Refund Set-Off Across Tax Regimes: Transitional Clarity Under Income Tax Act, 2025

The explanatory memorandum to the Finance Bill, 2026 clarifies that the transition from the Income-tax Act, 1961 to the Income-tax Act, 2025 will not prejudice taxpayer refund entitlements, expressly permitting mutual set-off of refunds and tax demands across both regimes, such that a refund due under the 1961 Act may be adjusted against a liability arising under the 2025 Act and vice versa, thereby preserving fiscal continuity, eliminating transitional arbitrage, and ensuring that the repeal of the earlier statute does not disrupt accrued rights or crystallised tax positions within the evolving statutory framework.