Tax Year Concept Under Income Tax Act 2025: What Accountants Need to Know

The Income Tax Act 2025 — set to replace the Income Tax Act 1961 — introduces several structural simplifications. One of the most significant terminological changes is the replacement of the dual "Previous Year" and "Assessment Year" framework with a single, unified concept: the Tax Year.

This guide explains what the Tax Year means, how it differs from the old system, and the practical implications for accountants and Tally Prime users.

1. Previous Year vs. Assessment Year vs. Tax Year

Under the old Income Tax Act 1961:

• Previous Year: April 1, 2024 to March 31, 2025 — the year in which income is earned.
• Assessment Year: April 1, 2025 to March 31, 2026 — the year in which the ITR is filed and tax is assessed.

This two-year system often confused taxpayers. Under the new Income Tax Act 2025:

• Tax Year 2025-26 refers to income earned from April 1, 2025 to March 31, 2026, with the ITR filed and assessed in the same reference year — a single unified identifier.

2. Impact on TDS Returns and Forms

TDS quarterly returns (Forms 24Q, 26Q, 27Q) and annual Form 26AS will transition to the new Tax Year reference. The substantive TDS rates, thresholds, and procedures remain unchanged — only the year-label changes.

Key areas to watch:

• TDS certificates (Form 16, 16A) will carry the new Tax Year reference from FY 2026-27 onwards when the new Act is operationally notified.
• TRACES portal data downloads will progressively migrate to the Tax Year label.

3. Tally Prime Configuration Considerations

Tally Solutions will release software updates to align with the Income Tax Act 2025 once the Act's implementation schedule is officially notified. In the interim:

• Continue creating the Tally company with the standard Financial Year Beginning From: April 1 configuration.
• TDS setup (statutory deductions) and Section references remain valid under current Tally versions.
• Ensure your Tally Prime is on the latest release for compliance updates as they are rolled out.

4. What Accountants Should Do Now

• Familiarise your team with the new Tax Year terminology to avoid confusion during client reporting.
• Verify that any third-party accounting reports or MIS dashboards reference the correct year when filing transitions to the new Act.
• Subscribe to CBDT and Tally official communications for implementation timelines and software update advisories.