New Income Tax Act 2025: One “Tax Year” Concept to End FY-AY Confusion for Taxpayers
The language used in the Income Tax Act of 1961 has always been a little convoluted for ordinary taxpayers to understand; especially terms like “financial year,” “assessment year,” “previous year,” etc., have often confused filing Income Tax Returns (ITRs). Addressing the same issue, the government of India has made some amendments to the existing Income Tax Act 1961. These amended rules are called the Income Tax Act 2025, scheduled to take effect from April 01, 2026.
The new tax rules have replaced terms like “financial year,” “assessment year,” and “previous year” with a single term, i.e., “tax year.” This move aims to make the tax process simpler to comply with.
As of now, the year in which the taxpayer used to earn income is counted under Financial Year (FY), and the year in which it was assessed is called Assessment Year (AY). For instance, if you earned some income in FY 2024-25, it will belong to the same but will be assessed in AY 2025-26.
This usually creates confusion for taxpayers, as they earn income in some different year, and the assessment is done in the next year. However, now the introduction of the “tax year” term will end this confusion. The said term will eliminate this dual timeline confusion. Now, the new “tax year” term will include the time period of 12 months from April 1st to March 31st. Meaning now, the period you earn income (April 1 – March 31) is the same period for assessing and paying tax on that income.
This change will significantly make things simpler for taxpayers to understand, especially while filing tax returns.
