Tax Year or FY, AY

Table of Content

1. What is an Tax Year?

2. What is Financial Year?

3. What is Assessment Year?

4. What is the difference between AY, FY and Tax Year?

5. Why does an ITR form have AY?

6. What is the financial year and assessment year called in Hindi?

7. FAQs on Assessment Year and Financial Year

What is an Tax Year?  

Tax Year concept under the Income Tax Act, 2025 is applicable with effect from 1st April 2026 only. For earlier years i.e FY 2025-26 and before, the AY & FY terminology shall prevail for Assessments, payment of tax, return filing, etc.

What is Financial Year?

The Financial Year can be simply defined as a period of 12 months in which income is earned.

Any revenue generated between April 1, 2025, and March 31, 2026, will be assessed for the current Fiscal Year (FY) 2025-26. The primary goal of the fiscal year is to compute income statements from various types of investment.

Just like all other businesses, a financial year in insurance companies starts on April 1 and ends on March 31. This is the time when revenue is generated through insurance policies. Throughout a fiscal year, insurance businesses apply for financial reporting and budgeting. Understanding the fiscal year is also essential for effective financial planning, as it helps individuals and businesses align their income, expenses, and tax obligations accordingly. A fiscal year is commonly used in accounting to calculate the financial statement.

What is Assessment Year?

The Assessment Year is the 12 month-period that comes right after the financial year. It is the period from April 1 to March 31, during which revenue produced during the fiscal year is taxed.

For example, the Assessment Year for any revenue produced between April 1, 2025, and March 31, 2026, would be 2026-27.

In layman terms, the assessment year is the year in which income is taxed and all taxes are paid and tax returns are filed. Always remember to file your income tax return within the relevant AY.

Introduction of Tax Year Concept (Income Tax Act, 2025):

It is pertinent to note that under the Income Tax Act, 2025, the traditional dual concept of Financial Year (FY) and Assessment Year (AY) has been streamlined through the introduction of the “Tax Year” concept.

In simple terms, this means that instead of having two separate terms like Financial Year (when income is earned) and Assessment Year (when it is taxed), there will now be only one single period called the Tax Year. 

This Tax Year runs from 1st April 2026 to 31st March 2027, just like the earlier system, but both earning of income and payment of tax will relate to the same year itself. This makes the process much simpler and easier to understand, especially for taxpayers, as it removes confusion between FY and AY and brings everything under one common timeline.

However, it is pertinent to note that this concept is applicable with effect from 1st April 2026, i.e., from Financial Year 2026–27 onwards. Accordingly, for all periods up to Financial Year 2025–26, the existing framework of Financial Year and Assessment Year shall continue to apply.

What is the difference between AY, FY and Tax Year?

Earlier, the difference was as follows:

• Financial Year: Period in which income is earned 
• Assessment Year: Period in which income is taxed and return is filed 

Now:

• “Tax Year”: A single period where income is earned, taxed, and reported together

Thus, the Tax Year eliminates the need to track two separate timelines.

Why does an ITR form have AY?

Income is not taxable until it is received. Negative occurrences may occur at any point of the year, whether it is the beginning, middle, or end of the year. An assessment year is included in the income tax forms because revenue for any fiscal year is computed and taxed in the following year. As a result, while filing income tax returns, you must select the Assessment year.

However, with the Tax Year system, this distinction is removed, making return filing more intuitive.

What is the financial year and assessment year called in Hindi?

In Hindi, a Financial year is called वित्तीयवर्ष (Vitteey varsh) and Assessment year is called निर्धारणवर्ष (nirdhaaran varsh).

FAQs on Assessment Year and Financial Year

Q: What is the assessment year (AY) and financial year (FY)?

A. The financial year is a period of 12 months starting from 1st April of the same year & ending 31st March, the accounting year in which income is earned. The assessment year is the year succeeding the financial year, in which the income earned in the financial year is taxed, assessed & return is filed. In this phase, taxpayers often refer to an investment return calculator to estimate returns on their investments and better understand their taxable income.However, under the Income Tax Act, 2025, this distinction is replaced by the Tax Year.

Q: What is the meaning of previous year (PY) and assessment year ?

A. Previous year or PY refers to the financial year in which income is earned and expenses are incurred. The previous year starts on 1st April of the year and ends on 31st March of the next year. The assessment year is a 12-month period that succeeds the financial year or the previous year. The income earned in the previous year is taxed and return is filed in the assessment year. Under the new Income Tax Act, 2025, it aligns alogether with the Tax Year.

Q: What is the difference between AY,FY and Tax Year?

A. Following are the key differences between AY and FY:

Q: What is the financial year of 2025?

A. Financial year is considered to start on 1st April of the current year & ends on 31st March of the following year. The financial year of 2025 is from 1st April 2025 to 31st March 2026 or FY 2025-26. 

Q. What is the Tax Year of 2026?

A. The Tax Year of 2026 refers to the period from1st April 2026 to 31st March 2027.This is the first year from which the Tax Year concept becomes applicable under the Income Tax Act, 2025, wherein income is earned, taxed, and reported within the same period itself.

Q: What is the financial year and assessment year in India?

A. The financial year in India starts on 1st April of the current year & ends on 31st March of the following year. The assessment year in India is the year right after the financial year. It is also a period of 12 months from 1st April to 31st March.

Q: What is the financial year for a company in India?

A. As per Section 2(41) of the Companies Act, 2013, the financial year in relation to any company or corporate body is the period ending on 31st March every year. If the company is incorporated on or after 1st January of a year, the financial year will be the period ending on the 31st March of the following year.

Q. What is the difference between Financial Year, Assessment Year and Tax Year?

A. The difference between Financial Year (FY), Assessment Year (AY), and Tax Year is mainly about timing. The Financial Year is the period in which you earn your income (from 1st April to 31st March), while the Assessment Year is the next year in which that income is taxed and your Income Tax Return is filed. However, under the Income Tax Act, 2025, the new concept of Tax Year has been introduced, which combines both these concepts into a single year, meaning the income is earned and taxed in the same period itself, thereby simplifying the process and removing confusion between FY and AY. 

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