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How to Invest in SIP A Beginner's Guide
In summary
Financial Year (FY) and Assessment Year (AY) were closely related but referred to different periods under the Income Tax Act, 1961. From 1 April 2026, the Income Tax Act, 2025 introduces Tax Year and discontinues the Assessment Year concept for income covered by the new Act.
- Financial Year runs from 1 April to 31 March.
- FY 2025–26 corresponds to AY 2026–27 under the earlier Act.
- Tax Year replaces the Previous Year under the new Act.
- Tax Year 2026–27 corresponds to FY 2026–27.
- AY continues to matter for income governed by the earlier Act.
- Correct year selection remains important when filing tax returns.
This transition means you may encounter FY, AY, Previous Year, and Tax Year simultaneously, depending on the income period and applicable law.
What is a Financial Year?
A Financial Year is a 12-month period used to record income, expenses, profits, investments, and other financial activity. In India, it runs from 1 April to 31 March of the following calendar year.
For example, FY 2025–26 began on 1 April 2025 and ended on 31 March 2026. Income earned during this period was governed by the earlier income-tax framework and was reported under AY 2026–27.
The Financial Year remains relevant for accounting, budgeting, financial reporting, and several financial-planning decisions even after the introduction of the Tax Year.
What is an Assessment Year?
Under the Income Tax Act, 1961, the Assessment Year is the 12-month period immediately following the Previous Year. It is the period in which income earned during the Previous Year is assessed and the Income Tax Return is filed.
For example, income earned during FY 2025–26 was reported in AY 2026–27. The Income Tax Department continues to provide ITR utilities for AY 2026–27, confirming that this terminology remains relevant for returns relating to FY 2025–26.
The Assessment Year has, however, been discontinued under the Income Tax Act, 2025 for income covered by the new Act.
What is a Tax Year under the new Income Tax Act?
The Income Tax Act, 2025 introduces Tax Year as the relevant period for income-tax purposes from 1 April 2026. A Tax Year generally consists of the 12-month financial year beginning on 1 April and ending on 31 March.
Therefore:
FY 2026–27 = Tax Year 2026–27
The new framework replaces the earlier concept of the Previous Year with Tax Year and removes the separate Assessment Year concept. The Income Tax Department states that Tax Year 2026–27 applies to income earned from 1 April 2026 onwards.
What is the difference between FY, AY and Tax Year?
The distinction depends on which income-tax law applies to the period.
| Particular | Financial Year | Assessment Year | Tax Year |
|---|---|---|---|
| Meaning | Period used to record financial activity | Period when income from the previous year was assessed | Period for which income is taxed under the new Act |
| Period | 1 April to 31 March | 1 April to 31 March | 1 April to 31 March |
| Current relevance | Continues | Relevant to earlier-law years | Applies from 1 April 2026 |
| Example | FY 2025–26 | AY 2026–27 for FY 2025–26 | Tax Year 2026–27 for FY 2026–27 |
Last updated: October 2026
Under the new framework, it is therefore inaccurate to describe Tax Year 2026–27 as being followed by AY 2027–28. The new Act uses Tax Year rather than Assessment Year.
How are FY and AY related under the old framework?
Under the Income Tax Act, 1961, the Financial Year was the period in which you earned income, while the Assessment Year followed it.
For example, consider an individual who earned salary, interest, and investment income between 1 April 2025 and 31 March 2026.
The period of earning income was FY 2025–26. The corresponding return was filed for AY 2026–27.
This distinction allowed taxpayers to complete their financial records after the income year ended and then report the relevant information during the Assessment Year.
How does the Tax Year change this system?
The new system removes the need to use two different year labels for income earned from 1 April 2026 onwards.
Under the earlier system:
Previous Year 2025–26 → Assessment Year 2026–27
Under the new system:
Tax Year 2026–27 → Return filed after the Tax Year ends
The Income Tax Department explains that the new Tax Year corresponds to the earlier Previous Year concept. This alignment is intended to reduce confusion caused by referring to income and assessment using different year numbers.
Which year applies to FY 2025–26 income?
Income earned between 1 April 2025 and 31 March 2026 falls under FY 2025–26. Under the Income Tax Act, 1961 framework, it is reported in AY 2026–27.
This is important because the new Income Tax Act, 2025 does not retrospectively change the year for which the earlier Act applies. The Income Tax Department specifically states that AY 2026–27 relates to income of FY 2025–26 and continues under the earlier framework.
Which year applies from 1 April 2026?
Income earned from 1 April 2026 to 31 March 2027 falls within Tax Year 2026–27 under the Income Tax Act, 2025.
You should therefore distinguish between:
- FY 2025–26: Income earned before the new Act became applicable; corresponding assessment period is AY 2026–27.
- FY 2026–27: Financial period beginning 1 April 2026.
- Tax Year 2026–27: Income-tax period corresponding to FY 2026–27 under the new Act.
This transition is particularly relevant when you are filing returns, reviewing tax documents, or comparing information prepared under the two different legal frameworks.
Why does the correct year matter when filing an ITR?
Selecting the correct year helps ensure that your income, deductions, tax payments, and other information are reported against the appropriate period.
For example, if you are filing a return for income earned in FY 2025–26, you select AY 2026–27 under the applicable earlier framework. The Income Tax Department's filing systems continue to provide AY-based utilities for such returns.
For income earned during Tax Year 2026–27, the new Act's framework applies. Using the wrong terminology or period can lead to filing errors or incorrect reporting.
How do FY and Tax Year affect investment planning?
The relevant year can affect when investment income, capital gains, deductions, and other tax-related transactions are reported.
For example, an investment transaction completed on 31 March 2026 falls within FY 2025–26. A transaction completed on 1 April 2026 falls within FY 2026–27 and is covered by the new Tax Year framework.
When planning investments, consider the applicable tax rules for the period rather than relying only on the label of the year. You can explore mutual funds and use appropriate tax and investment records to support accurate reporting.
How should you plan your taxes across the year?
Tax planning is more effective when you track income and eligible deductions throughout the relevant financial or tax year instead of waiting until the filing deadline.
- Track income: Maintain records of salary, business income, interest, dividends, capital gains, and other taxable income.
- Record investments: Keep statements and transaction records for investments made during the relevant period.
- Check deductions: Verify which deductions and exemptions apply under the tax regime and law applicable to you.
- Review tax payments: Compare tax deducted or paid with your estimated liability.
- Keep supporting documents: Preserve investment proofs, tax statements, and transaction records.
- Check the applicable framework: Establish whether the income falls under the Income Tax Act, 1961 or the Income Tax Act, 2025.
What documents should you keep for tax filing?
Your records should cover the income period for which you are filing. Depending on your circumstances, this may include salary documents, bank statements, investment statements, capital-gains reports, tax deduction information, and other supporting records.
Form 26AS and the Annual Information Statement (AIS) can also help you reconcile tax-related information available to the Income Tax Department.
If you are reviewing investment-related records, you can compare mutual funds based on factors relevant to your financial goals rather than relying solely on past performance.
Conclusion
Financial Year remains a 1 April to 31 March period used for financial and accounting purposes. The major income-tax change from 1 April 2026 is the introduction of Tax Year under the Income Tax Act, 2025 and the discontinuation of Assessment Year for income governed by that Act.
For the transition, remember one practical distinction: FY 2025–26 income is reported in AY 2026–27, while income from FY 2026–27 falls under Tax Year 2026–27. Checking the applicable legal framework before filing can help you use the correct year and reporting requirements.
Last reviewed: October 2026
Mutual funds are subject to market risk. Please read the scheme-related documents carefully before investing.
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Frequently Asked Questions
Understanding the transition
Filing and compliance
Practical tax planning
Does the Assessment Year still exist after 1 April 2026?
The Assessment Year concept has been discontinued under the Income Tax Act, 2025 for income covered by the new Act. However, AY remains relevant for earlier periods governed by the Income Tax Act, 1961. For example, income earned during FY 2025–26 is reported under AY 2026–27. This means both frameworks can be encountered during the transition period.
Is FY 2026–27 the same as Tax Year 2026–27?
Yes, for income-tax purposes under the new Act, Tax Year 2026–27 corresponds to the financial year beginning 1 April 2026 and ending 31 March 2027. The important change is terminology and the statutory framework: Tax Year replaces the earlier Previous Year concept, while the separate Assessment Year is no longer used under the new Act.
Why might I still see Assessment Year on an ITR form in 2026?
You may see Assessment Year because returns for earlier income periods continue to be governed by the Income Tax Act, 1961. For example, an ITR filed for income earned during FY 2025–26 is filed under AY 2026–27. The Income Tax Department continues to provide AY 2026–27 forms and utilities for these returns.
When will I file the return for Tax Year 2026–27?
Tax Year 2026–27 covers income earned from 1 April 2026 to 31 March 2027. The corresponding return is filed after that period ends, subject to the applicable due date and filing requirements. The Income Tax Department states that the return for Tax Year 2026–27 is not due until 2027, unlike the AY 2026–27 return for FY 2025–26.
Does changing from AY to Tax Year change how income is earned?
No. The terminology change does not alter the basic fact that income is earned over a defined period. What changes is the statutory framework used to describe and assess that income. From 1 April 2026, the new Act uses Tax Year for the relevant income period, aligning the tax-year reference with the financial year.
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Disclaimer
Mutual Fund SIP calculator may provide potential investors an approximate estimate on the maturity amount of the monthly SIP, purely based on mathematical calculation of the projected annual return rate selected by investor. However, such calculation does not factor the actual performance by the Asset Management Company (AMC) and should not be treated as any advice or assurance about the actual return of investment. Mutual Funds do not have a fixed rate of return and it is not possible to predict the rate of return. Please note that the SIP calculator are for illustrations only and do not represent actual returns which may vary depending on various factors including but not limited to actual performance, expense ratio, taxation, exit load (if any), etc.