CBDT Clarifies Income-Tax Act, 2025 Transition with FAQ, Rules, and Saving Clauses

(INDIA) — India shifted its direct-tax system on 1 April 2026 to the Income-tax Act, 2025 and the Income-tax Rules, 2026, while preserving the old Income-tax Act, 1961 for earlier years and saved proceedings under transition provisions that keep the prior law alive for selected matters.

The change means the 2025 law now governs post-commencement tax years and proceedings arising within its own framework, but the 1961 law continues wherever the saving clause preserves earlier years, earlier rights, earlier liabilities, and pending proceedings. The official Income Tax Department portal now hosts the 2025 Act, the 2026 Rules, and separate utilities to compare the new law with the old Act and Rules.

That distinction sits at the center of the transition. The official CBDT transition FAQ says the shift to the new Act does not disturb tax treatment for years beginning before 1 April 2026, and pending proceedings under the old Act continue where saved by section 536.

At first glance, the repeal of the Income-tax Act, 1961 might suggest a clean replacement. In legal operation, the transition is narrower than that. A repeal ends the future operation of an old law, but a saving clause keeps it alive for specified matters, and that is how the move to the new framework has been structured.

The result is that income earned before 1 April 2026 remains tied to the old regime even when filing or other procedural steps happen later. Filing dates after commencement do not, by themselves, move earlier-year income into the new statute.

That matters most for FY 2025–26 / AY 2026–27, which remain under the 1961 Act. The CBDT transition FAQ says there is “no missing year and no overlap,” with income of the period before 1 April 2026 remaining under the old law and income from 1 April 2026 onward falling under the new Act.

A salaried employee who files a return in July 2026 for salary earned between 1 April 2025 and 31 March 2026 still falls under the old statute because the income belongs to the earlier period. The same applies to a businessman who files an updated return in December 2026 for AY 2026–27. The date of filing alone does not shift the governing law.

That clarification is one of the most practical parts of the new framework because it rejects two common readings at once. It is not accurate to say every direct-tax matter in India now falls only under the 2025 law. It is also wrong to say the new law has little practical role.

From 1 April 2026, the new Act governs tax year 2026–27 onward, along with post-commencement compliance and fresh proceedings arising within its own structure. For some time, both laws will operate side by side, with the old Act continuing for saved earlier-year matters and the new Act applying to new-year matters.

The new terminology reflects that shift. “Tax year” has replaced “assessment year” in the Income-tax Act, 2025, part of what the official portal and the CBDT transition FAQ describe as a broader structural simplification.

Even so, the older expression does not disappear at once in practical work. Saved matters tied to earlier years still use the old-year structure, which means officers and taxpayers may continue to deal with “assessment year” in proceedings linked to past periods while using “tax year” for income arising in tax year 2026–27 onward.

That overlap in vocabulary mirrors the overlap in governing law. A proceeding handled in 2026 for AY 2025–26 or AY 2026–27 still sits within the older legal structure if it concerns a saved matter, even though the new statutory language has already taken effect for later periods.

The same approach applies to reassessment. The commencement of the Income-tax Act, 2025 does not automatically migrate every reassessment into the new code.

The CBDT transition FAQ says reassessment proceedings already initiated under the repealed Act continue under the old law if they were pending on the commencement date, and it confirms that further steps under the old reassessment framework may continue in such cases. A notice issued in March 2026 for an earlier assessment year remains under the 1961 Act even if the reassessment order is passed in August 2026.

Penalty, appeal, rectification, and revision for earlier years follow the same pattern. Where the proceedings relate to old years, the repealed Act continues to apply to saved matters such as revision and other continuing proceedings.

So an appeal for AY 2024–25 pending before an appellate authority, or a rectification application filed after 1 April 2026 in relation to an old-year order, does not move into the new Act merely because the calendar has changed. A revision proceeding for an old assessment year also continues under the old law if it falls within the saving clause.

That is why taxpayers and advisers are being pushed toward a matter-wise and year-wise reading of the transition, rather than a single-date test. The Income-tax Act, 2025 and the Income-tax Rules, 2026 changed the framework from 1 April 2026, but not every issue turns on commencement date alone.

The distinction between section 536 and section 293 shows how tightly that reading has to be drawn. The two provisions do not serve the same purpose.

Section 536 is the repeal-and-savings provision that handles the transition from the 1961 Act to the 2025 Act. Section 293, by contrast, belongs to the block-assessment computation framework in search cases under the new law. One answers which old matters continue under the old law despite repeal. The other addresses how block undisclosed income is computed within the new search framework.

Search and block assessment are where the transition becomes most delicate. The official CBDT transition FAQ says that where a search under the old law was initiated before 1 April 2026, the provisions of the repealed Act continue to apply to the entire proceeding as if the new Act had not been enacted.

That means a search initiated on 28 March 2026 stays under the Income-tax Act, 1961 even if the assessment order comes in November 2026. The start date of the search controls the legal framework for that proceeding.

Cases beginning on or after 1 April 2026 require a finer reading. When a search starts after commencement, the new block-assessment chapter provides the governing machinery, yet earlier-year positions do not drop out of the calculation simply because the new search framework applies.

A search initiated on 15 May 2026 may cover earlier years, including years before 1 April 2026. In that setting, the procedure of block assessment operates under the new Act, but earlier assessed income, earlier returned income, and old-year legal positions still have to be taken into account while computing block undisclosed income.

That is why earlier-year deductions and exemptions cannot be brushed aside in later block assessments. If a deduction was validly claimed in a pre-commencement year and disclosed in a return under the 1961 Act, a later post-commencement search cannot treat the item as though the old law never existed.

The same logic applies where income for an earlier year was already assessed under the old Act before the search. That income cannot simply be reintroduced into block undisclosed income as though nothing had happened earlier. The point is to avoid treating old-law years as irrelevant while still allowing the new block-assessment machinery to function for post-commencement searches.

Tax deducted at source and tax collected at source bring another practical example. Readers often assume those areas shifted fully on 1 April 2026, but the applicable period still matters.

The Income-tax Rules, 2026 were notified on 20 March 2026 under section 533 of the 2025 Act and came into force on 1 April 2026. Yet an employer who deducts tax from salary on 31 March 2026 and deposits it in April 2026 remains within the old-year framework, while an employer who deducts tax from salary on 30 April 2026 falls under the post-commencement framework governed by the new Act and the new Rules.

That period-sensitive approach also shapes the relationship between the new rules and the old statute. The Income-tax Rules, 2026 are in force, but their commencement does not erase section 536. Rules operate within the Act and do not override the saving framework written into the statute itself.

The same is true for pending applications and other proceedings. A blanket assumption that everything shifted into the Income-tax Act, 2025 on commencement does not hold where the matter relates to pre-commencement years or was already pending under the repealed Act.

For taxpayers and practitioners, the practical message is direct. The transition has to be read by subject and by year, not only by date. The official portal’s comparison utilities and the CBDT transition FAQ have become central tools for checking whether a matter stays with the old statute or moves into the new one.

That matters because the transition is neither a complete overnight replacement nor a symbolic rewrite. The 1961 Act stands repealed from 1 April 2026, but it still governs pre-1 April 2026 years and saved proceedings through the repeal-and-savings framework. At the same time, the Income-tax Act, 2025 governs tax year 2026–27 onward and new proceedings arising under its own scheme.

In effect, India’s direct-tax system now runs on parallel tracks. Old-year reassessment, penalty, appeal, rectification, and revision continue under the 1961 Act where saved. A search initiated before 1 April 2026 remains under the old law. A search initiated on or after that date follows the new block-assessment machinery, but earlier-year returns and assessments can still remain relevant in computation.

That leaves taxpayers, accountants and lawyers working through a transition that is less about a single switch and more about legal boundaries. The cleanest reading remains the one embedded in the CBDT transition FAQ: the new law applies prospectively, the old law survives for saved matters, and the dividing line depends on the year, the proceeding and the statutory context.