The Income Tax Bill 2025 has been introduced in the Lok Sabha by Finance Minister Nirmala Sitharaman. The Finance Minister has urged Speaker Om Birla to refer it to a select committee of the House. The much anticipated Bill, which is half the size of the 1961 Income Tax Act, aims at achieving tax certainty.
The Bill will also replace terminologies such as “assessment year” and “previous year” with the easier-to-understand “tax year” as part of a move to simplify language. This is expected to eliminate confusion among taxpayers over these terminologies. However, the concept of financial year (FY) will remain the same. Let’s understand these terms and how they are different from one another.
Previous Year and Assessment Year
The current Income Tax Act, 1961 uses the concepts of Previous Year and Assessment Year. In India, a year runs from April 1 to March 31, which is known as the Previous Year, while the Assessment Year is the following twelve-month period.
“As an illustration, the period from April 1, 2023, to March 31, 2024, is referred to as Previous Year 2023-24, which corresponds to Assessment Year 2024-25,” said Prashant Bhojwani, Partner, Corporate Tax, Tax & Regulatory Services, BDO India.
Tax Year and Financial Year
As per the draft Income Tax Bill 2025, the tax year is a 12-month period beginning on April 1 and ending on March 31.
“The concept of the Previous Year and Assessment Year was creating confusion in the minds of taxpayers as they represented two different years. In an effort to simplify the terminology and improve clarity for taxpayers, the new Income Tax Bill proposes to eliminate the concept of Assessment Year and replace the term Previous Year with ‘Tax Year’, which means twelve months period of the financial year commencing on April 1,” Bhojwani added.
Illustration – Tax year for filing of taxes on the income earned in the financial year 2025-26 will be TY 2025-26.
| Term | Income Tax Act, 1961 | Income Tax Bill, 2025 |
| Financial Year | April 1-March 31 | April 1-March 31 |
| Tax Year | X | April 1-March 31 (same as financial year) |
| Assessment Year | The year in which the income is charged to tax | Replaced by tax year |
| Previous Year | The year in which income is earned | Replaced by tax year |
Calendar Year
While there was a discussion for a shift from financial year (April to March) to a calendar year (January to December) to align India’s tax framework with other countries, the Income Tax Bill 2025 has retained the financial year from April to March.
