You’re standing in April 2026. The old Income-tax Act, 1961 has officially taken its final bow. A brand-new Income-tax Act, 2025 now runs the show.
But your compliance calendar?
It’s still whispering deadlines from a world that technically no longer exists.
Welcome to the great tax transition paradox.
Let’s decode what really happens to compliances for Assessment Year (AY) 2026–27, especially when the law governing the income and the law governing the compliance are… not quite the same.
The Legal Backbone: Section 536 – Repeal with a Safety Net
The answer lies in Section 536 of the Income-tax Act, 2025, which acts like a time-travel stabilizer.
👉 As per the provision (see ):
- The Income-tax Act, 1961 is repealed
- BUT… its provisions continue to apply for:
- Tax years beginning before 1st April 2026
- All related proceedings (assessment, reassessment, appeals, penalties, etc.)
Think of it as shutting down a software system but keeping its backend alive for all pending transactions.
Step 1: Understanding the Timeline Confusion : AY 2026–27 Compliances
| Concept | Governed by |
|---|---|
| Income earned in FY 2025–26 | Income-tax Act, 1961 |
| Assessment Year 2026–27 | Old Act logic continues |
| Compliance actions in FY 2026–27 | Hybrid (Old + New Act interplay) |
So even though the new Act is in force, the income belongs to the old regime.
Step 2: Filing of Return – Old Soul, New Body
Here’s the key rule:
👉 Returns for AY 2026–27 will still be governed by the Income-tax Act, 1961
Why?
Because Section 536 clearly states that:
- Proceedings for tax years before 1 April 2026
- Must be carried out as per the repealed Act
What this means in practice:
- ITR forms will still be based on old provisions
- Deductions (80C, 80D etc.) continue as per old law
- Income heads, computation rules remain unchanged
📌 In short:
You file like it’s 2025, even though it’s 2026.
Step 3: Payment of Tax – Where the Twist Begins
Now comes the interesting crossover.
Section 536(2)(g) introduces a subtle but powerful shift:
👉 If after 1 April 2026:
- Refund arises → Interest governed by new Act
- Tax default occurs → Interest governed by new Act
Translation:
| Situation | Applicable Law |
|---|---|
| Tax computation | Old Act |
| Return filing | Old Act |
| Interest on delay (post April 2026) | New Act |
| Interest on refunds | New Act |
⚡ This creates a split personality compliance system:
- The tax liability is born in the old Act
- But interest consequences live in the new Act
Step 4: Advance Tax & Self-Assessment Tax
Let’s tackle the practical question every CA will ask:
“Which law governs tax payments made in FY 2026–27 for AY 2026–27?”
Answer:
- Nature of tax → Old Act (since it relates to FY 2025–26 income)
- Consequences of delay/payment timing (after 01.04.2026) → New Act
So:
- Advance tax installments (if any spillover)
- Self-assessment tax paid in FY 2026–27
👉 Computed under old law
👉 But interest exposure governed by new law
It’s like writing an exam under the old syllabus… but penalties are graded under a new rulebook.
Step 5: Assessments, Reassessments & Notices
This is where Section 536 is crystal clear:
👉 Even if proceedings are initiated after 01.04.2026,
they will still follow the old Act if they relate to earlier tax years.
This includes:
- Notices u/s 148
- Scrutiny assessments
- Rectifications
- Appeals
📌 Entire procedural framework continues under the 1961 Act
Step 6: Carry Forward of Losses & Credits
The law ensures continuity like a careful accountant closing books:
- Business losses, capital losses → Carried forward under old rules
- MAT/AMT credits → Continue seamlessly
- Unabsorbed depreciation → Migrates into new Act structure
👉 But the manner of set-off remains rooted in the old Act
Step 7: The Hidden Risk Zone ⚠️
This transition is not just academic. It creates real risks:
1. Interest Miscalculation
Professionals may apply old interest provisions out of habit,
but new Act applies post April 2026
2. Compliance Confusion
Taxpayers may assume:
“New Act started → Old compliance ended”
Which is incorrect
3. Litigation Opportunities
Interpretational disputes may arise on:
- Applicability of interest provisions
- Procedural overlaps
- Transitional mismatches
Step 8: The Big Picture
Think of AY 2026–27 as a bridge year:
- One foot in the 1961 Act
- One foot in the 2025 Act
Not a clean break. More like a relay race where the baton is still mid-air.
Final Takeaway
Here’s the distilled essence:
✔ Income → Old Act
✔ Return → Old Act
✔ Assessment → Old Act
✔ Interest (post 01.04.2026) → New Act
✔ Recovery → New Act enabled
✔ Losses & credits → Seamless transition
Closing Thoughts
Tax law rarely creates poetry. But this transition?
It’s a carefully choreographed duet between two legislations.
One exiting the stage, the other entering, while the music never stops.
And AY 2026–27 sits right in the spotlight.
