Tax Year to Replace Assessment Year from 1 April 2026: What Taxpayers Should Know

India’s income tax framework is set to undergo a key terminological change with the introduction of the Income-tax Act, 2025, which will come into force from 1 April 2026. One of the notable changes under the new law is the replacement of the long-used terms “Previous Year” and “Assessment Year” with a single concept known as the “Tax Year”.

This change has raised questions among taxpayers and businesses about its implications. Understanding the scope and intent of this shift is essential to avoid confusion during the transition phase.

Understanding the Concept of “Tax Year”

Under the proposed law, a Tax Year refers to a twelve-month period, generally aligned with the financial year running from 1 April to 31 March. The term replaces the “Previous Year” as defined under the Income-tax Act, 1961.

In addition, with the discontinuation of the term “Assessment Year,” the Tax Year will now serve as the reference period for:

Determining applicable income-tax rates
Assessing total income
Carrying out income-tax assessments

Why Were “Previous Year” and “Assessment Year” Removed?

The earlier framework required taxpayers to deal with two different years:

One year in which income was earned (Previous Year), and
A subsequent year in which tax was assessed (Assessment Year)

According to explanations accompanying the Income-tax Bill, this dual-year system often caused interpretational and practical confusion, particularly since income is now almost entirely aligned with the financial year.

The government has noted that the rationale for maintaining two separate terms is no longer valid and that the “Tax Year” concept is widely used in comparable international tax jurisdictions. Continued Relevance of the Financial Year

While the terms “Previous Year” and “Assessment Year” are being phased out, the Financial Year continues to be relevant for procedural and compliance-related purposes.

The Income Tax Department has clarified that several statutory timelines—such as:

Return filing deadlines
Rectification periods
Compliance and limitation timelines

still require reference to a financial year, especially since a Tax Year may, in certain cases, be shorter than a full financial year (for example, in the case of a newly established business).

Transition Clarity: Will There Be an Overlap in 2026–27?

The Income Tax Department has explicitly clarified that no conflict will arise during the transition year.

Assessment Year 2026–27 under the Income-tax Act, 1961 will relate to income earned during Financial Year 2025–26 and will continue to be governed by the existing law.
Tax Year 2026–27 under the new Act will apply to income earned during Financial Year 2026–27 and will be governed by the new Income-tax Act.(Source: Income-tax Bill, 2025 – FAQs)

Accordingly:

Income of FY 2025–26 will be assessed under the old Act
Income of FY 2026–27 will be assessed under the new Act

This ensures a clear legal separation between the two regimes.

Does the Introduction of “Tax Year” Change Your Tax Liability?

Based on official explanations issued with the Income-tax Bill, the shift to a Tax Year is a structural and terminological change, intended to simplify the law and improve clarity.

The Bill does not, by itself, introduce changes to tax rates, slabs, or computation mechanisms merely due to the adoption of the new term. Any changes to tax liability would arise only from specific charging or computation provisions, not from the renaming of assessment periods.

How SS Auditors Can Assist During the Transition

As India moves toward implementation of the new Income-tax law from 1 April 2026, taxpayers—particularly businesses and professionals—will need to carefully track transitional provisions and compliance requirements.

SS Auditors assists clients with:

Income-tax compliance and return filing
Advisory on transition from the Income-tax Act, 1961 to the new law
Corporate and non-corporate tax advisory
Accounting, audit, and regulatory compliance

👉 Explore our Income Tax & Compliance Services

Closing Note

The replacement of “Assessment Year” with “Tax Year” represents a move toward simplification rather than a substantive change in taxation. With proper understanding and professional guidance, taxpayers can navigate this transition smoothly and remain fully compliant under the new regime.