Tag: Tax Year

For more than sixty years, Indian taxpayers had to juggle two years at once: income was earned in the “previous year” and taxed in the following “assessment year”. The tax year Income-tax Act 2025 concept replaces both with a single, intuitive term. From 1 April 2026, the year in which you earn income is simply your tax year.

It is a small change in wording with a big benefit in clarity. First-time filers no longer need to be told that income of 2026-27 is “assessed in 2027-28”, and businesses dealing with foreign group companies can use a term that sounds familiar. This article explains what the tax year means, how it works for new businesses, and how to handle the transition period when both old and new terms will be in use.

Key takeaways

• Section 3 of the Income-tax Act, 2025 defines the tax year as the twelve-month financial year beginning on 1 April.
• For a new business, profession or source of income, the first tax year runs from the date it begins until 31 March of that financial year.
• Income earned from 1 April 2026 to 31 March 2027 is income of tax year 2026-27; the terms “previous year” and “assessment year” are not used under the new Act.
• FY 2025-26 and earlier years continue to be described using previous year and assessment year, because the 1961 Act still governs them.
• Update internal templates, contracts and communication so that the right term is used for the right period.

What the tax year means under the Income-tax Act 2025

Under the new Act, the tax year is the period of twelve months of the financial year starting on 1 April. The year in which income is earned and the year used to describe it are now the same. Returns, advance tax, TDS certificates and assessments all refer to the tax year.

Old terms and new terms side by side

Period of earning income	Old description (1961 Act)	New description (2025 Act)
1 April 2025 to 31 March 2026	Previous year 2025-26, assessment year 2026-27	Continues under the 1961 Act
1 April 2026 to 31 March 2027	Not applicable	Tax year 2026-27
1 April 2027 to 31 March 2028	Not applicable	Tax year 2027-28

So the return for income earned in 2026-27, which will be filed in 2027, is the return for tax year 2026-27. There is no separate assessment year label.

New businesses and new sources of income

The old law had a similar rule for new businesses, and the new Act keeps it in simpler words. If a business or profession is set up, or a new source of income comes into existence, during a financial year, the first tax year starts on that date and ends on 31 March of the same financial year.

Example: A private limited company is incorporated and commences business on 15 November 2026. Its first tax year runs from 15 November 2026 to 31 March 2027, and every subsequent tax year is a full financial year. The company does not need to prepare a separate longer period; its first set of tax computations covers four and a half months.

The same applies to an individual who begins freelancing, or who starts earning rental income from a newly acquired property, midway through the year. The income from that new source is computed from its start date within that tax year.

Special situations

The 1961 Act contained certain exceptions where income was assessed in the same year it was earned, for example in the case of persons leaving India permanently, discontinued businesses and some shipping income of non-residents. The new Act continues to deal with such cases through specific provisions, now described with reference to the tax year. If any of these situations applies to you, check the relevant provision of the 2025 Act rather than relying on older practice.

The transition: two sets of terms for a while

The Income-tax Act, 2025 applies to income of tax year 2026-27 onwards. The 1961 Act continues for earlier years through transition provisions. In practice, this means:

• The return for FY 2025-26 is filed for assessment year 2026-27 under the 1961 Act. The same applies to the tax audit for FY 2025-26.
• Notices for earlier years, such as scrutiny or reassessment, will continue to refer to assessment years.
• Advance tax, TDS and TCS for 2026-27 are dealt with under the new Act and refer to tax year 2026-27.
• New forms under the Income-tax Rules, 2026, such as Form 130 for salary TDS certificates, use the tax year.

For a broader overview of what else changed, see our guide to the Income-tax Act 2025.

Practical steps for businesses and individuals

1. Update document templates. Salary certificates, investment declaration requests, vendor TDS communications and board notes should refer to the tax year for 2026-27 onwards.
2. Label files carefully. In your records, keep folders for “AY 2026-27 (FY 2025-26)” and “Tax year 2026-27” distinct, so that nobody mixes up the governing law.
3. Review contracts. Agreements that refer to “assessment year” or “previous year” in tax clauses may need a simple update, particularly for multi-year arrangements.
4. Configure software. Accounting, payroll and TDS software should label periods correctly; most providers have released updates.
5. Brief your team. A short note explaining which term applies to which period avoids confusion in client and vendor communication.
6. Keep old references for old years. When replying to a notice for an earlier year, continue to use the assessment year and the 1961 Act sections quoted in it.

Why the change is helpful

The dual-year system was a regular source of errors: taxpayers selected the wrong assessment year while paying challans, or confused the year of a notice. Using a single tax year aligns India with the approach of many other countries, simplifies explanations for non-resident investors and should reduce such avoidable mistakes over time.

Frequently asked questions

What is a tax year under the Income-tax Act 2025?

It is the twelve-month financial year beginning on 1 April. For a new business or a new source of income, the first tax year starts on the date it begins and ends on the following 31 March.

Is assessment year 2027-28 the same as tax year 2026-27?

The period of income is the same, 1 April 2026 to 31 March 2027. However, the new Act uses only the term tax year 2026-27; the assessment year label is not used for this period.

Which year do I select for my FY 2025-26 return?

Assessment year 2026-27, since that year is still governed by the Income-tax Act, 1961.

Does the tax year change due dates for returns or advance tax?

The concept itself only changes terminology. Due dates are set by the Act and rules for each compliance, so check the dates notified for tax year 2026-27.

This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

The Income-tax Act 2025 came into force on 1 April 2026, replacing the Income-tax Act, 1961 after more than six decades. Parliament passed the new law in August 2025, it received Presidential assent on 21 August 2025, and the Income-tax Rules, 2026 were notified on 20 March 2026 to put it into operation.

For most taxpayers, the headline message is reassuring: the new Act is primarily a rewrite for clarity, not a new tax policy. Rates, the broad treatment of income and familiar systems such as PAN, TAN and faceless assessment continue. What changes is the language, the numbering and some of the concepts you will see on forms and notices. Here is what every taxpayer and business should know.

Key takeaways

• The Income-tax Act 2025 applies from 1 April 2026, so income earned in the tax year 2026-27 onwards is governed by it.
• The Act has 536 sections and 16 schedules, compared with over 800 sections in the 1961 Act, with provisos and explanations folded into the main text and many rules shown as tables.
• “Previous year” and “assessment year” are replaced by a single “tax year”.
• Section and form numbers have changed, so documents such as Form 16 and Form 26AS now carry new numbers.
• Returns, audits and proceedings for FY 2025-26 and earlier years continue under the 1961 Act through transition provisions.

Why a new Income-tax Act 2025?

Over the years the 1961 Act grew through hundreds of amendments. Sections such as 80-IA or 80-IB sat alongside provisions numbered with multiple letters, and a single sentence could run across several provisos. That made the law harder to read and increased the room for disputes.

The Government’s stated aim was a simpler, modern code with a reduced compliance burden. According to the Income Tax Department, rules have been reduced from 511 to 333 and forms from 399 to 190. The drafting uses shorter sentences, tables and formulas, and removes provisions that had become obsolete.

The main changes at a glance

1. A single “tax year”

Under the old law, income earned in a “previous year” was assessed in the following “assessment year”. This was a common source of confusion, especially for first-time filers. The new Act uses one term, the tax year, which is the financial year from 1 April to 31 March. Income earned from 1 April 2026 to 31 March 2027 is income of tax year 2026-27. Our upcoming guide on the tax year concept explains this in more detail.

2. New section numbers

Almost every provision has moved. A few commonly used examples are shown below. Always check the official mapping before quoting a section in a return or reply.

Provision	Income-tax Act, 1961	Income-tax Act, 2025
Exempt incomes	Section 10	Section 11
New tax regime	Section 115BAC	Section 202
Rebate for resident individuals	Section 87A	Section 156
Return of income	Section 139	Section 263
TDS provisions	Sections 192 to 194T	Consolidated in section 393

3. TDS and TCS in tables

TDS provisions that were spread across dozens of sections are now largely consolidated, with the nature of payment, threshold and rate set out in tables. For deductors, this means updating accounting software, deduction masters and vendor communication to refer to the new provisions.

4. New form numbers

The Income-tax Rules, 2026 renumber most forms. For example, the salary TDS certificate earlier called Form 16 is now Form 130, Form 16A is Form 131, the employee declaration in Form 12BB is Form 124, and the annual tax statement earlier known as Form 26AS is Form 168.

5. What has not changed

• Tax rates and slabs: the new Act did not itself change the slab rates, which continue as set by the Finance Act.
• Heads of income: salary, house property, business or profession, capital gains and other sources remain.
• Core deductions: popular deductions continue, although under new section numbers.
• Administration: PAN, TAN, e-filing and the faceless assessment framework continue.

What happens to earlier years?

This is the question we hear most often. The transition provisions ensure that the old law continues to apply to periods before 1 April 2026. In practice:

• The return for FY 2025-26 (assessment year 2026-27) is filed under the 1961 Act.
• A tax audit for FY 2025-26 is conducted under section 44AB, with Form 3CD. See our guide to the tax audit for FY 2025-26.
• Pending assessments, appeals and reassessments relating to earlier years continue, and registrations and approvals granted under the old Act generally remain valid where consistent with the new law.

This means that for the next few years, many businesses will work with both Acts in parallel.

A practical checklist for businesses

1. Update your accounting and payroll systems so that TDS sections, forms and certificates reflect the new numbering from tax year 2026-27.
2. Revise templates for invoices, vendor declarations, investment proof collection and salary certificates that quote old section numbers.
3. Brief your finance team on the tax year concept and on which Act applies to which period.
4. Keep a mapping sheet of the sections you use regularly, cross-checked with the official comparison published by the Department.
5. Review agreements that refer to specific sections of the 1961 Act, such as tax clauses in contracts, and consider whether updates are needed.
6. Watch for guidance in the form of FAQs, circulars and amendments. The Taxation and Other Laws (Amendment) Act 2026 has already made further changes.

Tips for individual taxpayers

For salaried individuals, the change will be visible mainly in paperwork. Your employer will issue the TDS certificate in Form 130 for tax year 2026-27, and you will submit investment details to your employer in Form 124. When you check your tax credits, look for Form 168. If an older notice or document refers to a 1961 Act section, that is normal, as long as it relates to a year before 1 April 2026.

Frequently asked questions

When did the Income-tax Act 2025 come into force?

It came into force on 1 April 2026. It received Presidential assent on 21 August 2025, and the Income-tax Rules, 2026 were notified on 20 March 2026.

Have income tax rates changed under the new Act?

The new Act is mainly a simplification. It did not itself change the tax rates or slabs; these continue to be set through the annual Finance Act.

Which law applies to my return for FY 2025-26?

The Income-tax Act, 1961. The new Act applies to income of tax year 2026-27 onwards, and the transition provisions keep earlier years under the old law.

Do I need to learn the new section numbers?

It helps to know the ones you use often. For everything else, the Department’s comparison tables are the safest reference.

This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.