New Income Tax Bill Introduces 'Tax Year' Concept: No More FY, AY Confusion For Taxpayers

The Income Tax Bill 2025, tabled in Parliament on Wednesday, aims to simplify India's tax structure with a major terminology shift — introducing the tax year.

This change will replace the existing concepts of assessment year (AY) and financial year (FY), a move expected to eliminate widespread confusion among taxpayers.

Currently, income tax laws use the assessment year to refer to the year following the financial year in which income is earned. This often leads to confusion when filing taxes or depositing self-assessment and advance tax.

The new bill proposes a unified 'Tax Year', which will simply refer to the same financial year (April 1–March 31), in which income is earned and tax is filed. Under the new system, the 'Tax Year' will run from April 1 to March 31, replacing the assessment year.

Businesses or new sources of income arising in the middle of the year will be taxed from their start date until March 31.

A common issue for taxpayers has been depositing taxes for the wrong year, triggering lengthy refund processes and compliance headaches. By shifting to a straightforward 'Tax Year' format, the government aims to make tax filing easier, reduce errors and improve compliance.

The 622-page Income Tax Bill, 2025, also introduces simplified legal language, a clearer definition of income, and removal of outdated provisions to modernise India's tax system. While the financial year remains unchanged (April to March) — unlike countries following the calendar year — the shift to 'Tax Year' is expected to be one of the most taxpayer-friendly reforms in recent years.