Section 3 — IT Act 2025
What Is a Tax Year? Tax Year vs Assessment Year vs Previous Year
The most confusing question in Indian tax — "what's the difference between FY, PY and AY?" — is now history. The 2025 Act has exactly one term: the Tax Year.
Act 1961 (Old)
Old system — a two-year loop
- Previous Year (PY): the year you earned income (1 Apr–31 Mar)
- Assessment Year (AY): the following year, when that income was assessed — one year ahead
- Example: income of PY 2025-26 is filed in AY 2026-27
- Forms, notices — everything quoted the AY, endlessly confusing people
Act 2025 (New)
New system — a single "Tax Year"
- Tax Year (TY): the 12-month period from 1 April to 31 March
- Income belongs to TY 2026-27, and the ITR is also "for Tax Year 2026-27"
- No +1 year jump anywhere
- Form 16, notices, the portal — everything says "Tax Year"
Tax Year Meaning, With Examples
Example — Amit's salary — which year does it belong to?
Amit was paid a salary on 15 November 2026.
Old system: income of Previous Year 2026-27, assessed in Assessment Year 2027-28. Form 16 would say "AY 2027-28".
New system: the income belongs to Tax Year 2026-27. The ITR is for Tax Year 2026-27. Form 16 says "Tax Year 2026-27". That's it.
Old system: income of Previous Year 2026-27, assessed in Assessment Year 2027-28. Form 16 would say "AY 2027-28".
New system: the income belongs to Tax Year 2026-27. The ITR is for Tax Year 2026-27. Form 16 says "Tax Year 2026-27". That's it.
Example — New business — when does its first Tax Year start?
Sunita opened her bakery on 1 January 2027.
• Her first Tax Year runs from 1 Jan 2027 to 31 Mar 2027 (just 3 months) — for a newly set-up business or profession, the first tax year runs from the start date to that 31 March.
• Every year after that is a full 1 April – 31 March cycle.
• Her first Tax Year runs from 1 Jan 2027 to 31 Mar 2027 (just 3 months) — for a newly set-up business or profession, the first tax year runs from the start date to that 31 March.
• Every year after that is a full 1 April – 31 March cycle.
Converter — FY to Tax Year
Where we are right now (2026): we are living inside Tax Year 2026-27 — the first year of the new Act. Income earned this year will be taxed under the 2025 Act and filed by July 2027. (The FY 2025-26 return filed in July 2026 belonged entirely to the old Act.)
- Section 3 of the IT Act 2025 defines the Tax Year
- Tax Year = the financial year in which income is earned — no separate 'assessment' year
- A new business can have a short first Tax Year (start date → 31 March)
- Special cases (e.g. occasional income of a shipping business) may still use a previous-year-like concept in limited situations
- Old records (up to AY 2026-27) will forever carry 1961-Act terminology — they are not being rewritten
📖 Real case: 'FY 2026-27' on forms from April 2026
From 1 April 2026, 'Previous Year 2026-27 + Assessment Year 2027-28' becomes simply 'Tax Year 2026-27' — one label, same April-to-March span. Old forms asking 'AY'? Write the Tax Year; departments map it internally. ITR utilities, Form 16 headers and notices switch labels gradually — if a portal field still says AY, don't panic, it's the same year wearing old clothes. Confusion peaks in transition years; this box exists so you skip it.
Dates here use Tax Year: ITR deadlines → · full calendar →
By TaxSetu Editorial Team · Last reviewed: 7 October 2026
Based on the Income-tax Act 2025, Income Tax Rules 2026 and CBDT notifications; sections per the Income-tax Act 1961 (as amended) with 2025-Act mappings where notified · Verify on the official portal: incometax.gov.in
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