Tax Year vs Assessment Year: Which Label Applies From 2026

From 1 April 2026, income is taxed by reference to a single period, the tax year. Under section 3(1) of the Income-tax Act, 2025 this is simply the financial year, 1 April to 31 March. Income you earn from 1 April 2026 to 31 March 2027 belongs to tax year 2026-27. The older pair of labels, “previous year” and “assessment year”, still applies to income earned up to 31 March 2026. So the return you file in 2026, for income of FY 2025-26, is still the return for AY 2026-27 under the Income-tax Act, 1961.

The two systems will run side by side for several years. That is why notices, forms and articles use both labels, sometimes on the same page.

The two labels, year by year

The due dates shown are for individuals without business income that needs an audit. Business and professional cases have later dates; see the table in our guide to revised and updated returns. The department can extend a due date, so check the e-filing portal before relying on one.

What the law actually says

• Commencement. Section 1(3) of the 2025 Act brings it into force on 1 April 2026.
• Tax year. Section 3(1) defines the tax year as the twelve-month financial year starting on 1 April. There is no separate year of assessment. Income of a year is taxed with reference to that same year.
• New business or new source. Under section 3(2), if a business or profession is set up, or a new source of income arises, during a financial year, the first tax year runs from that date to 31 March.
• Rates. The Finance Act, 2026 keeps both systems running. Section 2 charges tax for the assessment year beginning 1 April 2026 under the 1961 Act, at the rates in Part I-A of its First Schedule. Section 3 charges tax for the tax year beginning 1 April 2026 under the 2025 Act, at the rates in Part I-B.
• Repeal and savings. Section 536(1) repeals the 1961 Act, and section 536(2) preserves its effect for earlier years. Section 536(3) says any reference in the 2025 Act to a tax year beginning on 1 April 2025 or earlier means the corresponding previous year under the 1961 Act.

Worked example: one freelancer, two Acts

Meera is a freelance designer. Here is how her 2026 calendar splits between the two laws:

The practical lesson: the label depends on when the income was earned, not on when you file, pay or receive a notice. A June 2026 advance tax payment is for tax year 2026-27. A July 2026 return is for AY 2026-27. The two are a year apart even though the calendar dates are six weeks apart.

Notices, assessments and penalties for old years

Section 536(2)(c) keeps the 1961 Act alive for anything connected with a tax year beginning before 1 April 2026. It covers proceedings pending on commencement and proceedings started after 1 April 2026, including:

• notices and assessments;
• reassessment, recomputation and rectification;
• penalty, revision and appeals.

Those proceedings follow the procedure in the 1961 Act. Section 536(2)(d) allows penalties for those years to be imposed under the 1961 Act as well.

So a notice received in 2027 about FY 2024-25 income will cite 1961 Act sections such as 143 or 148, not the renumbered 2025 Act provisions. If you are replying to one, see how to respond to an income tax notice.

One exception runs the other way. Under section 536(2)(g), if a refund for an old year falls due, or a default in paying an old-year demand occurs, after 1 April 2026, the 2025 Act’s interest provisions apply for the period after commencement.

Losses and options carried across

Capital losses. Section 536(2)(n) lets a capital loss brought forward from a year under the 1961 Act be set off against capital gains computed under the 2025 Act. The set-off follows the manner in the 1961 Act, for up to eight financial years after the year in which the loss was first computed. The eight-year clock does not restart on 1 April 2026.

Other losses. Section 536(2)(m) does the same for brought-forward losses under:

• house property (1961 Act section 71B);
• business (section 72) and speculation business (section 73);
• specified business (section 73A);
• owning and maintaining race horses (section 74A).

For how losses arising from tax year 2026-27 are used, see capital loss set-off and carry forward under the 2025 Act.

Options and declarations. Under section 536(2)(f), an option or declaration made under the 1961 Act and in force just before 1 April 2026 is treated as made under the corresponding provision of the 2025 Act. Section 536(2)(j) keeps notifications, circulars, rules and approvals issued under the 1961 Act in force, to the extent they are consistent with the new Act.

Section numbers change too

Because the 2025 Act renumbers almost everything, the same benefit can carry two section numbers depending on the year:

On this site we cite current provisions as “section 202 (earlier 115BAC)” so both versions are searchable. When an article is about FY 2025-26, it cites the 1961 Act.

Common mix-ups

1. Calling FY 2026-27 “AY 2027-28”. Under the 2025 Act there is no AY 2027-28. The correct label is tax year 2026-27.
2. Applying 2025 Act rules to the 2026 return. The return filed in 2026 is for AY 2026-27 and follows the 1961 Act, as amended by the Finance Act, 2026.
3. Assuming old losses expire on 1 April 2026. They do not. Section 536(2)(m) and (n) carry them forward within their original time limits.
4. Ignoring the new-business rule. If you start freelancing in October 2026, your first tax year is October 2026 to March 2027.

Where this fits

• Choose the right return form: which ITR form should you file
• Rates for the new year: new regime slabs for tax year 2026-27
• Paying during the year: advance tax for tax year 2026-27
• Estimate your liability: income tax calculator

Sources. Income-tax Act, 2025, sections 1(3), 3 and 536, Gazette of India, 21 August 2025. Finance Act, 2026, sections 2, 3 and 5, Gazette of India, 30 March 2026.