From April 1, 2026, the new Income-tax law will replace ‘Assessment Year’ with ‘Tax Year’ to simplify tax filing and compliance for individuals. The change aligns the year of income with the year of reporting, removing long-standing confusion around financial year and assessment year timelines. Here’s what the shift to ‘Tax Year’ means for taxpayers filing ITRs and how it will impact the 2025–26 filing cycle and beyond.
Tax Year vs Assessment Year: How the new income tax law changes ITR filing from 2026
The language of income tax laws has always been somewhat complex for ordinary taxpayers. Terms like Financial Year, Previous Year, and Assessment Year have often confused taxpayers, especially when they file their income tax return (ITR). Now, the government has introduced a major conceptual change in the new Income Tax Act, 2025, to address this confusion.
The new income tax law, which will come into effect from April 1, 2026, introduces the concept of ‘Tax Year, which will replace ‘Previous Year’ and ‘Assessment Year.’ The aim is to make the tax filing and tax assessment process more straightforward and easier to understand.
What was the system until now?
In the current system (Income-tax Act, 1961), the year in which taxpayers earned income was called the Financial Year (FY), and the tax on that income was assessed in the following year, called the Assessment Year (AY).
For example, income earned in FY 2024–25 is reported and assessed in AY 2025–26.
This was the source of most of the confusion—because the income was earned in one year, but its “assessment” took place in the next year.
How will ‘Tax Year’ change things?
In the new law, the government aims to eliminate this dual timeline. The Tax Year will be the same year in which the income is earned and reported.
Explaining this change, Anita Basrur, Partner, Sudit K Parekh & Co LLP, says:
“The New Income Tax Act, 2025, introduces the ‘Tax Year’ concept. This replaces the terms ‘Previous Year’ and ‘Assessment Year’ with effect from April 1, 2026.” She further explains that the Assessment Year has been confusing for the general public until now:
“The term Assessment Year means the 12-month period following the financial year in which income is earned. This was confusing to the common man as income earned in FY 2024-25 became income of Assessment Year 2025-26. In order to simplify the understanding, the concept of Tax Year has been introduced.”
What will change in tax filing?
Under the new system, the income earned in a particular year will be reported and assessed in the same Tax Year. This will make it easier for taxpayers to understand which year’s income they are filing their ITR for.
However, this change is a procedural simplification, not a change in tax rates or slabs.
On this, CA Akshay Jain, Direct Tax Partner, NPV & Associates LLP, says: “The new Income-tax Act introduces ‘Tax Year’ in place of ‘Assessment Year’. Tax Year aligns with the financial year the income relates to, removing the conceptual gap where AY started a year after the FY/previous year.”
He also clarifies that taxpayers need to understand this new terminology: “This is a terminology change, but taxpayers should be mindful of the same.”
Impact on 2025-26 ITR filing?
Here, it is important to understand one crucial point. The Tax Year system will be implemented from April 1, 2026, meaning its full impact will be seen on filings from 2026-27 onwards. However, taxpayers need to be aware of this change when filing their ITR for 2025–26, because the language of ITR forms will change in the coming years; notices, assessments, and compliance documents will use “Tax Year” instead of “Assessment Year”; and tax communication will become simpler and more straightforward.
What this means for the average taxpayer:
In simple terms, the confusion of “income from the previous year, assessment in the next year” will now be eliminated. The year of tax filing and the year of income will be the same. The system will become more user-friendly for first-time tax filers. This government initiative is considered a significant step towards simplifying tax compliance and creating a taxpayer-friendly system under the new income tax law.
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