Tax year vs assessment year vs previous year vs financial year vs calendar year: Know the difference

The Income Tax Bill 2025 circulated among the members of Parliament has proposed to replace terms like assessment year (AY) and previous year (PY) with "tax year".

The new bill will replace the Income Tax Act, 1961 after passage in the parliament, which may take around a year.

However, the concept of financial year (FY) will remain the same as present. Let's understand how these terms are different.

Tax year as per Income Tax Bill 2025

As per the draft Income Tax Bill 2025, the tax year is the 12-month period beginning from April 1 and ending on March 31, which is same as the financial year.

"For the purposes of this Act, 'tax year' means the 12 months period of the financial year commencing on the 1st April," the bill says.

For a new business or profession, tax year will begin from the date of setting up of such business or profession and end with the end of the financial year.

For a new source of income coming into existence in a financial year, the tax year will begin from the date on which such source of income has come into existence, and, end with the end of the financial year.

Difference between FY, TY, AY, PY, CY for tax filing and calculation

Assessment year and previous as per Income Tax Act, 1961

Under the Income Tax Act 1961, the year in which income is earned is called as previous year and the year in which the income is charged to tax is called as assessment year.

For example, income earned during the period of April, 1, 2024 to March, 31, 2025 is treated as income of the previous year 2024-25. This income will be charged to tax in the next year, i.e., in the assessment year 2025-26.

Financial Year

No change in the definition of financial year has been proposed in the new income tax bill. FY starts from April 1 and ends on March 31.

For example, the current financial year 2024-25 started on April 1, 2024 and it will end on March 31, 2025. From April 1, 2025, financial year 2025-26 will start.

Calendar Year

Calendar year starts from January 1 and ends after 12 months on December 31. However, the concept of calendar year is not used for taxation in India.

Please note that the provisions of the new income tax bill may be revised further before it replaces the Income tax Act, 1961.

It is expected that the new Bill will come into effect from April 1, 2026, after it is vetted by Standing Committee and cleared by Parliament.