Tax Year Under the New Act: How It Replaces Previous Year and AY

Under the Income-tax Act, 2025, “tax year” is the single term for the 12 months from 1 April to 31 March in which you earn income. It replaces both “previous year” and “assessment year” from tax year 2026-27, which began on 1 April 2026. Income of FY 2025-26 is still reported under the old terms, for AY 2026-27.

Key facts

What “tax year” means

Section 3 of the Income-tax Act, 2025 defines the tax year as the 12-month period of the financial year starting on 1 April. The Income Tax Department’s FAQ describes it as “a period of twelve months contained in a financial year”.

A tax year can be shorter than 12 months. If you start a business or profession, or a new source of income begins, partway through a financial year, your first tax year runs from that start date to 31 March. After that it follows the normal April to March cycle.

Your accounting year does not change. The department’s FAQ says no change to accounting years or financial statements is needed, because the tax year matches the financial year.

How FY and AY worked before

The Income-tax Act, 1961 used two labels for one set of income:

• Previous year (PY), also called the financial year: the year you earned the income.
• Assessment year (AY): the following year, in which that income was assessed and the return filed.

So salary earned between 1 April 2025 and 31 March 2026 belongs to FY 2025-26, and the return for it is filed for AY 2026-27. Mixing up the two labels was a common filing mistake. People picked the wrong year on the portal or on a tax challan.

The new Act drops the assessment year. Income is still assessed after the year ends, as before. The difference is that forms, challans and notices name the year in which you earned the income.

Which years use the new term

Section 536(3) of the new Act handles older years. Where the 2025 Act mentions a tax year that began before 1 April 2026, you read it as the matching previous year under the 1961 Act. The department’s own example: tax year 2024-25 means previous year 2024-25, which is AY 2025-26.

The 1961 Act still governs every year that began before 1 April 2026. Applications and proceedings for those years continue under the old law.

FY 2025-26 returns: still under the old Act

Returns being filed now, in 2026, are for income of FY 2025-26. The e-Filing portal says to file these on the old ITR forms and to select AY 2026-27. That is why deadlines for this return still quote the 1961 Act, such as the belated return date under Section 139(4). Our guide to the belated return deadline of 31 December 2026 covers that case.

The first return under the new Act will be for tax year 2026-27, filed in 2027. Section 263 of the 2025 Act covers original, belated, revised and updated returns. The portal gives these time limits for the new Act:

• Belated return: within 9 months from the end of the tax year, or before assessment is completed, whichever is earlier.
• Revised return: within 12 months from the end of the tax year, or before assessment is completed, whichever is earlier.
• Updated return: within 48 months from the end of the financial year after the tax year.

For tax year 2026-27, the 9-month and 12-month limits work out to 31 December 2027 and 31 March 2028. See ITR due dates and penalties for the current filing calendar.

How documents and forms will show the year

Tax payments

The e-Pay Tax service now asks which law you are paying under:

1. Choose “Income Tax Act 1961” for AY 2026-27 and earlier, including self-assessment tax for AY 2026-27.
2. Choose “Income Tax Act 2025” for tax year 2026-27 onwards. These challans are raised by tax year, not assessment year.

Advance tax for the current year is therefore paid against tax year 2026-27.

Salary and TDS certificates

The new Rules renumber many forms. Form 16 becomes Form 130 for salary paid from tax year 2026-27, and Form 26AS becomes Form 168. Form 16 for FY 2025-26 was still issued in its old form. The certificates you receive in 2027 will name the tax year.

Section numbers

Most sections have new numbers too. Section 139 for returns is now Section 263, and the new tax regime moves from Section 115BAC to Section 202. Our table of old and new section numbers maps the common ones.

Quick reference

For the wider set of changes, read our summary of what the Income-tax Act, 2025 changed. If you have a pending assessment or appeal that spans both laws, a chartered accountant can confirm which year label and section apply.

Frequently asked questions

What is the tax year under the Income-tax Act, 2025?

The 12-month period from 1 April to 31 March in which income is earned. It replaces the previous year and the assessment year of the 1961 Act.

Is the assessment year abolished?

Yes, for years from tax year 2026-27. Returns and challans for FY 2025-26 and earlier still use the assessment year.

Which assessment year do I select for my return filed in 2026?

Select AY 2026-27 for income earned in FY 2025-26, on the old ITR forms.

What is the difference between previous year and assessment year?

The previous year is when you earned the income. The assessment year is the next year, when that income was assessed and the return filed.

Can a tax year be shorter than 12 months?

Yes. If a business, profession or income source starts during a financial year, the first tax year runs from that date to 31 March.

Do companies need to change their accounting year?

No. The tax year matches the April to March financial year, so the department says no change is needed.

Which Act do I pick when paying advance tax now?

Pick Income Tax Act 2025 and tax year 2026-27. Pick the 1961 Act only for AY 2026-27 or earlier years.

Sources

• Objective and scope of the New Act (FAQ) — Income Tax Department e-Filing portal (checked 16 Sep 2026)
• Income Tax Returns: old and new Act time limits — Income Tax Department e-Filing portal (checked 16 Sep 2026)
• Create Challan Form user manual — Income Tax Department e-Filing portal (checked 16 Sep 2026)
• Section 3, Income-tax Act, 2025: definition of tax year — Income Tax Department (checked 16 Sep 2026)
• Form 130 FAQs — Income Tax Department (checked 16 Sep 2026)
• Income-tax Act, 2025 with section mapping — ICAI publication (checked 16 Sep 2026)