Financial Year vs Assessment Year: Current FY, AY and the New Tax Year

Knowledge of the finances is extremely important. Terms like Financial Year and Assessment year play a vital role in the financial aspect of an individual's life. While planning finances, a taxpayer requires the knowledge of what financial and assessment year is so that he can be wholly and completely informed and make decisions that are in his best interests.

Financial year and assessment year are not the same thing and cannot be used interchangeably. While filing an income tax return (ITR), if you do not understand what the financial year and assessment year are, you may pick the wrong year and face several problems. And from 1 April 2026, a third term matters too: the tax year.

What is the current financial year?

The current financial year in India is FY 2026-27, from 1 April 2026 to 31 March 2027. Under the Income-tax Act, 2025, which came into force on 1 April 2026, this year is called Tax Year 2026-27. There is no separate assessment year for it.

What is the Financial Year?

The financial year is the year in which you have earned your income. It starts on April 1st of each year on the calendar and ends on March 31st of the next year on the calendar. Abbreviated as FY, Financial Year is an extremely important term. In the financial year, taxpayers must calculate, estimate and plan taxes, and pay advance tax if it applies to them.

Let's understand this better using dates

1. The income you earned from 1st April 2025 to 31st March 2026 is the income earned in the Financial Year (FY) 2025-26.
2. Any income earned by you from 1st April 2026 to 31st March 2027 is income earned in the Financial Year (FY) 2026-27, which is also Tax Year 2026-27.

What is Assessment Year?

The money or income that you earn in a financial year is taxed during the assessment year. Under the Income-tax Act, 1961, it is the assessment year in which you are mandated to file your income tax return (ITR). The assessment year is the year that immediately succeeds the financial year.

Let's understand this better using dates

1. In the Assessment Year 2025-26 (1st April 2025 to 31st March 2026), income earned in Financial Year 2024-25 (1st April 2024 to 31st March 2025) is assessed and taxed.
2. In the Assessment Year 2026-27 (1st April 2026 to 31st March 2027), income earned in Financial Year 2025-26 is assessed and taxed. This is the last assessment year: returns for it were filed in July 2026 on the old Act's forms.

Financial years and assessment years in India over the years

What is the difference between a Financial Year (FY) and an Assessment Year (AY)?

The financial year is the year in which a person earns their income. The assessment year is the year after it, when that income is assessed and taxed. For instance, the financial year from April 1, 2025 to March 31, 2026 is FY 2025-26, and its assessment year is AY 2026-27.

What is the tax year under the Income-tax Act, 2025?

The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026. It uses one term, the tax year, in place of "previous year" and "assessment year". A tax year is the 12 months of a financial year starting on 1 April. If you start a new business or a new source of income during the year, your first tax year runs from that date to 31 March.

What this means in practice:

1. Income from 1 April 2026 onwards belongs to Tax Year 2026-27, Tax Year 2027-28 and so on. It is still assessed after the year ends, just as before; only the name has changed.
2. Income up to 31 March 2026 (FY 2025-26 and earlier) stays with the old Act. Returns, assessments, notices and appeals for those years follow the Income-tax Act, 1961.
3. Both run side by side for now. In July 2026, people filed returns for AY 2026-27 on the old Act's forms, while advance tax for Tax Year 2026-27, from June 2026, was paid under the new Act.

Why does an ITR form have an Assessment Year?

A question might arise in the taxpayers' minds why does an ITR form have an Assessment Year? Assessment year is the year in which the income earned by an individual in the financial year is taxed and assessment year follows the financial year. Naturally, an income cannot be taxed before it is earned. A financial year is a long year with many ups and downs, and circumstances keep changing before the entire annual income has been earned. Hence, the ITR for an old-Act year names the assessment year. For income from 1 April 2026 onwards, the law calls that year the tax year instead.

Common mistakes to avoid

1. Picking the financial year where the form asks for the assessment year. For income earned in FY 2025-26, the ITR asks for AY 2026-27, not 2025-26.
2. Looking for "AY 2027-28". There is no such year. Income earned from April 2026 to March 2027 is Tax Year 2026-27.
3. Mixing up Form 16 or the tax statement of the wrong year. Match the year on every document to the year you are filing for.

PensionBox makes it easy to understand important financial terms that must be known by all taxpayers to decide what is best for them.

Position as of October 2026, from the Income-tax Act, 2025 (sections 1, 3 and 536) and the Income Tax Department's FAQs on the new Act. This is general information, not tax advice.

Frequently asked questions

What is a Financial Year (FY) and Assessment Year (AY)?

The financial year (FY) is the year from 1 April to 31 March in which you earn income. The assessment year (AY) is the next year, in which that income is assessed and taxed. From 1 April 2026, the Income-tax Act, 2025 uses a single 'tax year' instead.

How do Financial Year and Assessment Year differ?

You earn income in the financial year and file your return and settle the tax in the assessment year that follows it. For example, income of FY 2025-26 is assessed in AY 2026-27.

Why does an ITR form have an Assessment Year?

Income can only be taxed after the year in which it is earned is over, so the return for an old-Act year names the assessment year that follows it. For income from 1 April 2026 onwards, the law calls that year the tax year instead.

What is the current financial year in India?

The current financial year is FY 2026-27, from 1 April 2026 to 31 March 2027. Under the Income-tax Act, 2025 it is called Tax Year 2026-27.

What is the assessment year for FY 2026-27?

There is none. From 1 April 2026, the Income-tax Act, 2025 has replaced the assessment year with the tax year, so income of FY 2026-27 belongs to Tax Year 2026-27. The last assessment year is AY 2026-27, for income of FY 2025-26.