Tax Year vs Financial Year and Assessment Year

Why two names existed in the first place

Under the 1961 Act, income tax works in two steps that happen a year apart. You earn income during a "Previous Year" — say, 1 April 2025 to 31 March 2026, commonly called FY 2025-26. The tax department then assesses and taxes that income the following year, called the "Assessment Year" — AY 2026-27. The Previous Year is always the AY minus one: earn in FY 2025-26, get assessed in AY 2026-27, file your return sometime in 2026. Two labels, two years, one period of income — and mixing them up is a common, genuinely confusing mistake even for people who've filed for years.

How Tax Year replaces both

The Income-tax Act, 2025 drops the two-label system entirely. A Tax Year is the same twelve-month window (1 April–31 March) as before, but it's the only name for that period — there's no separate word for "the year it gets assessed," because under the new Act the assessment and compliance cycle is described relative to the Tax Year itself, not a second year named after it.

Concept	Old (1961 Act)	New (2025 Act)
Period income is earned	Previous Year (e.g. FY 2025-26)	Tax Year (e.g. Tax Year 2026-27)
Period income is assessed/taxed	Assessment Year (e.g. AY 2026-27, the year after)

Line these up against real dates and the substitution is exact, not approximate: income earned 1 April 2026–31 March 2027 would have been "FY 2026-27" under the old system, assessed the following year as "AY 2027-28." Under the new Act, that entire period is just Tax Year 2026-27 — one name, and it's the SAME "2026-27" label the old Previous Year would have used, not the Assessment Year's "2027-28."

When each system applies — don't backdate "Tax Year" onto years it doesn't cover

Tax Year is not retroactive. It applies from Tax Year 2026-27 (income earned 1 April 2026 onward) forward. Every period before that keeps its old FY/AY labels — including the return most people are filing right now, for income earned in FY 2025-26, assessed as AY 2026-27. See what changed under the Income-tax Act, 2025 for the full transition boundary this terminology change sits inside.

What this changes in practice

• Return filing due dates keep the same structure. The obligation to file a Tax Year 2026-27 return arises after the Tax Year ends (1 April 2027 onward) — the same timing pattern as filing an AY return the year after the Previous Year, just described relative to the Tax Year itself rather than a separate Assessment Year label.
• ITR forms for AY 2026-27 are unaffected. The forms notified for this year's filing (ITR-1 through ITR-7) stay under the 1961 Act's AY 2026-27 framework — due 31 July 2026 for non-audit filers, 31 August 2026 for ITR-3/ITR-4 filers subject to audit.
• Advance tax and TDS for Tax Year 2026-27 use the new terminology from the start — see advance tax and TDS under the new Act for the specific due dates and section numbers.
• Older years never get relabelled. FY 2024-25/AY 2025-26 and everything before it stays exactly as it was — Tax Year is a forward-only change, not a renaming of history.

A worked timeline

Three consecutive periods of income, shown both ways:

• 1 Apr 2024–31 Mar 2025: FY 2024-25, assessed as AY 2025-26. Old system only — this period predates the new Act entirely.
• 1 Apr 2025–31 Mar 2026: FY 2025-26, assessed as AY 2026-27. Still the old system — this is the year most people are filing for right now, even though the new Act is already in force by the time you file it.
• 1 Apr 2026–31 Mar 2027: Tax Year 2026-27. The first period the new terminology actually applies to — no separate "AY 2027-28" label exists for it under the new Act.