by CA. Sandeep Choudhary
63662 57036
sandeepchoudharyfca@gmail.com
This article summarises the Transitional Provisions in the Income Tax Bill, 2025. An earlier article discussed some key features on the proposed law.
1. Proceedings already started under the 1961 Act will continue to be governed by that Act. Any notice or proceeding relating to period before 1st April 2026 will be carried out under the old law. Thus, if assessments of older periods are re-opened, they will be governed by the 1961 Act.
2. If you opted for Old Regime instead of the default New Regime, your choice shall continue to be applicable in the 2025 Bill.
3. Interest provisions will be governed by 1961 Act till 31st March 2025 and by the new Bill thereafter. This means, that while the demand notice or refund order will be under the 1961 Act, part of the interest computation will be under the new Bill.
4. If you have claimed any deduction in 1961 Act and its conditions are later violated, the corresponding amount will be added back to your income under the new law in the year of violation. For example, if you have received Capital Gains exemption in PY 2024-25 on account of investing in new capital asset and such asset is sold in TY 2026-27, the exemption granted earlier will become chargeable as Capital Gain in TY 2026-27.
5. There is no specific provision which tells us what happens if the reverse happens. If some expenses are disallowed u/s 43B on grounds of non-payment, they are normally allowable under the year of payment. Similarly, if expense is disallowed on the grounds that TDS was not deducted, the expense is allowed in the year of payment. The Bill is silent where expense was disallowed under the 1961 Act and conditions for allowing expense after the new law comes into effect. It only covers the situations where an income is to be added in later years.
6. Recognition to approved Charitable Trusts, etc (referred to as Registered Non-Profit Organisations in the new Bill) shall continue to be valid.
7. MAT Credit under 1961 Act will continue to be available under the new law. Similarly, brought-forward losses and unabsorbed depreciation from 1961 Act will be allowable. The time limits for set-off of losses will remain unchanged.
There is one important change here. For capital losses brought forward from 1961 Act, the distinction between Long-Term and Short-Term has been eliminated. Thus, in 1961 Act, Long-Term capital losses can be set-off against Long-Term Gains only. The same is the case for Long-Term loss under the new law. However, the Long-Term loss brought forward from 1961 Act will be available for set-off against both Long-Term and Short-Term Capital Gains under the new law.
8. For search cases, the transition may result in a tricky situations. Block assessment may be under one law, tax under normal provisions may be under another law. Determining the quantum of undisclosed income will require simultaneously juggling the provisions of both the laws.
a. Where search is initiated prior to 1.4.2026, the 1961 Act will apply as if the new law had not been enacted. Thus, if search is initiated in March 2026, and the last Panchnama is drawn April 2026, the income of April 2026 till the date of signing will be taxed under the 1961 Act and not the new law.
b. For searches initiated 1.4.2026 onwards, the entire Block Assessment will be governed by the new law. This will be so even though the income of a part of the Block Period was otherwise taxable under the 1961 Act. Since preceding 6 Tax Years are covered under Block Period, the old law will remain relevant till TY 2031-32 for search cases.
9. Section 536(2)(a) and (b) are clumsily worded. These are important clauses in Transitional Provisions that provide finality to operations, orders, rights and obligations under 1961 Act. These clauses need to be properly worded.
10. Existing Instructions and Notifications will remain valid unless they are inconsistent with the new Act. The law is silent on the fate of existing Circulars.
11. Across laws, there is a large body of judgements confirming that old judicial precedents remain valid if the language and context is consistent. In the last decade, case laws have flowed smoothly in Company law from the 1956 Act to the 2013 Act and in Indirect Taxes from Service Tax to GST.
Thus, case laws evolved over decades will remain applicable. However, minor changes in language will unnecessarily force fresh litigation, as discussed in preceding article.
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