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Manuals Income Tax
What is the impact of ICDS X containing transitional provisions.
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Transitional provisions for ICDS X ensure recognition of provisions and contingent items to prevent double taxation or omission.
Transitional recognition under ICDS X requires that provisions, contingent liabilities and contingent assets and related income be recognised for previous years commencing on or after 1 April 2016 in accordance with this standard, after taking into account any amount recognised for the same items for previous years ending on or before 31 March 2016; the rule aims to prevent double taxation or omission of income.
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Set-off of provisions: expenditures may be set off only against the original provision, not provisions for different purposes.
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Exchange differences excluded from borrowing costs under ICDS IX; foreign exchange effects governed by ICDS VI.
Exchange differences from foreign currency borrowings that are treated as adjustments to interest are excluded from borrowing costs under ICDS IX; the effects of changes in foreign exchange rates, including those relating to interest, are governed by ICDS VI.
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Borrowing cost: bill discounting and similar charges treated as borrowing cost, except when not tied to borrowed funds.
The definition of borrowing cost is inclusive and generally covers bill discounting charges and similar charges as borrowing cost for income computation and disclosure; however, discounting charges that do not arise from borrowing funds are excluded from that definition.
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Which are the borrowing costs covered by ICDS IX.
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Borrowing costs include interest and related charges such as commitment charges, amortised discount and finance lease charges.
Borrowing costs under ICDS IX comprise interest and other costs incurred in connection with borrowing funds, including commitment charges, amortised discount or premium, amortised ancillary costs in arranging borrowings, and finance charges for assets taken on finance lease.
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Valuation of securities as stock-in-trade: mandatorily at lower of actual cost and net realizable value.
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Para 9 of ICDS-VIII on securities requires securities held as stock-in-trade shall be valued at actu...
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Valuation of securities: aggregate category wise cost compared with net realisable value, lower amount taken as carrying value.
For subsequent measurement under ICDS VIII, securities held as stock in trade are aggregated category wise; for each category the aggregate cost and aggregate net realisable value are compared, and the lower of the two is taken as the carrying value.
Manuals Income Tax
Which ICDS would govern derivative instruments.
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Derivatives accounting: ICDS VI governs typical derivatives, ICDS I applies residually, capital-asset derivatives are excluded.
ICDS VI supplies guidance for derivative contracts such as forward contracts; derivatives outside ICDS VI's scope fall under ICDS I. Derivative instruments that qualify as capital assets are excluded from ICDS and thus not governed by those standards.
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For subsidy received prior to 1st day of April 2016 but not recognised in the books pending satisfac...
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Recognition of government grants: pre-existing grants deemed recognised on receipt while later grants follow ICDS recognition criteria.
Grants actually received before the ICDS effective date are deemed recognised on receipt under Para 4(2) of ICDS VII and remain governed by pre-ICDS law; grants received on or after the effective date must be recognised only when the ICDS VII recognition criteria in Paras 5-9 are satisfied, with recognition then following ICDS VII.
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Government grant for immediate financial support must be recognised when receivable, irrespective of actual receipt.
Government grants given as immediate financial support and not tied to specific expenditure must be recognised when the grantee is entitled and sums become receivable; actual receipt is immaterial. If the grant is confined to an individual enterprise and grant-related conditions are met, recognition occurs in the period of receivability, governing timing of income inclusion and disclosure under the income computation framework.
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Whether a grant which is not directly relatable to non-depreciable assets should be concluded as an ...
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Government grants treatment: grants not directly relatable to nondepreciable assets treated as taxable income rather than reduction in asset cost.
Grants not directly relatable to nondepreciable assets are to be recognised as taxable income under the Act rather than deducted from asset cost; the ICDS preamble confirms the Act prevails over ICDS, and paragraph 7 of ICDS VII applies solely to depreciable assets where reduction of asset cost is appropriate.
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Where the grants are received for assets which are outside the block of assets, then what is the tre...
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Recognition of government grants: generally recognized as income on receipt unless reasonable certainty permits spreading with related costs.
Grants for assets outside the block of depreciable assets are to be recognized as income; statutory tax provisions control and preclude spreading recognition beyond the year of receipt, except where there is reasonable certainty of receipt permitting deferral and matching with costs incurred for obligations related to the non-depreciable assets.
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Whether grants should be recognised even in cases where there is no certainty that the conditions at...
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Recognition of government grants: must occur on receipt; potential reversals are applied against unamortized deferred credit balances.
ICDS VII requires government grants to be recognised on the date of receipt and prohibits deferral beyond receipt; where grants become refundable because attached conditions are unmet, reversal of initial recognition must first be applied to the unamortized deferred credit arising from the grant, so income recognition must reflect both receipt and the certainty of meeting conditions.
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How are Government grants to be recognized.
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Recognition of government grants requires reasonable certainty of compliance and receipt; disclose in income computation accordingly.
Under ICDS VII, government grants are to be recognized when there is reasonable certainty that the related conditions will be complied with and that the grants will be received; such grants should not be postponed beyond the actual receipt date for income computation and disclosure purposes.

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Income Tax

Comparison of section 536 "Repeal and savings." between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

17 September, 2025

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Section 536 Repeal and savings.

Income-tax Act, 2025

At a Glance

These two texts are versions of a transitional provision (Clause/Section 536) dealing with repeal of the Income-tax Act, 1961 and savings arising from that repeal in the Income Tax Bill/Act, 2025. They matter because they govern continuity of rights, obligations, pending proceedings, carry-forwards, deductions and other transitional arrangements when a new income-tax statute replaces the 1961 Act. The principal actors affected are taxpayers (individuals, companies, cooperatives, amalgamated/successor entities) and revenue authorities. Effective dates referenced in the texts include commencement of the new Act and 1 April 2026 (and in one text a reference to 1 April 2025); specific effective timing is stated in the texts where present.

Background & Scope

Statutory hooks: repeal of the Income-tax Act, 1961 (43 of 1961) and application of transitional savings. Both texts are framed as a single clause titled "Repeal and savings" that seeks to preserve prior actions, proceedings and entitlements despite repeal. The documents enumerate specific categories: pending and future proceedings in respect of pre-1 April 2026 tax years; penalty proceedings; elections/options; refunds and interest; recovery of sums; carry-forwards of tax credits, losses and depreciation allowances; certain deductions and deferred revenue expenditure; treatment of notified schemes; and searches/requisitions u/ss 132/132A of the repealed Act. The documents contain tables listing sources/heads of income and corresponding repealed Act sections for loss carry-forward. Where definitions or explanatory definitions would normally appear, the texts do not provide definitions beyond referring to the "repealed Income-tax Act" and corresponding provisions of "this Act".

Statutory Provision Mode

Text & Scope

The clause repeals the Income-tax Act, 1961 and provides detailed savings to preserve prior operations: prior actions, rights, obligations, pending proceedings and proceedings in respect of tax years beginning before 1 April 2026; penalty proceedings; elections/options made under the repealed Act; interest rules for refunds and defaults; recovery of sums; continuance of agreements, appointments, approvals, circulars, notifications, rules and schemes (subject to consistency with corresponding provisions); carry-forward and set-off of specified losses and credits (including under specified repealed sections such as 71B, 72, 73, 73A, 74A, 74, 72A, 72AB, 115JAA and 115JD); carry-forward of capital losses for up to eight succeeding financial years where originally allowed u/s 74; special treatment of allowances u/ss 32(2)/35(4) and specific deductions referred to in enumerated repealed sections; and continuation of search/requisition proceedings begun u/ss 132/132A. The clause also invokes section 6 of the General Clauses Act, 1897 for the effect of repeal.

Interpretation

The text evidences legislative intent to achieve continuity and to minimise disruption caused by repeal: rights and liabilities are preserved, pending and certain future proceedings related to pre-cut-off tax years are to be governed by the repealed procedural rules, and substantive tax positions (losses, credits, deductions) are carried forward and recognised under corresponding provisions in the new Act. The clause uses deeming language ("shall be deemed to have been", "shall continue to apply", "shall be deemed to be") to effect technical carryovers. Where the new Act lacks corresponding provisions, specific fallback sections in the new Act are identified for continuity of schemes.

Exceptions/Provisos

Not stated in the document: any express limitation on how long proceedings may be continued under the repealed Act apart from references to tax years beginning before 1 April 2026. Not stated in the document: transitional timelines for filing or service where procedural rules differ between the statutes, other than the general preservation language. Not stated in the document: any express power to adapt forms, fees or procedural modalities to the new Act where proceedings are continued under the repealed Act.

Illustrations

  • Example 1: A reassessment notice issued in respect of tax year 2023-24 that remains pending on commencement of the new Act will continue and be disposed of under the repealed Act's procedure.
  • Example 2: A capital loss arising in tax year 2024-25 brought forward u/s 74 of the repealed Act may be set off against capital gains for up to eight succeeding financial years as carried forward under the savings clause.
  • Example 3: A scheme notified under the repealed Act to eliminate interface with assessees will be treated as a scheme under the corresponding provision of the new Act (or under the fallback section specified in the new Act) and will remain in force to the extent not inconsistent.

Interplay

The clause explicitly cross-refers to specified sections of the repealed Act (listed in the table and in sub-clauses) and to corresponding provisions of the new Act (or specified fallback sections). It also invokes section 6 of the General Clauses Act, 1897 for guidance on effect of repeal. No other rules, notifications or circulars are expressly referenced beyond deeming prior notifications/circulars to continue where not inconsistent.

Differences between the Document 1 "Section 536 of the Income-tax Act, 2025" and Document 2 "Clause 2 of the Income-tax Bill, 2025 - (Old version)"

  • Scope of continuing proceedings (Document 1, sub-section (2)(c) vs Document 2, sub-section (2)(c)): Document 1 expressly preserves application of the repealed Act to any proceeding pending on commencement and to any proceedings "initiated on after the 1st April, 2026" in respect of tax years beginning before 1 April 2026, with such proceedings to be carried out under the repealed Act. Document 2 preserves proceedings in respect of tax years beginning before 1 April 2026, but omits the explicit phrase preserving proceedings initiated after 1 April 2026.
    • Practical impact: Document 1 more clearly authorises procedural continuation under the repealed Act even for proceedings that are initiated after 1 April 2026 so long as they concern pre-1 April 2026 tax years; Document 2 may be read as narrower, potentially raising interpretive questions about proceedings commenced after the cut-off date and whether they must follow the new Act's procedure. The wider formulation in Document 1 reduces transitional uncertainty for authorities and taxpayers about which procedure applies to late-initiated matters relating to earlier tax years.
  • Temporal reference for searches/requisitions (Document 1 sub-section (2)(v) vs Document 2 sub-section (2)(v)): Document 1 preserves application of repealed Act provisions to searches/requisitions "initiated u/s 132 or requisition u/s 132A prior to the commencement of this Act" (no fixed calendar date). Document 2 limits preservation to searches/requisitions initiated "prior to the 1st April, 2026."
    • Practical impact: Document 1 ties preservation to the Act's commencement date (which may differ from 1 April 2026), allowing flexibility if commencement occurs on a date other than 1 April 2026; Document 2 fixes the calendar date 1 April 2026. The difference affects which searches/requisitions are governed by the repealed Act versus the new Act when commencement and 1 April 2026 diverge.
  • Reference to tax year 2025 vs corresponding previous year (Document 1 sub-section (3) vs Document 2 sub-section (3)): Document 1 includes an additional sub-section (3) stating that where this Act refers to any tax year commencing on 1 April 2025 or earlier, such reference shall be construed as reference to the corresponding previous year under the repealed Act. Document 2's sub-section (3) does not include this; instead it only applies section 6 of the General Clauses Act (as its third paragraph).
    • Practical impact: Document 1 supplies an express rule for translating certain tax-year references into the repealed Act's framing, which reduces ambiguity in cross-references to earlier tax years; Document 2 lacks that express translator which could lead to interpretive disputes about corresponding previous years where year-naming conventions differ between Acts.
  • Corrections and internal textual differences: Document 2 contains editorial "NOTES" indicating corrections to specific phrases (e.g., "hereinafter" corrected to "herein", consistent use of "repealed Income-tax Act"), and some sub-clause numbering and cross-references differ (examples: section numbers cited in certain provisos are slightly different between texts). Document 1 appears as a finalized Act text with some expanded cross-references (e.g., explicit inclusion of "recomputation" in list in (2)(c)).
    • Practical impact: Editorial corrections in Document 2 show drafting adjustments; Document 1's finalized phrasing and added particulars (e.g., recomputation) clarify procedural items that affect how authorities and taxpayers identify covered actions. The more expansive list in Document 1 reduces dispute as to whether specific procedures are covered by the savings clause.
  • Treatment of schemes and corresponding section references: Document 1 deems schemes notified under the repealed Act to have been made under corresponding provisions of the new Act or u/s 532 if no corresponding provision exists; Document 2 contains the same idea but refers to section 294B where there is no corresponding provision.
    • Practical impact: The alternate fallback section numbering (532 vs 294B) changes where residual schemes are placed in the new statute; this has practical consequences for the administrative basis under which such schemes will operate and for legal challenge-users must check which fallback is actually enacted to know which administrative head applies.

Practical Implications

  • Compliance and risk areas: Taxpayers and advisors must identify which tax years are "before 1 April 2026" to determine whether the repealed Act's rules govern ongoing matters. Where Document 1 language is used, additional certainty exists for proceedings initiated after commencement but relating to earlier years. Ambiguities in cross-references (e.g., fallback sections for schemes) require attention to the final enacted numbering and text.
  • Record-keeping/evidence points: Maintain full records of elections/options made under the repealed Act; documentation to support incurred deductions and conditions attached to them; evidence supporting loss computations and dates when losses were first computed; records of notices, assessments, appeals, search/requisition initiation dates to determine which procedural regime applies.

Key Takeaways

  • The clause seeks to ensure continuity by preserving substantive entitlements and procedural treatment for matters tied to tax years beginning before 1 April 2026.
  • Document 1 contains broader and more explicit transitional language (e.g., proceedings initiated after 1 April 2026 and a commencement-based reference for searches), reducing interpretive gaps present in Document 2.
  • Carry-forwards (losses, credits, depreciation, certain deductions) are preserved and migrated to corresponding provisions of the new Act subject to satisfying corresponding conditions.
  • Notified schemes and prior administrative acts continue where not inconsistent, but the applicable fallback provision differs between versions (section 532 vs 294B), affecting administrative placement.
  • Taxpayers and administrators should secure contemporaneous evidence of elections, losses, and initiation dates of proceedings or searches to determine applicable law and avoid transitional disputes.

Full Text:

Section 536 Repeal and savings.

Topics

Acts Income Tax
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