Tax Year vs Assessment Year — What Changed Under the Income Tax Act 2025

1The old system: Previous Year vs Assessment Year

Under the Income Tax Act 1961, income earned in a Previous Year (say FY 2024-25) was taxed in the following Assessment Year (AY 2025-26). New taxpayers routinely found it confusing to file a return for a 'year' that differed from the one in which they actually earned the money.

2The new system: one 'Tax Year'

The Income Tax Act 2025 introduces a single Tax Year — a 12-month period from 1 April to 31 March in which income is both earned and assessed. So income earned in the Tax Year 2026-27 is simply assessed for Tax Year 2026-27. There is no separate assessment-year reference to track.

3A simple example

• Old way: You earn salary in FY 2025-26 (the Previous Year) and file your return in AY 2026-27 (the Assessment Year).
• New way (from 1 April 2026): You earn income in Tax Year 2026-27 and it is assessed for Tax Year 2026-27 — same 12 months, one label.

4When does this take effect — and what about earlier years?

The Income Tax Act 2025 came into force on 1 April 2026. The Tax Year concept applies going forward. For income of years before that, the old Assessment Year / Previous Year terminology under the 1961 Act still applies — so your FY 2025-26 return (filed in 2026) is still described in the familiar AY 2026-27 terms.

5Does the tax you pay change?

No — the change is terminology and structure, not the tax computation itself. Your slabs, deductions, regime choice and due dates are governed by the Finance Act. The Tax Year simply removes the dual-year confusion. (Many section numbers did change under the new Act — for example, 80C is now section 123 and 115BAC is section 202 — which you can look up in our Income Tax Act 2025 Section Finder.)