The  'Tax Year' in India - Meaning, Example, Start and End Date

The Final Income Tax Bill 2025 was introduced in Parliament on February 13, 2025. One of the key changes in this bill is the introduction of the Tax Year, which replaces both the Financial Year (FY) and Assessment Year (AY). This change is aimed at making tax compliance simpler for taxpayers across the country.

In this article, we will learn about the Tax Year as outlined in the new Income Tax Bill 2025 and how it impacts individuals and businesses.

What is a Tax Year?

A Tax Year is the new term replacing both the Financial Year (FY) and Assessment Year (AY) in India's tax system. It is a 12-month period that begins on April 1st and ends on March 31st of the following year.

But here’s where it gets interesting:

• If you start a new business in the middle of a financial year, your Tax Year begins from the date your business starts and ends on March 31st.
• If you earn income from a new source (like a new investment or rental property), the Tax Year for that income starts from the date the income begins.

This means you now track your income within one straightforward period—no more confusion between FY and AY!

Why Was the Tax Year Introduced?

Before this change, we used two separate terms:

• Financial Year (FY): The year in which you earned your income.
• Assessment Year (AY): The year in which you filed taxes for the previous financial year.

This often confused taxpayers, especially beginners. With the new system:

• The Tax Year replaces both FY and AY, making tax filing easier.
• You file taxes after the Tax Year ends, without needing to refer to two different years.

It aligns with global tax practices, making compliance simpler.

Why Was the Term ‘Financial Year’ Not Used?

The Financial Year (FY) is still relevant in certain legal and procedural aspects, such as filing deadlines, audits, and rectifications. Unlike the Tax Year, which defines the period for earning and assessing income, the Financial Year continues to serve as a time reference for regulatory and statutory purposes.

Can a Tax Year Be Less Than 12 Months?

In some cases, a Tax Year may be shorter than 12 months—for example, if a business is established or a new source of income arises in the middle of a year, the Tax Year will begin from that date and end on March 31st. This flexibility ensures a smoother transition for businesses and taxpayers under the new system.

How is a Tax Year Different from a Financial Year and Assessment Year?

Assessment Year and Previous Year Under the Income Tax Act, 1961

As per the Income Tax Act, 1961, the year in which income is earned is referred to as the Previous Year, while the year in which the income is assessed and taxed is called the Assessment Year.

For instance, income earned between April 1, 2024, and March 31, 2025, falls under the Previous Year 2024-25. This income will be taxed in the following year, known as the Assessment Year 2025-26.

Financial Year

The definition of the Financial Year (FY) remains unchanged in the new Income Tax Bill. It continues to span from April 1 to March 31 each year.

For example, the Financial Year 2024-25 began on April 1, 2024, and will end on March 31, 2025. The next financial year, 2025-26, will commence on April 1, 2025.

Calendar Year

A Calendar Year runs from January 1 to December 31. However, this concept is not used for taxation in India, as income tax follows the Financial Year format.

Implementation of the New Income Tax Bill

The new Income Tax Bill is expected to replace the Income Tax Act, 1961, and take effect from April 1, 2026, after approval by the Standing Committee and Parliament. However, further revisions to the bill may be made before its final implementation.

As you can see, Tax Year removes the extra layer of confusion and makes the tax system more transparent.

Will This Affect My Tax Filing?

Yes, but in a positive way! Here’s how:

• No more mix-ups between FY and AY. You now only need to remember one term—Tax Year.
• Tax deadlines remain the same. The last date for filing your income tax return (ITR) will still be July 31st (unless extended by the government).
• Businesses get clarity. Companies and professionals can better track their tax obligations without dealing with two different financial references.

Special Cases: When the Tax Year is Less Than 12 Months

In some cases, your Tax Year may be less than a full financial year. This happens when:

• You start a new business in the middle of a financial year.
• A new source of income arises during the year.

For example, if you start a business on October 1, 2026, your first Tax Year will be October 1, 2026 – March 31, 2027. From the next year, it will follow the usual April 1 – March 31 cycle.

Conclusion: What This Means for You?

The new Tax Year system makes tax filing more straightforward, transparent, and easy to understand. Whether you’re an individual taxpayer, business owner, or investor, this change is a welcome step towards simplifying tax compliance.

Now, you don’t need to worry about FY and AY confusion anymore—just focus on earning and filing your taxes under the Tax Year system!

Frequently Asked Question Answered

1. Is ‘Financial Year’ Still Used in the Tax System?

Yes, in some cases! Certain tax procedures—like audits, rectifications, and statutory filings—still refer to a Financial Year because of their legal and procedural importance.

2. Will the Tax Year Overlap with the Old Assessment Year?

No. The new system is designed to avoid overlap and confusion. For example:

• AY 2026-27 under the old system refers to income from FY 2025-26.
• Tax Year 2026-27 under the new system refers to income from April 1, 2026 – March 31, 2027.
• So, there’s no conflict between the two systems.

3. What is the main difference between the Tax Year and the Financial Year?

The Tax Year is the new standard period for earning and assessing income, replacing the Previous Year and Assessment Year. The Financial Year (FY) continues to be relevant for legal and procedural compliance, such as audits and statutory filings.

4. When does the new Tax Year system come into effect?

The Tax Year system starts from April 1, 2026, as per the Income Tax Bill 2025. From this date, taxpayers will file their returns based on the Tax Year rather than the previous Financial Year and Assessment Year system.

5. How does the Tax Year impact businesses and startups?

For businesses and startups established during a financial year, their first Tax Year will begin from the date of commencement and end on March 31. This eliminates confusion regarding partial-year tax assessments.

6. Will tax return deadlines change under the new Tax Year system?

No, the tax return filing deadline remains July 31st (unless extended by the government). The new system simplifies the filing process without altering due dates.

7. Does the new system affect past tax filings?

No, tax filings for previous years before April 1, 2026, will still follow the old system (FY, AY, and PY). Only income earned from April 1, 2026, onwards will be assessed under the Tax Year.

8. Why was the term ‘Assessment Year’ removed?

The Assessment Year (AY) was used for filing taxes for the income earned in the previous Financial Year, which caused confusion. The Tax Year simplifies this by combining both income earning and assessment into a single term.

9. Is the Tax Year concept used in other countries?

Yes, many countries use a Tax Year system, aligning their tax filing periods with a standard 12-month financial period. This change in India makes the tax system more comparable to global standards.

10. How does the new Tax Year affect salaried employees?

For salaried individuals, nothing changes in terms of income tax deductions (TDS) and filing procedures—they will now file returns based on the Tax Year instead of the previous Financial Year and Assessment Year system.

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