What is a tax year under the Income-tax Act, 2025 and how is it different from previous year and assessment year?
GradeHunt_TeamGradeHunt Team ·
From 1 April 2026 everyone is saying 'tax year' instead of AY and FY. I'm confused. For salary earned from April 2026 to March 2027, what do we call it now? And what happens to income of FY 2025-26 that we file returns for this year?
Under the Income-tax Act, 1961 there were two years:
- Previous year: the financial year in which you earn the income (Section 3 of the 1961 Act).
- Assessment year: the next year, in which that income is assessed and taxed.
So income earned from April 2025 to March 2026 was "PY 2025-26, AY 2026-27". People mixed these two up all the time.
The Income-tax Act, 2025 applies from 1 April 2026 and replaces both with a single term.
Section 3(1) of the 2025 Act: "tax year" means the twelve months of the financial year starting on 1 April. The year in which you earn the income is the tax year, and there is no separate assessment year.
Section 3(2): for a business or profession newly set up, or a new source of income that starts during a financial year, the tax year runs from the date of setting up (or the date the source comes into existence) to the end of that financial year.
Your examples:
1. Salary from April 2026 to March 2027: this is tax year 2026-27. The return for it will be filed after 31 March 2027, and it is called tax year 2026-27, not AY 2027-28.
2. A shop opened on 15 September 2026: its first tax year runs from 15 September 2026 to 31 March 2027, and after that it follows the normal April to March year.
3. Income earned from April 2025 to March 2026: this was earned while the 1961 Act was in force, so it is still dealt with under the 1961 Act as assessment year 2026-27, including the return filed in 2026.
Quick conversion: old "AY 2027-28" = new "tax year 2026-27". Drop the assessment year and use the year the income was earned.
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