Tax Year vs Assessment Year: What Changed from April 2026

The Income-tax Act, 2025 replaced both “previous year” and “assessment year” with a single tax year from 1 April 2026. The first is tax year 2026-27. Income earned in FY 2025-26 remains AY 2026-27 under the 1961 Act, so both frameworks run side by side while older years are still open.

Tax year vs assessment year: what actually changed

Under the 1961 Act, income earned in the previous year was taxed in the following assessment year. Two labels, one year of income. The 2025 Act uses one label: the tax year, being the financial year in which the income is earned.

The practical rules that follow:

• There is no “tax year 2025-26”. That income period is AY 2026-27 under the old Act.
• Do not apply 2025 Act section numbers to a FY 2025-26 return. It is a 1961 Act filing.
• Keep using AY terminology for open earlier years. An appeal for AY 2023-24 is correctly described that way; converting it to “tax year” language is wrong and will confuse anyone reading the file.

Is there still an assessment year in India?

For income earned up to 31 March 2026, yes — those years remain assessment years governed by the 1961 Act, and they stay live through assessment, appeal and reassessment for several more years. For income earned from 1 April 2026 onwards, no: the single tax year label applies.

This is why the transition has a long tail rather than a clean switchover.

Why the transition has a long tail

The switchover is not clean, because proceedings for earlier years remain live long after the new Act commences. A single client file may involve a current-year filing under the 2025 Act and the 2026 Rules, an open scrutiny for a prior year under the 1961 Act, and an appeal for an older year — also under the 1961 Act.

That combination is where most errors arise, and it will persist well into the late 2020s.

Substantive law versus procedure

The general principle in Indian tax law is that substantive provisions — charge, computation, rates, exemptions — are governed by the law applicable to the relevant assessment year, while procedural provisions are generally applied as they stand at the time of the proceeding.

That distinction is well established. Its application to this specific transition is not yet settled by decided cases, particularly for reassessment, where the 2025 Act tightened the reopening threshold. Whether a taxpayer facing reopening of an older year gets the benefit of the new, stricter threshold is a live question with real value at stake, and worth arguing where the amount justifies it.

Practical handling

Record the governing Act on every file. A file note stating which statute governs which year removes a recurring source of error, particularly where work passes between team members.

Check form numbers separately from section numbers. The Income-tax Rules, 2026 changed forms as well as the Act changing sections, and the two do not necessarily move together.

Do not assume the new reassessment threshold applies to old years — but do consider arguing it, because the point is open.

Related reading

• overview of the Income-tax Act, 2025 — Income-tax Act, 2025 vs the 1961 Act: What Actually Changed
• tax audit thresholds for AY 2026-27 — Tax Audit Limit AY 2026-27: Section 44AB Thresholds Explained
• which filings fall due when — Compliance Calendar FY 2026-27: Income Tax, GST, FEMA and ROC

Sources

• Income-tax Act, 2025, commencement and transition provisions — incometax.gov.in