Concept of Tax Year

News: The concept of tax year is in the news because it is a key feature introduced in the new Income-Tax Bill, 2025 during the presentation of the Union Budget on February 1, 2025.

About the Concept of Tax Year

• The ‘tax year’ is defined as a 12-month period starting from April 1 and ending on March 31.
• This aligns with India’s financial year but replaces the earlier term ‘assessment year’ used under the Income-tax Act, 1961.
• The new tax year concept is expected to come into effect from April 1, 2026, along with the rest of the provisions of the new Income-Tax Bill, 2025.
• Objective of the Change:
  • The simplification aims to align tax reporting directly with the financial year to avoid confusion regarding assessment and previous years.
  • It is expected to pave the way for a more fluid and transparent income tax reporting system.
• Impact on Taxpayers:
  • Taxpayers will report income and file returns based on the income earned within the same tax year.
  • This reduces confusion, especially for new taxpayers, as the concept of ‘previous year’ and ‘assessment year’ was often misunderstood.
  • Reduction in compliance complexity as reporting will follow a straightforward tax year approach.
• Applicability for Businesses/Professions:
  • For a newly established business or profession, the tax year will begin from the date of commencement of the business/profession and end on the same March 31 of that financial year.
  • This allows businesses to align their tax reporting with their operational start date within the same financial cycle.