Tax Year vs Previous Year and Assessment Year: The New Concept in the Income Tax Act 2025
Under the Income-tax Act, 2025, the year for which income is taxed is called the tax year. Section 3(1) defines it as the twelve months of the financial year starting on 1 April. The Act does not use a separate "assessment year": income of tax year 2026-27 (1 April 2026 to 31 March 2027) is filed and taxed as the income of tax year 2026-27, not of an "AY 2027-28".
If you are used to the older two-name habit (a "previous year" in which you earn and an "assessment year" after it), this guide shows what changed, how section 3 works for a business started mid-year, and which due dates hang off the tax year. The Act text used here is as amended by the Finance Act, 2026, and applies from 1 April 2026. Last reviewed on 10 November 2026.
What is a "tax year" under the Income-tax Act, 2025?
Section 3(1) says that for the purposes of the Act, "tax year" means the twelve months period of the financial year commencing on the 1st April. So the tax year that begins on 1 April 2026 runs to 31 March 2027 and is written 2026-27.
Throughout the Act, the charge, the total income and the return are all tied to this one term. Section 5(1) says the total income of any tax year of a resident includes all income from whatever source derived. Section 4(2) says the charge of income-tax is on the total income of the tax year of every person.
What happened to "previous year" and "assessment year"?
Across the Act and the Income-tax Rules, 2026 as available to us, the words "assessment year" do not appear at all, and "previous year" appears only once, in the transition clause of section 536(3). Every operative provision speaks of the "tax year" instead.
Section 536 repeals the Income-tax Act, 1961 (section 536(1)). Section 536(3) then says that any reference in the new Act to a tax year commencing on 1 April 2025 or any earlier tax year is to be read as a reference to the corresponding previous year under the repealed Act. In plain terms, the 1961 Act's year-of-income label is carried across for the past, and the new label applies from 1 April 2026.
We have not verified here how the 1961 Act defined its two terms, so we do not describe that mapping in detail. If you handle old assessments, check the old-law text for the year you are working on.
Old words against new words: a quick comparison
| Question | Income-tax Act, 2025 |
|---|---|
| Name of the period income is taxed for | Tax year (section 3) |
| Normal length and start | Twelve months from 1 April (section 3(1)) |
| Does the Act use "assessment year"? | No, the term does not appear in the Act or Rules text |
| How are earlier years referred to? | Tax years up to the one beginning 1 April 2025 are read as the corresponding previous year under the repealed Act (section 536(3)) |
| Return filed "for" which year | The tax year itself (section 263(1)(a)) |
| Commencement of the new Act | 1 April 2026 (section 1(3)) |
Is the tax year always 1 April to 31 March?
Not for a new business or a new source of income. Section 3(2) says that where a business or profession is newly set up, or a source of income newly comes into existence, in a financial year, the tax year for it begins on:
- the date of setting up of the business or profession; or
- the date on which the source of income newly comes into existence,
and ends with that financial year, that is, on the following 31 March. So the first tax year of a new business can be shorter than twelve months.
Example 1: how long is a new business's first tax year?
Assumption: Ravi sets up a trading business on 10 September 2026 and has no other business that year. Under section 3(2)(a), the tax year for that business starts on 10 September 2026 and ends on 31 March 2027.
| Month | Days counted |
|---|---|
| September 2026 (10th to 30th) | 21 |
| October | 31 |
| November | 30 |
| December | 31 |
| January 2027 | 31 |
| February 2027 | 28 |
| March 2027 | 31 |
| Total | 203 days |
The next tax year, 2027-28, is the normal twelve months from 1 April 2027.
Example 2: which tax year does a new rental income belong to?
Meena buys a flat and starts letting it out on 1 December 2026. A new source of income came into existence that day, so under section 3(2)(b) the tax year for that source starts on 1 December 2026 and ends on 31 March 2027. That is 31 + 31 + 28 + 31 = 121 days (December, January, February, March). Her salary, which already existed, stays in the tax year 1 April 2026 to 31 March 2027.
By when must the return for a tax year be filed?
Section 263(1)(c) sets the due date as a date in the financial year that follows the relevant tax year. Because the return belongs to the tax year, you look up the person and conditions, then pick the date from this table.
| Who (section 263(1)(c), Table) | Due date | Date for tax year 2026-27 |
|---|---|---|
| Any other assessee (Sl. No. 4) | 31st July | 31 July 2027 |
| Business or profession (or a firm's partner), accounts not required to be audited, and section 172 does not apply (Sl. No. 3) | 31st August | 31 August 2027 |
| Company, an assessee (or a firm's partner) whose accounts must be audited, and section 172 does not apply (Sl. No. 2) | 31st October | 31 October 2027 |
| Assessee where section 172 applies (international or specified domestic transaction; Sl. No. 1) | 30th November | 30 November 2027 |
Example 3: three clients, one tax year
Take tax year 2026-27 (1 April 2026 to 31 March 2027) and three clients, with the assumptions stated:
- Salaried employee, no business: falls under "any other assessee", so the return is due on 31 July 2027.
- Small trader with unaudited accounts, no section 172 transaction: due on 31 August 2027.
- Private company with no section 172 transaction: due on 31 October 2027.
All three dates are in the financial year 2027-28, the one after the tax year. Whether a client needs a tax audit, or has a section 172 transaction, decides which row applies, so confirm that before quoting a date.
Which law applies to returns, notices and appeals for older years?
Section 536(2)(c) says the repealed 1961 Act continues to apply to any proceeding pending on 1 April 2026, and to any proceeding started on or after 1 April 2026, for a tax year beginning before 1 April 2026. This covers notices, assessment, reassessment, rectification, penalty, revision and appeals, and they follow the procedure of the repealed Act. Section 536(2)(d) separately lets a penalty for such a year be imposed under the repealed Act.
| Income relates to | Which Act governs the proceedings |
|---|---|
| Year beginning before 1 April 2026 (up to the year beginning 1 April 2025) | Repealed Income-tax Act, 1961 (section 536(2)(c)) |
| Tax year beginning on or after 1 April 2026 | Income-tax Act, 2025 |
So a notice received in 2027 about the year ending 31 March 2026 is handled under the old procedure, while a return for tax year 2026-27 follows the new Act. Keep the two sets of clients and notices separate in your tracker.
Common mistakes
- Writing "assessment year" on new-Act work. The Act does not use it. Use "tax year 2026-27" in notes, engagement letters and client emails.
- Assuming every tax year has 365 days. A business set up mid-year, or a new source of income, has a shorter first tax year under section 3(2).
- Applying the 1 April start to a new source. The tax year for a newly set up business or new income source starts on the date it began, not on 1 April.
- Mixing eras. Section 536(3) reads tax years up to the one beginning 1 April 2025 as the corresponding previous year under the repealed Act. For those years the old law still decides the answer.
- Using the wrong due date row. The 263(1)(c) date depends on the person and conditions (audit, section 172), not just on the tax year.
Where this is in the Act
- Section 1(3): the Act commences on 1 April 2026.
- Section 3(1): definition of tax year. Section 3(2): new business, profession or source of income.
- Sections 4(2) and 5(1): charge and scope of total income by tax year.
- Section 263(1)(a) and (c), Table: return for a tax year and due dates.
- Section 536(1), (2)(c)-(d) and (3): repeal of the 1961 Act, its continued application to proceedings for earlier years, and the reading of earlier tax years as the corresponding previous year.
Frequently asked questions
See the FAQ section below for short answers. For another worked topic under the new Act, read our guide to TDS on rent under the Income-tax Act, 2025.
For a CA firm, the practical change is naming and tracking. Finexo's practice management software lets you track return due dates by client and tax year and reminds you before they pass. It does not file returns for you.
This article is general information about the Income-tax Act, 2025 and is not tax advice. Check the current text before relying on it.
Frequently Asked Questions
What is a tax year under the Income-tax Act, 2025?
Section 3(1) defines it as the twelve months of the financial year starting on 1 April. The tax year beginning 1 April 2026 runs to 31 March 2027 and is called tax year 2026-27.
Is there still an assessment year under the new Act?
The words assessment year do not appear in the Act or the Rules as available to us. Income is dealt with by reference to the tax year, so refer to tax year 2026-27 rather than AY 2027-28.
What does the Act say about earlier years?
Section 536(3) says a reference in the new Act to a tax year commencing on 1 April 2025 or any earlier tax year is read as a reference to the corresponding previous year under the repealed Income-tax Act, 1961.
Which Act applies to a notice or appeal about a year before 2026-27?
Section 536(2)(c) keeps the repealed 1961 Act, with its procedure, for proceedings pending on 1 April 2026 or started later in respect of any tax year beginning before 1 April 2026. Years beginning on or after that date fall under the 2025 Act.
Can a tax year be shorter than twelve months?
Yes. For a newly set up business or profession, or a newly arising source of income, section 3(2) starts the tax year on that date and ends it on the following 31 March.
When is the ITR for tax year 2026-27 due?
Section 263(1)(c) gives 31 July 2027 for any other assessee, 31 August 2027 for unaudited business or profession, 31 October 2027 for companies and audited assessees, and 30 November 2027 where section 172 applies.