Tax Year vs Assessment Year vs Financial Year – What Changed in the Income-tax Act 2025
- Section 3: "tax year" means the twelve-month financial year starting on 1 April.
- Income earned from 1 April 2026 to 31 March 2027 belongs to Tax Year 2026-27 – there is no separate "assessment year 2027-28".
- A new business or new source of income gets a shorter tax year from its start to the end of that financial year.
Under the old law you earned income in the previous year and paid tax on it in the next assessment year – so income of FY 2025-26 was taxed in AY 2026-27. The Income-tax Act, 2025 removes this two-year idea.
What section 3 says
- Section 3(1): "tax year" means the twelve-month period of the financial year commencing on 1 April.
- Section 3(2): for a business or profession newly set up, or a source of income newly coming into existence during a financial year, the tax year begins on the date of setting up or the date the source comes into existence and ends with that financial year.
Examples
| Your income earned between | Old law | New Act |
|---|---|---|
| 1 Apr 2025 – 31 Mar 2026 | Previous year 2025-26, Assessment Year 2026-27 | Tax Year 2025-26 (assessed under the old law, as it applied then) |
| 1 Apr 2026 – 31 Mar 2027 | Previous year 2026-27, Assessment Year 2027-28 | Tax Year 2026-27 |
The Act came into force on 1 April 2026, so Tax Year 2026-27 is the first one fully under the new law. The Income-tax Rules, 2026 also apply from 1 April 2026.
Why this matters in practice
- Forms and certificates now refer to the "Tax year" – for example Form No. 130 has a "Tax year" field.
- The return for a tax year is filed under section 263, with a due date in the financial year after the tax year (31 July for most salaried people).
- Advance tax is still paid during the financial year (see the advance tax guide) – the Act uses both "financial year" (for payment dates) and "tax year" (for income).
When you search old material, replace "AY 2027-28" with "Tax Year 2026-27" mentally. Our mapping guide lists the other renamed provisions.
Still have a question? Ask TAXBADI – get an answer from the Act, Rules and forms, with the exact sections cited.
More guides
- Arrears of Salary – Relief under Section 157, Rule 73 and Form No. 39 (Old 89(1))
- Capital Gains Tax Rates 2026-27 – Shares, Mutual Funds and Property under the New Act
- Clubbing of Income – Section 99: When Spouse or Minor Child Income Is Added to Yours
- Filing Income Tax Return Late – Fee under Section 428 and Interest under Sections 423 to 425
This guide is for general information and is not tax advice. Tax figures are before health and education cess unless stated. The law and the official notifications are the final authority – see our Disclaimer. Found a mistake? Tell us.