Tax Year Replaces Assessment Year: What the 2025 Act Changed in Practice

"Assessment year" stopped being a legal concept on 1 April 2026. This explains what replaced it, which law governs which year right now, and the specific places the change breaks your paperwork.

Last verified: 5 September 2026 · Applies to: both (FY 2025-26 under the 1961 Act, Tax Year 2026-27 onward under the 2025 Act)

Contents

• The change in one paragraph
• Why two years existed in the first place
• Which law governs which year, right now
• Due dates for the current 1961 Act cycle
• Due dates for Tax Year 2026-27
• TDS and TCS returns under the new vocabulary
• What breaks in your systems and documents
• How to write about years from now on
• Frequently asked questions
• How BVACA can help

The change in one paragraph

The Income-tax Act, 2025 abolishes both "previous year" and "assessment year" and replaces them with a single term, the "tax year", which is simply the financial year in which the income arises. As at September 2026 the current tax year is TY 2026-27, covering 1 April 2026 to 31 March 2027. There is no "AY 2027-28" in the statute. That label still exists in software dropdowns, spreadsheets and internal templates across the country, and it now corresponds to nothing in the Act.

Why two years existed in the first place

Under the 1961 Act you earned income in a previous year and were assessed on it in the following assessment year. Every provision therefore had to specify which of the two it was talking about, and every practitioner had to hold both in their head at once. Financial year 2024-25 was assessment year 2025-26. A rate change "from AY 2025-26" actually applied to income earned from 1 April 2024. Half the misunderstandings in Indian tax communication came from that offset.

The 2025 Act collapses the two. Income earned between 1 April 2026 and 31 March 2027 belongs to Tax Year 2026-27, and that is the only label. A rate "for tax year 2026-27" is the rate on income earned in that year. Nothing else needs decoding.

This sits alongside the wider renumbering the Act carried out. CBDT's position is that the rewrite was done "without altering the underlying tax policy", so the vocabulary and the numbers moved while the substance largely did not. If you also need the section-level cross-reference, that is set out in the full old-to-new section mapping.

Which law governs which year, right now

Two Acts are simultaneously live in September 2026, and this is the table to keep on the wall.

The practical reading: the return season open right now is still an assessment year season. FY 2025-26 returns, tax audit reports and transfer pricing reports are all 1961 Act compliances and correctly refer to AY 2026-27. Anyone who "corrects" an FY 2025-26 filing to say "Tax Year 2025-26" is introducing an error, not fixing one.

The tax year vocabulary starts with the year that began on 1 April 2026, which will be filed in 2027.

Due dates for the current 1961 Act cycle

FY 2025-26 / AY 2026-27, with status as at 5 September 2026.

No CBDT extension has been announced as at 5 September 2026. Plan the 30 September tax audit date as real. The audit-report deadline for this year is covered in more depth alongside the tax audit deadline under section 63, which is the provision that will govern the same compliance next year.

Due dates for Tax Year 2026-27

The next cycle runs under section 263(1)(c) of the 2025 Act, and the dates land in calendar 2027.

Two structural points worth noting now rather than in July 2027.

First, the Finance Act, 2026 rationalised the ITR due dates and introduced a new 31 August slot, so the old two-date rhythm of 31 July and 31 October is now a four-date ladder. Firms that plan capacity around a single July crunch should re-plan.

Second, the tax audit "specified date" is defined differently. Under section 63(5)(a) the audit report is due one month before the return due date, rather than being tied to a fixed calendar date in the way practitioners are used to. The report date now moves with the return date for that category of assessee.

The Finance Act, 2026 also extended the revised return window to the end of the tax year, that is 31 March, which is a meaningful widening compared with the old position.

TDS and TCS returns under the new vocabulary

Quarterly returns for TY 2026-27 keep their familiar rhythm but change their form numbers.

Deposit remains by the 7th of the following month, with 30 April for March deductions.

The four forms are: Form 138 (salary TDS, old 24Q), Form 140 (non-salary resident, old 26Q), Form 144 (non-resident payees, old 27Q) and Form 143 (TCS, old 27EQ). The full list is in the renumbered form reference.

What breaks in your systems and documents

This is where the change stops being academic. Five places we consistently find the problem.

Accounting and payroll software fields. Most Indian accounting and payroll packages carry a hard-coded "Assessment Year" field, often as a dropdown of pre-populated values. For TY 2026-27 the correct statutory label is a tax year, not an assessment year, and the offset logic behind the field is wrong by one year if the vendor simply relabels the dropdown. Ask your vendor specifically whether they have changed the label only or the underlying period logic. Those are very different patches.

Portal labelling in practice: as at September 2026 the e-filing portal, TRACES and the ITR utilities all now expose a "Tax Year" dropdown alongside the legacy "Assessment Year" field, with the AY dropdown being progressively phased out (still visible for FY 2025-26 and earlier records, hidden for TY 2026-27 filings). The mapping shown on screen is the definitive one — do not assume a stale software patch matches the portal.

Engagement letters. Any letter that says "for assessment year 2027-28" is now describing a period that does not exist in law. The safe formulation is "for tax year 2026-27 (the financial year 1 April 2026 to 31 March 2027)". For historical years, keep the old wording, because that is what the governing Act used.

Spreadsheets and internal trackers. Anything with a column called "AY" and a formula that adds one to the financial year is now producing a label with no statutory meaning for post-April-2026 periods. Rename the column and delete the offset formula rather than patching around it, or the next person to inherit the file will reintroduce the error.

Board notes, loan documents and covenants. Facility agreements and shareholder documents that define financial covenants by reference to "assessment year" will need care at renewal. This is a drafting risk rather than a tax risk, but it lands on the same desk.

Client communication. Clients will keep saying "assessment year", because thirty years of habit does not clear in six months, and because every historical document they own says it. Do not correct them mid-sentence. Translate silently and use the correct term in the written record.

Illustrative example. A Panchkula manufacturing company with a 31 March year end books income for the year ended 31 March 2027. Under the old vocabulary its accountant would file "for AY 2027-28". Under the 2025 Act that return is for Tax Year 2026-27, due 31 October 2027 if the company is in audit, with the audit report due one month earlier under section 63(5)(a). The same company's return for the year ended 31 March 2026 is an AY 2026-27 return under the 1961 Act, due 31 October 2026. Both sit in the same filing cabinet, and they are labelled by different Acts.

How to write about years from now on

A small drafting convention removes almost all the ambiguity.

The one rule that matters: spell out the calendar dates the first time in any document that will be read by someone outside your team. A bank, a buyer's counsel or an overseas adviser will not know whether "TY 2026-27" is the year that begins or ends in 2026 until you tell them.

For businesses running both cycles at once this year, our income tax compliance and advisory team runs the two calendars in parallel so the 1961 Act season and the 2025 Act year do not get crossed. Our compliance calendar covers the wider statutory diary.

Frequently asked questions

What is a tax year under the Income-tax Act 2025?

A tax year is the financial year in which income arises, running 1 April to 31 March. The Income-tax Act, 2025 uses it in place of both "previous year" and "assessment year", which the 1961 Act used together. Income earned between 1 April 2026 and 31 March 2027 belongs to Tax Year 2026-27, and that is the only label the Act uses for it.

Does AY 2027-28 exist?

No. "AY 2027-28" is not a statutory concept under the Income-tax Act, 2025. The period that would have been called AY 2027-28 is Tax Year 2026-27, being the financial year 1 April 2026 to 31 March 2027. The label may still appear in software dropdowns and older templates, but it has no legal meaning for that period.

Is FY 2025-26 a tax year or an assessment year?

FY 2025-26 is governed by the Income-tax Act, 1961, so the old vocabulary is correct for it: previous year 2025-26, assessment year 2026-27. The tax year concept starts with FY 2026-27. Returns and audit reports being filed in the current season for FY 2025-26 should continue to use AY 2026-27.

When is the return due for Tax Year 2026-27?

Under section 263(1)(c) of the 2025 Act the dates are 31 July 2027, 31 August 2027, 31 October 2027 and 30 November 2027 depending on the category of taxpayer. The 31 August slot is new, introduced by the rationalisation in the Finance Act, 2026. Tax audit reports are due one month before the relevant return date under section 63(5)(a).

Has the revised return deadline changed?

Yes. The Finance Act, 2026 extended the revised return window to the end of the tax year, that is 31 March. For the current 1961 Act cycle covering FY 2025-26, the belated or revised return deadline remains 31 December 2026.

Do I need to change my accounting software?

You need to check it rather than assume it. The risk is not the label but the logic behind it: software that derives an "assessment year" by adding one to the financial year will generate a period reference with no statutory counterpart for TY 2026-27 onward. Ask your vendor whether they have changed the underlying period definition or only the display text.

How BVACA can help

Bachhal Vijender & Associates is currently running two statutory cycles side by side for most clients: FY 2025-26 compliance under the 1961 Act, with the 30 September tax audit date live, and TY 2026-27 operations under the 2025 Act. We help finance teams separate the two cleanly, review engagement letters and internal templates so they describe periods correctly, and work through what your accounting or payroll vendor has actually changed rather than what the release note claims. If your trackers still carry an "AY" column with an offset formula, that is a fifteen-minute fix now and a reconciliation problem later.

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Author box: CA Vijender Singh Bachhal, Managing Partner, Bachhal Vijender & Associates (FRN 028355N), Panchkula. About the firm

Disclaimer: This article is general information current as at 5 September 2026, not advice for a specific situation. Tax and corporate law in India changed materially on 1 April 2026; verify the position before acting. Illustrative examples are not client matters.