Tax year vs assessment year: what the new term means
Updated 11 October 2026
A tax year is the 12 months from 1 April to 31 March in which you earn the income, and it is named after those months: tax year 2026-27 runs from 1 April 2026 to 31 March 2027. The Income-tax Act, 2025 introduced the term from 1 April 2026, replacing the old pair of "previous year" and "assessment year". The trap: assessment year 2026-27 and tax year 2026-27 are two different years of income.
The old system: previous year and assessment year
Under the Income-tax Act, 1961, the year in which you earned income was the previous year, also called the financial year (FY). It was assessed in the following year, the assessment year (AY). So income of FY 2025-26 (April 2025 to March 2026) was assessed in AY 2026-27, and its return is filed in 2026. Two labels for one year of income confused taxpayers for decades, especially when choosing the year on the e-filing portal.
The new system: one tax year
The 2025 Act simply calls the earning year the tax year. Income earned from April 2026 to March 2027 belongs to tax year 2026-27, the return for it is filed in 2027, and the TDS certificate, advance tax and return all refer to the same tax year 2026-27. If you start a new business, or a new source of income begins during the year, the first tax year runs from that date to 31 March, as the previous year did before.
How the years line up
| Income earned | What it is called | Return filed | Law |
|---|---|---|---|
| April 2024 to March 2025 | FY 2024-25, AY 2025-26 | 2025 | 1961 Act |
| April 2025 to March 2026 | FY 2025-26, AY 2026-27 | 2026 (due 31 July 2026 for most salaried people) | 1961 Act |
| April 2026 to March 2027 | Tax year 2026-27 | 2027 | 2025 Act |
| April 2027 to March 2028 | Tax year 2027-28 | 2028 | 2025 Act |
Notice the overlap in the second and third rows. "AY 2026-27" means income of April 2025 to March 2026. "Tax year 2026-27" means income of April 2026 to March 2027. When someone says "2026-27", ask which they mean.
Worked example
Salary for January, February and March 2026 = 3 × ₹1,00,000 = ₹3,00,000. This is income of FY 2025-26 (AY 2026-27), reported in the return filed in 2026 under the 1961 Act, even though the March salary reached his bank on 1 April 2026: salary is taxed when it falls due or is paid, whichever is earlier.
Salary for April, May and June 2026 = 3 × ₹1,00,000 = ₹3,00,000. This is income of tax year 2026-27, reported in the return filed in 2027 under the 2025 Act.
Arrears work differently. Central government DA rose from 58% to 60% from 1 January 2026, but it was approved only in April 2026. For an employee at Level 7 with basic pay of ₹44,900, the arrears for January to March 2026 are 2% × ₹44,900 × 3 = ₹2,694. Because they were sanctioned and paid in tax year 2026-27, they are taxed in that year, and relief under section 157 (section 89 earlier) can spread the effect back.
Choosing the right year when you pay or file
The overlap matters most when you pay tax online. When you pay advance tax or self-assessment tax through e-Pay Tax, you must pick the year the payment is for. Advance tax paid in December 2026 belongs to tax year 2026-27. Self-assessment tax for income earned in 2025-26 belongs to AY 2026-27. A challan paid against the wrong year does not show up against the right return and has to be corrected first, which can delay processing or trigger a demand. The same care applies when you select the year on the portal before filing a return or responding to a notice.
What it means for you
- Returns filed in 2026 (for FY 2025-26) still use "AY 2026-27" on the portal and the old section numbers.
- Your 2026-27 salary is covered by Form 130, due by 15 June 2027, and advance tax instalments for it fall between June 2026 and March 2027.
- Belated, revised and updated returns for years before 2026-27 continue under the 1961 Act, with their old assessment-year labels. For example, an updated return for AY 2026-27 can be filed until 31 March 2031.
- Nothing changes in the dates: the year still runs April to March, and slabs for tax year 2026-27 are the same as for FY 2025-26.
Read more in Income-tax Act, 2025: what changed, slabs for 2026-27 and relief on salary arrears. To estimate tax for the current tax year, use the income tax calculator.