What Is the Tax Year Under the Income-tax Act, 2025?
The tax year is the single twelve-month period the Income-tax Act, 2025 uses to compute and charge income-tax. Section 3(1) of the Income-tax Act, 2025 defines it as "the twelve months period of the financial year commencing on the 1st April." In practice the tax year runs from 1 April to 31 March, matching the financial year Indian companies already use for accounting.
The tax year replaces the two-period system of the Income-tax Act, 1961 — the "previous year" (the year in which income was earned) and the "assessment year" (the following year in which that income was assessed and taxed). Under the 2025 Act there is only one label for both: the tax year in which income is earned is also the tax year against which it is reported and taxed.
Legal Basis
Section 3 of the Income-tax Act, 2025 (section 3 of the Income-tax Act, 1961, which defined "previous year") is the direct successor provision, confirmed by the Income Tax Department's own section-by-section comparison of the two Acts. The 1961 Act's separate definition of "assessment year," at section 2(9), has no successor in the 2025 Act on that same comparison — it was dropped, not renumbered.
The Income-tax Act, 2025 (Act No. 30 of 2025) provides, at section 1(3), that "save as otherwise provided in this Act, it shall come into force on the 1st April, 2026." The tax-year concept therefore governs income from tax year 2026-27 onward.
The 1961 Act is not simply gone for earlier years. Section 536(2)(c) of the 2025 Act preserves it: proceedings — "notices, assessment, reassessment, recomputation, rectification, penalty, reference, revision and appeals" — for "any tax year beginning before the 1st April, 2026" continue "as per the procedure specified in the repealed Income-tax Act." A company's tax year 2025-26 return (previous year 2025-26 / assessment year 2026-27 in the old vocabulary) is therefore still governed by the 1961 Act's previous-year and assessment-year framework, even though it is filed and assessed after the 2025 Act has come into force.
How the Tax Year Works
The General Rule — 1 April to 31 March
For an ongoing business, profession, or individual already earning income, the tax year is the standard financial year: 1 April to 31 March. There is no election to use a different twelve-month period for Indian tax purposes — section 3(1) fixes it as the financial year, not one option among several. A foreign parent that reports on a calendar year, or on any other fiscal year, still has its Indian subsidiary's total income computed on the 1 April–31 March tax year for Indian filings, regardless of the group's own consolidation calendar.
A Shorter First Tax Year for a New Business or Source of Income
Section 3(2) of the Income-tax Act, 2025 sets a different rule for a business, profession, or source of income that starts partway through a financial year: the tax year "shall be the period beginning with (a) the date of setting up of such business or profession; or (b) the date on which such source of income newly comes into existence... and ending with the said financial year." The first tax year is therefore shorter than twelve months — it runs from the start date to the following 31 March — and only from the second tax year onward does the entity have a full 1 April–31 March period.
Worked example: A foreign company incorporates its wholly owned Indian subsidiary on 12 November 2026, and the subsidiary starts business the same month. Its first tax year is not "2026-27 in full" — it is 12 November 2026 to 31 March 2027, a period of under five months. The subsidiary's second tax year, 1 April 2027 to 31 March 2028, is the first full twelve-month tax year. Compliance deadlines expressed relative to the tax year — the annual return, tax audit if applicable, transfer pricing documentation — all run from this shortened first period, not from incorporation-date-plus-twelve-months.
Tax Year and the Charge to Tax
Section 4 of the Income-tax Act, 2025 charges income-tax "on the total income of the tax year of every person," and section 5 sets the scope of that total income — for a resident, income received, accrued, or arising "in that year," with the tax year as the reference period throughout. Section 6 likewise fixes residential status "in a tax year": an individual is resident in India, for example, if present in India "for a total period of one hundred and eighty-two days or more in that tax year" (section 6(2)(a)) — a tax-year count, not a calendar-year one. This individual residency test is separate from the day-counts used elsewhere in Indian law for company directors or LLP partners, which sit in the Companies Act and LLP Act rather than the Income-tax Act.
Tax Year, Rates, and Treaty Relief
Which tax rate applies to a tax year's income is itself defined by reference to the tax year: section 2(90) of the Income-tax Act, 2025 defines "rate or rates in force" as, in most cases, "the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year" — so the year in which income falls determines which year's Finance Act rates, and which year's TDS Table entries under section 393, apply. For payments to non-residents this includes the withholding under section 393(2) (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), where the applicable rate is either the Finance Act rate for that tax year or the rate in an agreement entered into under section 159(1), or notified under section 159(2), whichever is more beneficial under section 159(4).
A foreign investor claiming a DTAA rate for a given tax year must hold a Tax Residency Certificate valid for that tax year and file the accompanying declaration, Form 41 (formerly Form 10F), before the payer relies on the lower treaty rate. Because the certificate and declaration are tied to a specific tax year, they need renewing each tax year — a certificate covering tax year 2026-27 does not carry over to 2027-28.
Why This Matters for a Foreign Company or Investor
- No accounting-year mismatch relief. An Indian subsidiary of a foreign parent with a non-April financial year still computes and files its Indian income tax return for the 1 April–31 March tax year. Group consolidation and Indian tax compliance run on different calendars, and the tax year is the only one that matters for Indian filings.
- Filing and payment deadlines key off the tax year. Advance tax instalments, TDS deposits, and the annual return are all fixed relative to the tax year in which the income arises, not the date the income is later assessed — see the full cycle in Beacon Filing's compliance calendar.
- The applicable corporate tax rate is a tax-year question. Because "rates in force" are pegged to the Finance Act of the relevant tax year (section 2(90)), the corporate tax rate a company pays can change from one tax year to the next even without any change in the company's own structure or turnover.
- A shortened first tax year changes first-year compliance. A foreign-owned entity incorporated partway through a financial year has a first tax year of less than twelve months (section 3(2)), which can bring forward — not delay — the first return filing and, where turnover in that shorter period crosses a threshold, tax audit requirements.
- Annual statements and advance tax are tax-year-bound. A Form 168 (formerly Form 26AS) statement and an advance-tax computation are both tied to a single tax year, so a group with several Indian entities on staggered incorporation dates ends up tracking several different first-tax-year windows in parallel.
Frequently Asked Questions
Is "tax year" the same as "financial year"?
For an ongoing business or individual, yes — the tax year is defined in section 3(1) of the Income-tax Act, 2025 as the financial year running 1 April to 31 March. The only exception is a business, profession, or income source that starts partway through a financial year, where the first tax year is shorter than the full twelve months under section 3(2).
What replaced "assessment year" under the new law?
Nothing — it was removed rather than renamed. The Income Tax Department's own comparison of the two Acts shows the 1961 Act's "assessment year" (section 2(9)) has no successor provision in the 2025 Act. Income earned in a tax year is now reported and assessed for that same tax year, with no separate statutory label for the year of assessment.
From which tax year does this apply?
The Income-tax Act, 2025 comes into force on 1 April 2026 under section 1(3), so "tax year" governs tax year 2026-27 onward. Section 536(2)(c) keeps the 1961 Act's previous-year/assessment-year framework in force for any tax year beginning before 1 April 2026, including the assessment, reassessment, and appeal of those earlier years' returns after that date.
Can a foreign-owned Indian company choose a different tax year to match its parent's financial year?
No. Section 3(1) fixes the tax year as the 1 April–31 March financial year for every person computing Indian total income, with no election mechanism for a different period. A parent company's own calendar-year or other fiscal year is irrelevant to how its Indian subsidiary's tax year is computed.
What is the tax year for a company incorporated partway through the year?
Under section 3(2) of the Income-tax Act, 2025, its first tax year runs from its date of incorporation (or the date the relevant source of income begins) to the following 31 March — shorter than twelve months. Every subsequent tax year is the full 1 April–31 March period.
See also: Income Tax Return, Corporate Tax, and Compliance Calendar. For the Income Tax Department's own portal, see incometaxindia.gov.in.