Tax Year in Income Tax: Meaning, Example, Start and End Date

The upcoming Income Tax Bill 2025, which was introduced in the Parliament on February 13, seeks to simplify India's tax laws and simplify compliance for taxpayers. One of the key changes in the bill is the introduction of the "tax year," which replaces both the Financial Year (FY) and the Assessment Year (AY). In this article, we will learn about the "tax year" as outlined in the new Income Tax Bill 2025.

What is a Tax Year in Income Tax?

As per the Income-Tax Bill, 2025, the Tax Year is defined as follows:

• It is a 12-month period that begins on April 1st and ends on March 31st of the following year.
• For a newly established business or profession, the Tax Year starts from the date of the establishment.
• If a new source of income arises during the year, the Tax Year for that income begins from the date the income source comes into existence.
• Simply speaking, the tax year is usually 12 months of April 1st to March 31st, but it is not necessary for all cases.

Current Income Tax Law: Which Years Are Relevant?

In the current Income Tax Law, the concept of Previous year and Assessment year is used. 

• Previous Year: Simply speaking, it is the year in which the income is earned. It can be less than 12 months in case the business is newly set up or the source of income is new. In those cases, the previous year is from the date of beginning of the new business/income source to March 31st.
• Assessment Year: Simply speaking, it is the year in which the tax is paid for income earned. It is the year next to previous year. In assessment year, the income earned in previous year considered for tax purposes and tax is paid, if applicable.

This dual reference to years created a lot of confusion among tax-payers. Therefore, these concepts were revamped and the concept of “Tax Year” was introduced.

How Do We Refer To Previous Year And Assessment Year In The New Bill? 

Wherever reference needs to be made to Assessment Year in the new bill, the terminology has been changed to “Subsequent Tax Year”. For instance, in section 263 talks about filing of income tax returns. We all know that the filing of returns happen in assessment year (which is next to previous year). Instead of referring to assessment year, we say it as “ Financial Year succeeding to relevant Tax Year”.

Can A Tax Year Be Less Than 12 Months?

Yes! Very much. As previously mentioned, a tax year can be less than 12 months in the following cases:

• A new business or profession is set up in the middle of the financial year.
• A new source of income set up in the middle of the financial year.

For example, a new business is set up on 01st June 2026, the tax year in this case would be from 01st June 2026 to 31st March 2027. Not 1st April to 31st March. 

Comparison: Tax Year v/s Financial Year v/s Assessment Year

The comparison of tax year under the new Income Tax Bill, 2025 and Financial year and Assessment year is as follows:

Will This Impact My Tax Filing?

• The removal of the concept of financial year and assessment year simplifies the tax process, giving taxpayers a better overview and lesser confusion.
• It tends to simplify the operation of the tax authorities additionally by minimizing amounts of disparities and misinterpretations concerning assessment periods and the financial periods.
• Therefore we can conclude that introduction of the concept of Tax Year does not change the dates of filing return, or the manner of filing. It has resulted in nothing but simplification of law and make it more accessible to public at large.

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