Unionoftaxpayers.in — Tax, GST & Finance Insights

Income tax basics

Financial year vs assessment year (and the new 'tax year')

Why your income is earned in a financial year but taxed in the next assessment year, how the two line up, and what the 'tax year' concept under the 2025 Act may change.

7 min readLast reviewed: 15 October 2026For: First-time filers and students of tax

Key points

  • The financial year (FY) runs from 1 April to 31 March — this is when you earn income.
  • The assessment year (AY) is the next 12-month period, when that income is assessed and the return is filed.
  • FY 2025-26 is assessed in AY 2026-27.
  • The Income-tax Act, 2025 introduces a single 'tax year' concept; this is a terminology change to confirm on official sources.
  • Always check which year a form, due date or slab table refers to before using it.

Two terms confuse almost every first-time taxpayer: financial year and assessment year. They are not the same thing, and mixing them up leads to picking the wrong year when filing. Here is the plain version.

Financial year (FY): when you earn

India’s financial year runs from 1 April to 31 March. All the income you earn in that window — salary, interest, rent, business profit, capital gains — belongs to that financial year. For example, salary received between 1 April 2025 and 31 March 2026 is income of FY 2025-26. You may also see the FY called the “previous year” in tax law, because it is the year previous to the year of assessment.

Assessment year (AY): when it is taxed

The assessment year is the next 12 months, when the income of a financial year is reviewed (“assessed”) and the return is filed. The income of FY 2025-26 is assessed in AY 2026-27. So the AY is always one step ahead of the FY it relates to.

You earn income inFinancial yearAssessment year (file in)
1 Apr 2024 – 31 Mar 2025FY 2024-25AY 2025-26
1 Apr 2025 – 31 Mar 2026FY 2025-26AY 2026-27
1 Apr 2026 – 31 Mar 2027FY 2026-27AY 2027-28

Why keep them separate?

The gap exists because your full income for a year can only be known after the year ends. You cannot finalise 31 March’s income on 1 April. The assessment year gives time to total up income, claim deductions, and file. It is also why slab tables and forms are usually labelled by assessment year — and why you should always check whether a figure you read online is for the FY or the AY you actually need.

The new “tax year” concept

From 1 April 2026, the Income-tax Act, 2025 replaces the Income-tax Act, 1961. One of the changes being discussed is a move to a single “tax year” concept rather than the twin financial-year / assessment-year wording. Section numbers are also changing under the new Act.

Confirm on an official source

The exact definition of the “tax year”, how it maps to the old FY/AY framing, and any transition rules should be confirmed on the Income Tax Department website. Throughout our guides we use the familiar 1961 Act section numbers and note that you should verify the equivalent section under the new Act.

Practical takeaway

When you file, you choose the assessment year, which is the year after the financial year you earned the income in. When you read a slab table or a due date, check whether it is stated for the FY, the AY, or the new tax year. Getting the year right is the simplest way to avoid filing errors.

Not tax advice

General information only. For the current year labels and due dates, see the Income Tax Department portal, or read our guide to choosing an ITR form.

Frequently asked questions

What is the difference between FY and AY in one line?
You earn income in the financial year; you are assessed and file your return for it in the following assessment year. So FY 2025-26 is assessed in AY 2026-27.
Which year do I pick when filing my return?
You file for the assessment year that follows the financial year in which you earned the income. For income earned in FY 2025-26, you file the return for AY 2026-27. The portal will show the AY when you start filing.
What is the 'tax year' under the new Act?
The Income-tax Act, 2025 (which replaces the 1961 Act from 1 April 2026) uses a single 'tax year' concept instead of the separate financial year / assessment year wording. Because terminology and section numbers are changing, confirm the exact meaning and any transition rules on the official Income Tax Department website before relying on it.

Official sources

Not professional advice

This guide is general information for understanding only — not personalised tax, legal or financial advice. Tax rules change; always confirm figures on official sources and consider a qualified professional before acting. Union of Taxpayers is an independent platform and not a government body.