The Central Government had introduced the new Income Tax Act 2025 by replacing the old Income Tax Act 1961. This law will come into effect from April 1, 2026. The biggest change in this new Act is that now instead of ‘Assessment Year’ and ‘Previous Year’, ‘Tax Year’ will be used.

The objective of this change is to make the tax system more simple, transparent and taxpayer-friendly. Now it will be easy for the common citizen to file and understand ITR. With this change, it will be easier for taxpayers to know which year their income is and when their tax is to be paid.

Why was there confusion in the old system?

In the old income tax law, the year of earning income was called financial year (FY) and tax on the same income was assessed in the next year. Which was called Assessment Year (AY). For example: Income earned in FY 2024-25 used to be reported and assessed in AY 2025-26. Because of this, it became difficult for the common taxpayer to understand which year his income was from and in which year its tax would be applicable.

Experts say that this complexity used to cause problems especially for new filers and small businessmen. Many times people used to fill their ITR forms according to the wrong year. Due to which a situation of notice and confusion was created.

New ‘tax year’ system

According to the new law, now tax year will mean that tax will be filed and assessed in the same year in which the income is earned. This means that now the need for complex terms like ‘Previous Year’ and ‘Assessment Year’ will be eliminated. With this change, the tax system will work in a more easy and straightforward manner. Now you will be able to easily understand which tax year your income belongs to and file ITR in the same year. This step is a major reform towards promoting tax compliance and creating a tax payer friendly system.

Changes in ITR filing

In the new system, ITR will be filed in the same tax year in which the income is earned. This will eliminate confusion between two different years.

• There has been no change in tax rates or slabs.
• Only the terminology and process have become easy.
• Now only ‘tax year’ will be mentioned in tax notices and forms.
• New filers and small businessmen will now be able to file ITR more easily.

The tax year is matched with the financial year to the income. Due to which the gap present in the old system will be closed.

Impact on 2025-26 and 2026-27 ITR

This change will come into effect from April 1, 2026. Its direct impact will be visible from ITR 2026-27 (tax year 2026-27). However, changes in language and terms may also be seen in the ITR forms of 2025-26.

• ‘Tax year’ will now be written in notices, assessments and other tax documents.
• Taxpayers will now have to match their records and filings as per the same year.
• This will make tax communication more clear and straightforward.

Meaning for common taxpayer

In simple words, now the complexity of “last year’s income, next year’s assessment” will end. The year of income earning and tax filing will be the same, which will make tax compliance easy and clear.

• The system will now be user friendly for new filers.
• Small businessmen and salary earners will find it easier to understand their tax records.
• This step of the government is important towards increasing tax compliance and making the tax system easier.

With this change, taxpayers will now be able to better manage their ITR filing and tax records, and will get relief from old confusion problems.