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Foreign tax credit conversion uses telegraphic transfer buying rate on the last day of preceding month.
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Foreign Tax Credit documentation: verified income statement plus certificate and payment or deduction proof to claim credit.
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Foreign Tax Credit (‘FTC’) - Lower of the tax payable under the Act and DTAA
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Foreign tax credit: credit limited to lower of domestic tax and foreign tax; treaty excess is disregarded.
Rule 128 of the Income tax Rules, 1962 limits Foreign Tax Credit to the lesser of domestic tax chargeable on the doubly taxed income and the foreign tax actually paid, and directs that any foreign tax paid in excess of the tax payable under the applicable DTAA be ignored for credit computation.
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Foreign Tax Credit denial: no credit for domestic interest, fees or penalties and for disputed foreign taxes.
Rule 128 restricts Foreign Tax Credit by disallowing FTC against interest, fees or penalties payable under the Income-tax Act, and by excluding any foreign tax (or part thereof) that is disputed by the assessee.
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Foreign Tax Credit requires evidence of settlement, proof of payment and an undertaking within six months of dispute resolution.
Foreign Tax Credit (FTC) is allowed for disputed foreign tax only if, within six months from the end of the month in which the dispute is finally settled, the assessee furnishes evidence of settlement, evidence that the tax liability has been discharged by the assessee, and an undertaking that no refund in respect of that amount has been or will be claimed.
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Foreign tax definition determines FTC scope: DTAA-covered taxes apply, otherwise income-tax-type foreign levies qualify for credit.
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Foreign Tax Credit (‘FTC’) - Benefit on proportionate basis
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Foreign tax credit proportionate allocation ensures foreign tax relief is apportioned when income is taxed across multiple years.
Foreign tax credit under the Income tax Rules operates on a proportionate allocation principle when the same income is taxable in more than one year; the credit entitlement must be apportioned across the years in which the income is offered to tax so that relief for foreign taxes corresponds to the portion of income taxed in each year.
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Foreign Tax Credit (‘FTC’) - FTC benefit in the year in which income offered to tax
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Foreign tax credit allowed when foreign tax corresponds to income offered or assessed to tax in India in the same year.
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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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