Budget 2026: What switching to Tax Year from PY, AY means for salaried taxpayers in FY 2026–27

Presently, the income tax laws have the concepts of two different years. One is the previous year and the other is the assessment year. Both cover a period of 12 months. The income earned during the previous year is taxed in the assessment year.

The previous year constitutes a period of 12 months beginning from 1 April and ends on 31 March of the relevant financial year. The assessment year begins as soon as the previous year ends and lasts till 31 March of the year following the previous year.

The Income Tax Return for the previous year is required by the due date during the assessment year. The ITR filed during the assessment year includes the income earned during the previous year.

This concept of dual years used to create confusion in the minds of taxpayers and tax professionals. In order to make the matter simple and clear, the concept of single year i.e. Tax Year for income tax laws is proposed in the Income-tax Act 2025.

The term “Tax Year” will practically replace the term “Previous Year” and not the term “Assessment Year” as suggested by you. This will not change anything for taxpayers. The concept of Assessment Year is done away with in the Income Tax Act 2025.

This will not change anything for the salaried people. The financial year beginning from 1 April 2026 is the Tax Year relevant for tax planning for Financial Year 2026-2027. The tax slabs proposed in the Budget 2026 will apply to the income earned during the Tax Year 2026-2027.