-26 (Old Act) | Tax Year 2026-27 (New Act) |
|---|---|---|
| Standard deduction (salaried) | ₹50,000 (old regime) / ₹75,000 (new regime) | ₹75,000 (new regime); ₹50,000 (old regime) |
| Section 80C / equivalent | Up to ₹1.5L (old regime) | Old regime Chapter VI-A retained; not available under default new regime |
| HRA exemption (Section 10(13A)) | Available (old regime) | Available (old regime); not available under new regime |
| Home loan interest (Section 24(b)) | Up to ₹2L (old regime, self-occupied) | Same cap; Section 26(b) equivalent under new Act |
| LTCG exemption on equity (Section 112A) | ₹1.25L per year (this increase from the older ₹1L threshold took effect from Budget 2024, applicable from FY 2024-25 onwards — it predates the new Act and is not a transition-related change) | ₹1.25L per year (new Act's renumbered equivalent of Section 112A; same threshold carried forward, not newly introduced) |
| Capital gains Section 54 rollover | Section 54 of 1961 Act | Section 82 of new Act; ₹10Cr cost cap introduced |
Contracts and Agreements Referencing Old Act Sections
Employment agreements, shareholder agreements, partnership deeds, LLP agreements and vendor contracts often reference specific sections of the 1961 Act (e.g., "TDS under Section 194J," "perquisite valuation under Rule 3 read with Section 17(2)"). These references remain legally valid. The law treats them as references to the equivalent sections of the new Act.
However, for practical clarity — especially in contracts drafted after 1 April 2026 — it is advisable to:
Contract Update Checklist for Legal and HR Teams
- Update employment contracts to reference new Act section numbers at next renewal
- Update partnership deeds referencing Section 40(b) remuneration to cite the new Act's renumbered partner-remuneration provision (confirm the exact new section number against the current Act text before finalising the deed, since this project's research did not independently verify a single confirmed number for this specific provision)
- Update vendor agreements with TDS clauses to reference new consolidated TDS sections (392/393)
- Update ESOPs and SARs plans referencing Section 17(2) perquisite rules
- Update board resolutions referencing old depreciation Section 32 to cite new Section 33
- Add a savings clause in new contracts: "References to provisions of the Income-tax Act 1961 shall be construed as references to the corresponding provisions of the Income-tax Act 2025"
Pending Appeals and Litigation: Which Law Applies?
Many taxpayers have live disputes at CIT(A), ITAT, High Courts or the Supreme Court as of April 2026. The survival clause ensures seamless continuity:
| Forum | Pending Appeal for Pre-2026 Year | Governing Law |
|---|---|---|
| CIT(A) / NFAC | Assessment order under 1961 Act challenged | Income-tax Act 1961 procedures |
| ITAT | Appeal against CIT(A) order for old year | Income-tax Act 1961 substantive provisions |
| High Court | Reference/appeal for old year | Income-tax Act 1961 interpreted; court may note new Act parallels |
| Supreme Court | SLP for old year | Income-tax Act 1961 |
| New assessment (post-Apr 2026) for Tax Year 2026-27 | Fresh dispute | Income-tax Act 2025 |
Case Study: ITAT Appeal Spanning Both Acts
Priya's AY 2021-22 assessment was completed under the old Act in September 2024, disallowing ₹18 lakh of R&D expenses. She filed an appeal before CIT(A) in October 2024, which was decided against her in February 2026. She filed an ITAT appeal in April 2026 — after the new Act came into force.
Priya's counsel need not cite the new Act at ITAT. The survival clause ensures the 1961 Act governs entirely. New Act section numbers may be noted as "pari materia" but have no binding impact on this appeal.
Search Cases: Old Sections 153A–153D vs New Act
Search and seizure is a critical area where the survival clause has the most practical impact. Assessments arising from searches conducted before 1 April 2026 continue under old Sections 153A–153D of the 1961 Act:
- Old Section 153A: Assessment for six years preceding the year of search — continues under old framework.
- Old Section 153C: Assessment of third persons whose documents/assets are found — old procedure applies.
- Old Section 271AAB: Penalty for undisclosed income in old search cases — 30% (admitted) or 60% (not admitted).
Searches initiated on or after 1 April 2026 will be governed by the new Act's search assessment framework (equivalent provisions in the new Act's Chapter on Search and Seizure).
Key Points for Founders and CFOs
✅ What You Need to Know
- ITR for FY 2025-26 → old Act rules; due 31 July 2026 (ITR-1/ITR-2) or 31 August 2026 (ITR-3/ITR-4 non-audit business/professional)
- ITR for Tax Year 2026-27 → new Act rules; the following filing cycle follows the same staggered due-date pattern under the renumbered provisions
- All pending assessments, appeals and search cases for pre-April 2026 years → old Act governs
- Old Act section references in contracts remain valid; update at next renewal for clarity
- The ₹1.25L LTCG exemption limit on equity has applied since FY 2024-25 (Budget 2024) and simply carries forward under the new Act — it is not a new-Act change taking effect only from Tax Year 2026-27
- Faceless assessment can apply to old years if notice issued after 1 April 2026
- New TDS consolidated sections (392/393) apply only from Tax Year 2026-27 income; old TDS sections for FY 2025-26 deductions
FAQ
Calculate Your Tax Under Both Acts
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Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- Income Tax
- Official starting point
- www.incometaxindia.gov.in