income tax law
The most important question before the government was whether the system of the new tax year would conflict with the current assessment year, especially in the period of change. The government’s answer is absolutely clear. The government has said that under the Income Tax Act, 1961, assessment year 202627 will be linked to the income of the taxpayer for FY 202526 and not for FY 202627. Simply put, for tax purposes it will be seen when the income is earned and not when it is being assessed. It has been further clarified in the FAQ that under the new law, tax year 202627 will be applicable on the income of the taxpayer for financial year 202627. This means that there is no conflict or overlap between the two laws.
How will the changes be implemented?
The government has explained the transition in simple words. The income of financial year 202526 will be assessed under the Income Tax Act, 1961 in assessment year 202627. At the same time, the assessment of income for the financial year 2026-27 will be done in the tax year 2026-27 under the new Income Tax Law. This means that even if both are assessed in the same calendar year, the income periods will be different and the rules will also apply differently.
what is the new tax year
In the new income tax law, the word tax year has been replaced with previous year. Tax year means the period of 12 months which falls within a financial year. Now income, tax rate and assessment will all be linked to this tax year. The government says that earlier there was confusion among the people due to the difference between the previous year and the assessment year. The new system makes it easier. However, the concept of financial year has not been abolished as the dates for filing returns and other procedures will still remain linked to it.
Can the tax year be shortened?
Yes. If a new business is started or a new source of income is created in the middle of the year, the tax year may be shortened. In such cases, the tax year will start from that date and end on March 31.
Taxpayers need not worry
If we understand in simple words, the income till March 31, 2026 will be taxed as per the old law. Income after April 1, 2026 will be taxable under the new law. There will be no double tax and the rules on old income will not change. The new income tax law will be applicable only on income after April 1, 2026. This change is to simplify the tax language, and not to suddenly change the tax deadline.