Lots of taxpayers had confusion with the terms such as Financial Year and Assessment Year. In India, the financial year is the period when we earn our income and that is April 1 to March 31. Then came the Assessment Year. The assessment year was the next year when that income was assessed and tax returns were filed.
For example, if you earned income in FY 2025-26, you would file returns and pay tax in AY 2026-27. This two-year system created a lot of confusion, especially for new taxpayers. As a result, there were lots of cases and notices. However, this is now changing. With the New Tax Year, there is a new update that you as a taxpayer must know for accurate ITR Filing which is easier than ever.
Latest Income Tax Act 2025 Update
From April 1, 2026, the new Income Tax Act, 2025 will replace the old Act of 1961. The biggest change is that the confusion between Assessment Year and Financial Year is now completely eliminated. Consequently, there will be only one term and that would be known as ‘Tax Year’.
Key Changes Under Income Tax Act 2025 for New Tax Year
| Key Change | Explanation of Changes under New Tax Year System |
| Single Term Only | Only one term is used: Tax Year, running from April 1 to March 31. There is no separate assessment year. |
| Simpler Filing | Income earned in Tax Year 2026–27 will be assessed within the same Tax Year, making return filing more straightforward. |
| No Changes in Tax Rates | Tax slabs remain unchanged. Under the new regime, income up to ₹12 lakh may continue to be tax-free. |
Important Information Regarding Income Tax Act 2025 Applicability
Income earned till March 31, 2026 (FY 2025-26) will still follow the old Act. Furthermore, it will be assessed in AY 2026-27.
However, From April 1, 2026 onwards, a new Tax Year system will start. As a consequence, considering the New Tax Year of April 01, 2027 to March 31, 2027, you will need to do ITR Filing in 2o27.
Benefits of Income Tax Act 2025 and New Tax Year System
- Less Confusion: One term means easier understanding. This makes ITR Filing very simple especially for first-time taxpayers and small business owners.
- Fewer Mistakes: Simple terminology and no confusion of assessment year and financial year reduces filing errors and unwanted tax notices.
- Time Saving: Businesses, particularly MSMEs, will benefit from streamlined TDS/TCS rules and simpler record-keeping.
- Less Litigation: Clearer laws under the latest Income Tax Act 2025 means fewer disputes and court cases.
Conclusion
In conclusion, The shift to the Tax Year from April 2026 is a welcome and highly appreciated reform in India’s tax system. While the April-March calendar is still the same, the removal of the confusing double-year concept makes life easier for crores of Indian taxpayers. If you have any more doubts or want to consult tax experts regarding the latest Income Tax Act or New Tax Year System, have a conversation with us at: 8881-069-069.
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