Tax Year Meaning As Per Income Tax Act 2025

Meaning

"Tax year" refers to a twelve-month period which follows the financial year.

Financial year begins on 1st April and ends on 31st March of the following year.

This is the standard tax reporting period for individuals and businesses.

Effective Date

Introduction of the concept "Tax Year" as per New IT Act will be effective from 1st April 2026.

Benefits

• This will remove the confusion between Previous Year and Assessment Year.

• This will also help India fall in line with international standards since many countries follow the concept of a singular tax year.

When a New Business or Source of Income Starts

In the case of a business or profession newly set up, or a source of income newly coming into existence in any financial year, the tax year shall be the period beginning with—

If a new business or profession is newly set up or a source of income newly arises within a financial year, then the tax year for that specific income will be:

For a New Business or Profession

The tax year starts from the date the business or profession is set up.
It ends on March 31 of the same financial year.

Example

Abhinav planning to start his business on 1st September 2026. The tax year for this business will be 1st September 2026 – 31st March 2027.

For a New Source of Income:

The tax year starts from the date when the income first arises.
It ends on March 31 of the same financial year.

Example

Ajay is making a building on his land and planning to start earning rental income from a property starting 1st June 2026. The tax year for this rental income will be June 1, 2026 – March 31, 2027.

Thus, in such cases, the tax year will not be a full 12 months but will cover the period from the start date to March 31st of that financial year.

Comparison with Income Tax Act, 1961

Earlier there are two terms:

• Previous Year : The year in which income is earned.

• Assessment Year : The year following the previous year, when tax is calculated.

The draft bill gets rid of this term. There will be no separate assessment year. Tax year will be covering both earning and assessment years.