The Income Tax Bill 2025 has been introduced in the Lok Sabha by Finance Minister Nirmala Sitharaman. One of the key changes introduced in the New Income Tax Bill, 2025, pertains to the concept of the ‘tax year’. The Bill replace terminologies such as “assessment year” and “previous year” with the easier-to-understand “tax year” as part of a move to simplify language. This is expected to eliminate confusion among taxpayers over these terminologies. However, the concept of financial year (FY) will remain the same.
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. For a newly established business or profession, the Tax Year starts from the date of the establishment. 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.
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.
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.
What is the Previous Year and the Assessment Year under the Income Tax Act?
Under the Income Tax Act 1961, the year in which income is earned is called as previous year and the year in which the income is charged to tax is called as assessment year.
For example, income earned during the period of April, 1, 2023 to March, 31, 2024 is treated as income of the previous year 2023-24. This income will be charged to tax in the next year, i.e., in the assessment year 2024-25.
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Note: This Post was last updated on March 27, 2025
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