Tax year replaces previous year and assessment year: a plain guide
- November 12, 2026
- Posted by: kirit.topgstexperts
- Category: Income Tax
From 01.04.2026, the Income-tax Act, 2025 uses one term, “tax year”, for the financial year in which you earn income. The old pair of “previous year” and “assessment year” is gone. Tax year 2026-27 (01.04.2026 to 31.03.2027) is the first year under the new Act, while income of earlier years, and every notice or appeal about those years, stays under the Income-tax Act, 1961.
What actually changed
Under the 1961 Act, every year of income carried two labels. You earned income in the previous year and it was assessed in the assessment year that followed. Income earned from 01.04.2024 to 31.03.2025 was “previous year 2024-25” and also “assessment year 2025-26”. Many taxpayers mixed the two up when paying tax or filing returns.
Section 3(1) of the IT Act, 2025 defines the tax year as the twelve-month period of the financial year beginning on 1 April. The e-filing portal’s FAQs on the new Act confirm two points:
- the tax year takes the place of the previous year, and the term “assessment year” is no longer used; and
- your income is still assessed after the tax year ends, so the change is in the label, not in the process.
Because the tax year runs with the financial year, businesses do not need to change their accounting period.
Timeline: which label and which law
The table below shows how the years line up across the two Acts.
| Income earned during | Label under 1961 Act | Label under 2025 Act | Law that governs | Return normally filed in |
|---|---|---|---|---|
| 01.04.2024 to 31.03.2025 | PY 2024-25 / AY 2025-26 | Read as tax year 2024-25 only for cross-references | IT Act, 1961 | 2025 |
| 01.04.2025 to 31.03.2026 | PY 2025-26 / AY 2026-27 | Not used | IT Act, 1961 | 2026 |
| 01.04.2026 to 31.03.2027 | Not used | Tax year 2026-27 | IT Act, 2025 | 2027 |
| 01.04.2027 to 31.03.2028 | Not used | Tax year 2027-28 | IT Act, 2025 | 2028 |
The year to watch is FY 2025-26. Its return is filed in 2026, after the new Act came into force, but it is still a 1961 Act return because that year began before 01.04.2026. The portal FAQs say returns for AY 2026-27 use the forms prescribed under the old Act.
Note the shift in numbering. Income of FY 2026-27 would have been called AY 2027-28 under the old system. Under the new Act it is simply tax year 2026-27, the same numbers as the financial year.
New business or new source of income: a shorter first tax year
Section 3(2) of the IT Act, 2025 (similar to the rule for newly set up businesses in section 3 of the IT Act, 1961) deals with a business, profession or income source that starts during the year. In that case the first tax year begins on the date of set-up, or the date the source comes into existence, and ends on 31 March.
Worked example. Riya opens a trading business on 01.12.2026.
| Tax year | Period | Length |
|---|---|---|
| Tax year 2026-27 | 01.12.2026 to 31.03.2027 | 4 months |
| Tax year 2027-28 | 01.04.2027 to 31.03.2028 | 12 months |
After the first short year, every tax year is a full financial year.
Returns, advance tax and TDS: which Act applies
Return for FY 2025-26 (AY 2026-27). Filed in 2026 under section 139 of the IT Act, 1961, using the old-Act forms.
Return for tax year 2026-27 onwards. Filed under section 263 of the IT Act, 2025 (corresponding to section 139 of the IT Act, 1961). The due dates fall in the financial year after the tax year. For tax year 2026-27, that works out as follows:
| Return | Time limit under section 263 | Date for tax year 2026-27 |
|---|---|---|
| Original return: individuals and others not under audit | 31 July of the next year | 31.07.2027 |
| Original return: companies and persons whose accounts are audited | 31 October of the next year | 31.10.2027 |
| Original return: persons required to file a report under section 172 | 30 November of the next year | 30.11.2027 |
| Belated or revised return | 9 months from the end of the tax year, or before assessment is completed, whichever is earlier | 31.12.2027 |
| Updated return | 48 months from the end of the financial year after the tax year | 31.03.2032 |
You can estimate your liability for the new tax year with our income tax calculator.
Advance tax. The portal FAQs state that advance tax for tax year 2026-27, starting with the June 2026 instalment, is paid under the new Act.
TDS. Payments made from 01.04.2026 fall under the new Act’s TDS sections. For example, the portal FAQs note that section 393 of the IT Act, 2025 corresponds to section 194C of the IT Act, 1961 (payments to contractors). Update the section references in your accounting software, vendor master and TDS working papers.
Notices, assessments and appeals for old years
Section 536 of the IT Act, 2025 repeals the 1961 Act but keeps it alive for old years. In plain terms:
- Pending matters continue. Any proceeding pending on 01.04.2026 continues under the 1961 Act.
- New proceedings for old years also follow the 1961 Act. A notice, assessment, reassessment, rectification, penalty, revision or appeal started on or after 01.04.2026 for a year that began before 01.04.2026 is governed by the 1961 Act and its procedure.
- Penalties. A penalty for an old year can still be started and levied under the 1961 Act.
- Appeals. Applications, appeals, references and revisions pending before an income-tax authority, the Appellate Tribunal or a court carry on as if the new Act had not been passed.
- Expired time limits stay expired. If a time limit under the 1961 Act had already run out before 01.04.2026, the new Act does not reopen it.
- Interest. For refunds or defaults arising after 01.04.2026 in old-year proceedings, the interest provisions of the new Act apply from that date.
- Earlier options. An election or option exercised under the 1961 Act is treated as made under the corresponding provision of the new Act.
Example. Suppose you received a notice dated 15.10.2026 for AY 2023-24. It is a 1961 Act proceeding. Your reply should cite 1961 Act sections and refer to the year as AY 2023-24, not as a tax year.
Brought-forward losses: a worked example
Section 536(2)(m) allows business losses carried forward under section 72 of the IT Act, 1961 (and losses under sections 71B, 73, 73A and 74A) to be set off against income of tax year 2026-27 onwards, using the 1961 Act’s set-off and carry-forward rules. Capital losses under section 74 are carried forward to be set off against capital gains, for up to eight years after the year in which the loss was first computed.
Mehul has an unabsorbed business loss of ₹ 3,50,000 relating to AY 2024-25. His business income for tax year 2026-27 is ₹ 5,00,000.
| Particulars | Amount (₹) |
|---|---|
| Business income, tax year 2026-27 | 5,00,000 |
| Less: brought-forward business loss of AY 2024-25 | (3,50,000) |
| Business income after set-off | 1,50,000 |
| Loss left to carry forward | Nil |
Keep the old assessment records and loss computations: you will need them to support the set-off in your first returns under the new Act.
Common mistakes to avoid
- Calling FY 2026-27 income “AY 2027-28”. Under the new Act it is tax year 2026-27. Use that label in invoices, agreements, board resolutions and correspondence about the new year.
- Quoting new-Act sections in a reply to an old-year notice. A notice for AY 2025-26 or earlier is a 1961 Act proceeding. Cite the 1961 Act, and add the corresponding 2025 Act section only for reference.
- Treating the FY 2025-26 return as a new-Act return. It is filed in 2026, but under the 1961 Act.
- Changing the accounting year. There is no need; the tax year follows the financial year.
- Leaving old TDS sections in the system. Deductions on payments made from 01.04.2026 should carry new-Act section references.
- Assuming a missed deadline has reopened. A time limit that expired under the 1961 Act stays expired.
Practical checklist
- Map each open notice, assessment, penalty and appeal to its year, and note that it runs under the 1961 Act.
- Use “tax year 2026-27” for income from 01.04.2026 in all new paperwork.
- Update TDS and TCS section codes in accounting software and vendor records.
- Pay advance tax instalments for tax year 2026-27 under the new Act.
- Keep loss and depreciation schedules from old returns ready for the first new-Act return.
- For a business set up during the year, record the set-up date: it starts the first tax year.
Frequently asked questions
Is tax year 2026-27 the same as AY 2027-28? Both cover income earned from 01.04.2026 to 31.03.2027. The old name would have been AY 2027-28; the new Act calls it tax year 2026-27 and does not use the assessment year label.
Do I need to change my accounting period? No. The tax year matches the financial year, so existing 1 April to 31 March books continue.
I received a notice in 2026 for AY 2022-23. Which law applies? The IT Act, 1961. Section 536 of the IT Act, 2025 keeps the old Act in force for proceedings about years that began before 01.04.2026, even if the notice is issued after that date.
Can a tax year be shorter than twelve months? Yes. If a business, profession or income source starts during the year, the first tax year runs from that start date to 31 March.
Under which Act is my FY 2025-26 return filed? Under the IT Act, 1961, using the forms prescribed under that Act.
For help with returns or notices under either Act, you can write to advisory@topgstexperts.com, or see our income tax services.
Sources
- Objective and scope of the New Act: FAQs, Income Tax e-filing portal
- Objective and scope of the New Act, Income Tax e-filing portal
- Section 3, Income-tax Act, 2025 (tax year), Income Tax Department
- Section 263, Income-tax Act, 2025 (return of income), Income Tax Department
- Section 536, Income-tax Act, 2025 (repeal and savings), Income Tax Department
This article reflects the law as on 11.11.2026 and is general information, not professional advice. Rates, limits and due dates change; verify them with the official source before acting.