'Tax Year’ Replaces ‘Assessment Year’ Under New Income Tax Act: What Taxpayers Should Know
From April 1, 2026, the new Income Tax Act replaces ‘Assessment Year’ with ‘Tax Year’, aligning the year of income with the year of tax reporting and ending the dual-year system
The new Income Tax Act,2025 will come into force from 1 April 2026. The law removes the concept of Assessment Year and replaces it with Tax Year. The change aims to simplify tax filing and remove confusion in tax communication.
What was the system earlier?
Under the Income-tax Act, 1961, income earned in one year was taxed in the following year.
The year of earning income was called the Financial Year or Previous Year.
The year of tax assessment was called the Assessment Year.
What changes under the new law?
The new law removes the terms Previous Year and Assessment Year. It introduces a single concept called Tax Year.
Income earned during a year will be reported and assessed for the same year. The year of income and the year of tax reference will match.
Statutory definition of “Tax Year”
Definition of “tax year”.
3. (1) For the purposes of this Act, “tax year” means the twelve months period of the financial year commencing on the 1st April.
(2) In the case of a business or profession newly set up, or a source of income newly coming into existence in any financial year, the tax year shall be the period beginning with—
(a) the date of setting up of such business or profession; or
(b) the date on which such source of income newly comes into existence,
and ending with the said financial year.
What this means for taxpayers
For salaried individuals and existing businesses, the Tax Year will run from 1 April to 31 March. Income earned during this period will be taxed for that same period.
For a new business or a new source of income, the Tax Year will start from the date the business or income begins and will end on 31 March.
Tax will apply only to income earned during this period.
Will tax rates or slabs change?
No.
This change does not alter tax rates, slabs, exemptions or deductions. The change affects only terminology and structure.
Impact on tax filing and communication
Tax return forms, notices, and assessment orders will use the term Tax Year. The term Assessment Year will not apply after the new law takes effect.
Taxpayers will deal with one year reference instead of two.
Transition timeline
Income earned up to 31 March 2026 will continue under the existing law. Returns for that income will follow the Assessment Year format.
Income earned from 1 April 2026 onward will fall under the Tax Year system.
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