The rollout of the Income-tax Act, 2025 has raised several questions among taxpayers, particularly following the introduction of the new “Tax Year” concept effective from April 1, 2026. One of the biggest doubts has been whether individuals will have to file two income tax returns, one under the existing Assessment Year (AY) system and another under the newly introduced Tax Year framework. The Income Tax Department has now put the confusion to rest, clarifying that taxpayers will not have to file two returns for the same income.
Although the new law replaces the terms “Previous Year” and “Assessment Year” with “Tax Year”, the return filing process for income earned during FY 2025-26 remains unchanged.
According to the Income Tax Department, taxpayers earning income between April 1, 2025 and March 31, 2026 will continue to file only one income tax return under Assessment Year (AY) 2026-27.
The department clarified that the requirement to file a return under the new Tax Year system will arise only after the completion of the relevant Tax Year. As a result, taxpayers do not have to submit an additional return simply because the Income-tax Act, 2025 has come into force.
Existing due dates and return filing procedures applicable to different categories of taxpayers will continue to apply for income earned during FY 2025-26.
Which Income Tax Law Applies During The Transition?
Another common question relates to the law that governs income earned before April 1, 2026.
The department has clarified that income earned during FY 2025-26 will continue to be assessed under the provisions of the Income-tax Act, 1961, even if the return is filed after April 1, 2026, when the new legislation has already taken effect.
This is because the income pertains to a financial period that began before the commencement of the Income-tax Act, 2025. Therefore, taxpayers filing returns for AY 2026-27 will continue to follow the provisions of the earlier law.
However, advance tax obligations for income earned from April 1, 2026 onwards are already governed by the provisions of the Income-tax Act, 2025.
When Will The New Tax Year System Actually Begin?
One of the biggest reforms under the Income-tax Act, 2025 is the introduction of a single “Tax Year” concept. The government has replaced the earlier “Previous Year” and “Assessment Year” terminology to simplify tax administration.
Under the old system, income was earned in one financial year and assessed in the following year, often creating confusion for taxpayers. The new framework removes this distinction by using a single Tax Year that generally runs from April 1 to March 31.
The first Tax Year will cover income earned between April 1, 2026 and March 31, 2027.
Importantly, taxpayers will file the first return under this new framework only after March 31, 2027, subject to the applicable filing deadlines.
The transition works as follows: Income earned between 1 April 2025 and 31 March 2026 will continue to be assessed under Assessment Year (AY) 2026–27. However, income earned from 1 April 2026 to 31 March 2027 will no longer be linked to an assessment year and will instead fall under the new Tax Year 2026–27 system.
