Key Takeaways
- The Income Tax Act 2025 replaces the 60-year-old Act of 1961, effective from April 1, 2026 (Tax Year 2026-27 onwards)
- "Tax Year" replaces the dual Financial Year / Assessment Year terminology with a single unified concept
- FY 2025-26 + AY 2026-27 both map to Tax Year 2026-27 under the new framework
- If you are filing your ITR in July 2026 for income earned in FY 2025-26, you are still filing under AY 2026-27 (old Act applies)
- Section numbers change substantially under the new Act — Section 80C becomes Section 123, Section 87A becomes Section 156
What is Tax Year under the Income Tax Act 2025? Tax Year is a single 12-month period (April 1 to March 31) introduced by the Income Tax Act 2025 that consolidates the old Financial Year and Assessment Year into one concept. Income earned during Tax Year 2026-27 is reported and assessed in that same Tax Year, replacing the prior system where earning and assessment fell in two separately named years.
The Income Tax Act 2025 carries the most significant structural overhaul of Indian income tax law since 1961. Most of the substantive law remains unchanged — tax slabs, due dates, deduction limits — but the architecture is reorganised, and the terminology shifts meaningfully. The FY/AY distinction that has tripped up taxpayers for decades is now replaced by a single term: Tax Year. Here is what that means in practice.
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What Was Financial Year and Assessment Year?
Under the Income Tax Act 1961, income tax operated across two distinct 12-month windows:
Financial Year (FY): The year in which you earned the income. FY 2025-26 ran from April 1, 2025 to March 31, 2026. This is when your salary was credited, your business revenue accrued, and your capital gains arose.
Assessment Year (AY): The year immediately following the FY, during which you filed your return and the Income Tax Department assessed (processed) it. AY 2026-27 ran from April 1, 2026 to March 31, 2027. Your ITR for income earned in FY 2025-26 was due by July 31, 2026 — which falls within AY 2026-27.
The result: you always referenced two years simultaneously. "I earned income in FY 2025-26 and am filing for AY 2026-27" was grammatically correct but practically confusing, particularly when an employer issued Form 16 under one year label while the portal asked for another. Non-specialists routinely conflated the two, leading to errors in AY selection while filing ITRs.
What Is Tax Year Under the Income Tax Act 2025?
The Income Tax Act 2025, which replaces the 1961 Act effective from April 1, 2026, introduces the term Tax Year as defined in Section 3 of the new Act. Tax Year is the 12-month period from April 1 to March 31 during which income is earned — the same window as the old Financial Year. The return for that Tax Year is then filed within the same named period (or shortly after its close).
The critical shift: the year you earn income and the year your return relates to now carry the same label. Tax Year 2026-27 covers income earned from April 1, 2026 to March 31, 2027, and the return filed for that income is also described as the Tax Year 2026-27 return. There is no separately named "Assessment Year 2027-28" under the new framework.
This brings India into alignment with how most jurisdictions worldwide refer to their tax periods. The UK's Self Assessment uses Tax Year. The US uses Tax Year. Australia uses Income Year. The FY/AY dual-label was a structural peculiarity of the 1961 Act that the 2025 Act has now corrected.
Mapping: FY/AY to Tax Year — A Practical Table
| Old Framework (Act 1961) | New Framework (Act 2025) | |
|---|---|---|
| FY 2024-25 | AY 2025-26 | Not applicable (old Act governed) |
| FY 2025-26 | AY 2026-27 | Tax Year 2026-27 (transitional) |
| FY 2026-27 | AY 2027-28 | Tax Year 2026-27 (new Act applies) |
| FY 2027-28 | AY 2028-29 | Tax Year 2027-28 |
The transitional row deserves attention. Income earned in FY 2025-26 was earned under the 1961 Act. The return filed in July 2026 references AY 2026-27. Although the new Act is effective from April 1, 2026, it does not retroactively relabel prior-year returns. Your July 2026 filing will still show AY 2026-27 on the ITR form and on Form 26AS.
From FY 2026-27 onwards, the new Act applies in full. Returns for income earned April 2026 onwards will be filed under Tax Year 2026-27 terminology.
What Changes and What Stays the Same for Taxpayers
What changes:
- Terminology on ITR forms and CBDT communications: "Assessment Year" fields will transition to "Tax Year"
- Section numbering throughout the Act (covered separately below)
- The framing in CBDT circulars, notices, and assessment orders issued from April 1, 2026 onwards
What does not change:
- Due dates: ITR filing due date for salaried taxpayers remains July 31. Audit cases remain October 31. Belated return deadline remains December 31. These are preserved under the new Act.
- Tax slabs: The new and old regime slabs, surcharge thresholds, and cess rates carry over unchanged
- Deduction limits: ₹1.5 lakh under Section 80C (now Section 123), ₹25,000 / ₹50,000 health insurance premium under Section 80D (now Section 129), HRA computation — all preserved
- TDS provisions: TDS rates, threshold limits, and Form 16 / Form 16A structure continue; only section references update
- Penalty and interest provisions: Section 234A, 234B, 234C interest for late filing and advance tax shortfall are preserved, just renumbered
For the practical taxpayer, the change is primarily cosmetic in Year 1. The compliance calendar you follow today works identically under the new framework.
Section Renumbering: Where Did Your Deductions Move?
The Income Tax Act 2025 reorganises sections into a more logical structure. Practitioners and taxpayers who cite section numbers in correspondence, investment declarations, or Form 10BA must update their references. Key mappings:
| Old Section (Act 1961) | New Section (Act 2025) | Subject |
|---|---|---|
| Section 80C | Section 123 | Deductions — LIC, PPF, ELSS, tuition fees |
| Section 80D | Section 129 | Health insurance premium |
| Section 87A | Section 156 | Tax rebate up to ₹12,500 / ₹25,000 |
| Section 44AD | Section 58 | Presumptive taxation — businesses |
| Section 44ADA | Section 59 | Presumptive taxation — professionals |
| Section 192 | Section 392 | TDS on salary |
| Section 194C | Section 394 | TDS on contractor payments |
| Section 10(14) | Section 23 | Allowances exempt from tax |
CBDT will publish a comprehensive mapping table before the new Act takes effect. For returns and filings under AY 2026-27 (income of FY 2025-26), the old section numbers remain operative. Transition to new section references only for transactions and filings from Tax Year 2026-27 onwards.
If you want the full picture of structural changes, read our Income Tax Act 1961 vs 2025 comparison which covers the chapter reorganisation, simplified language initiative, and changes to procedural provisions.
When Does Tax Year Apply? FY 2025-26 vs FY 2026-27
The activation boundary is April 1, 2026:
-
Income earned before April 1, 2026 (FY 2025-26): Governed by the Income Tax Act 1961. Your ITR references AY 2026-27. Old section numbers apply. Form 16 for FY 2025-26 will cite old sections.
-
Income earned from April 1, 2026 (Tax Year 2026-27 onwards): Governed by the Income Tax Act 2025. Returns reference Tax Year 2026-27. New section numbers apply. Employers will issue Form 16 citing new section references from June 2027 onwards (for income earned in Tax Year 2026-27).
There is a practical overlap period. Between April 1, 2026 and July 31, 2026, you will simultaneously be filing an AY 2026-27 return (old Act, for FY 2025-26 income) while also earning income under the new Tax Year 2026-27 framework. Both systems run in parallel during this window.
CBDT is expected to issue transition guidelines addressing this overlap, particularly for advance tax computation and TDS certificate formats. Monitor official CBDT circulars for formal instructions.
For filing support or questions about which framework applies to your specific situation, our support team can walk you through the transition. Fixed-fee ITR filing plans are available at our pricing page.
Impact on ITR Forms and Filing Due Dates
CBDT will rename the ITR forms currently labelled for "Assessment Year 2027-28" to reflect "Tax Year 2026-27" once the new Act applies. The seven form types remain:
- ITR-1 (Sahaj): Resident individuals, salary + one house property + other sources, income up to ₹50 lakh
- ITR-2: Individuals and HUFs without business income
- ITR-3: Individuals and HUFs with business or professional income
- ITR-4 (Sugam): Presumptive income under Sections 58, 59, 60 (new numbering)
- ITR-5, ITR-6, ITR-7: Firms, companies, trusts
The substantive eligibility criteria for each form carry over from the 1961 Act. CBDT is not restructuring the form filing landscape alongside the Act rewrite.
Filing due dates under Tax Year 2026-27:
- Individuals and HUFs (no audit): July 31, 2027
- Businesses requiring audit: October 31, 2027
- Partners in firms requiring audit: October 31, 2027
- Belated / revised return: December 31, 2027
These dates mirror the existing calendar exactly, with the year increment.
Frequently Asked Questions
Am I filing for Tax Year 2026-27 or AY 2026-27 when I file my return this July 2026?
You are filing for AY 2026-27. Your July 2026 return covers income earned in FY 2025-26, which falls under the Income Tax Act 1961 (old Act). The Tax Year framework under the Income Tax Act 2025 applies only to income earned from April 1, 2026 onwards. The ITR form for July 2026 filing will still display Assessment Year 2026-27.
Does Tax Year change the due date for ITR filing?
No. Due dates are preserved under the Income Tax Act 2025. For salaried individuals and HUFs without audit requirement, the ITR due date remains July 31 of the year following the Tax Year. The October 31 audit case deadline and December 31 belated return deadline are also unchanged. Only the label on the form changes from Assessment Year to Tax Year.
Under Tax Year, when does income from April 2026 get taxed?
Income earned between April 1, 2026 and March 31, 2027 falls in Tax Year 2026-27 under the Income Tax Act 2025. The ITR for this income is due by July 31, 2027. Advance tax on this income is payable in four instalments during Tax Year 2026-27 itself: June 15, September 15, December 15, and March 15, 2027.
Will my Form 16 say Tax Year instead of Assessment Year?
Form 16 for FY 2025-26 (issued by June 15, 2026) will still reference Assessment Year 2026-27 since the income was earned under the old Act. Form 16 for FY 2026-27 (issued by June 15, 2027) is expected to reference Tax Year 2026-27, once CBDT updates the format to align with the Income Tax Act 2025 nomenclature.
Sources: Income Tax Act 2025 (as enacted), CBDT press releases on Act restructuring, Section 3 of the Income Tax Act 2025 (definition of Tax Year), Ministry of Finance notifications on effective date. Section mapping references are based on the enacted text of the Income Tax Act 2025. For transactions and filings under the Income Tax Act 1961 (up to FY 2025-26), the old section numbering remains operative.
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