The Income Tax Bill 2025 introduces a unified Tax Year (April 1–March 31), replacing the confusing dual system of Previous and Assessment Years. Effective April 1, 2026, it simplifies compliance, reduces errors in advance tax payments, and aligns India with global practices by streamlining tax calculations and eliminating redundant provisions.
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The Income Tax Bill 2025 aims to simplify India's tax structure by introducing the tax year.
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Must Read Articles: INCOME TAX BILL 2025 SIMPLIFIES |
Under the current law, income earned between April 1 and March 31 of a financial year (FY) is called the Previous Year. Taxes for this income are assessed in the following year, known as the Assessment Year (AY). For example:
The dual terminology (Previous Year and Assessment Year) confuses taxpayers, which leads to errors in tax deposits or filings.
The new bill will take effect from April 1, 2026.
Tax Year Definition
The Tax Year will align with the financial year (April 1 – March 31). For example, income earned from April 1, 2025 – March 31, 2026, will be taxed in Tax Year 2025–26.
Businesses starting mid-year will be taxed from their start date to March 31.
Benefits of the new Tax Year
Taxpayers will no longer need to track two separate years (Previous Year and Assessment Year), this will eliminate Confusion.
Advance tax calculations will depend solely on the Tax Year, reducing errors, and simplifying compliance.
Many countries use a single tax year, which will make India’s system more aligned to global practice, which will promote ease of doing business.
Confusion in the Current System: Taxpayers often deposit taxes for the wrong year, triggering refund delays and compliance issues. For example, A taxpayer might file returns for AY 2025–26 but mistakenly pay advance tax for FY 2024–25.
Simplification Goals: The bill reduces legal jargon, removes redundant provisions (e.g., Fringe Benefits Tax), and uses active voice for clarity. It consolidates 1,200 provisos and 900 explanations into sub-sections, making the law easier to navigate.
Current System: Income earned between April 1, 2024 – March 31, 2025 (Previous Year) is taxed in AY 2025–26.
New System: Income earned between April 1, 2025 – March 31, 2026 ,will be taxed in Tax Year 2025–26 (same period).
Must Read Articles:
INCOME TAX BILL 2025 SIMPLIFIES
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PRACTICE QUESTION Q. Assess the effectiveness of corporate tax rate reductions in stimulating investment and job creation. Do lower rates compensate for the removal of exemptions? 150 words |
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