Definition of Tax Year

In the previous act “Income tax act 1961”, the act revolved around previous year and assessment year. Now, in the Income tax act 2025, the concept of “Assessment year” and “Previous year” has been set aside with and a new concept of “Tax year” has been introduced in which there is a single terminology which shall be used throughout the act. The term “Tax year” has been coined in the section 3 of the Income tax act 2025 which says that the tax year shall start from the 1st April and ends of 31^st March of the year. To put into simple words, the tax year shall starts from 1^st April and ends on 31^st March of the year. For the purpose of business or profession newly set up or a new source of income coming into existence in that year, the tax year shall be the period beginning with :-

1. the date of setting up of such business or profession; or
2. the date on which such source of income newly comes into existence

and ending with the said financial year.

Example – A firm has been set up on 01-04-2026. Now, for the company, the tax year is 2026-27 starting from 01-04-2026 and ending on 31-03-2027.

Example – Mr. X has started his first job on 15-05-2026. Now, for Mr. X, the tax year starts from 15-05-2026 and ends on 31-03-2027.

There are certain exceptions to section 3 in a way which can be understood in the following respective sections:

Section 316 – Shipping business of a non – resident

• This is a non-obstante clause.
• Applicable in the case of any ship, belonging to or chartered by a non resident, which carries passengers, livestock, mails or goods shipped at a port in India.
• 5% of the amount paid or payable on account of carriage, demurrage or handling charge or any other similar charges shall be liable to Income tax.
• Before the departure from any port in India of any such ship, the master of the ship shall prepare and furnish to the Assessing Officer a return of the full amount paid or payable to the person or any person on his behalf on account of such carriage shipped at that port since the last arrival of the ship thereat.
• The requirement of filing the return of income shall be satisfied if the AO is satisfied that the master of the ship is not in a position to file the return before the departure of the ship from the port and the satisfactory arrangements have been made and the return of income is filed within 30 days from the departure of ship by any person so authorized.

Section 317 – Assessment of persons leaving India

• This is a non-obstante clause.
• Applicable in the cases where the Individual may leave India during the tax year or shortly after the expiry of the tax year.
• The total income of such individual for the period beginning from the 1^st day of April of that tax year to the probable date of departure from India shall be taxable under the Act at the tax rates applicable for the relevant tax year.
• The AO has the power to estimate the income of such individual for the aforesaid period where it cannot be readily determined in the manner provided in this Act.
• The Assessing Officer may serve a notice upon such individual requiring him to furnish within such time, not being less than seven days, as specified in the notice, a return in the same form and verified in the same manner as a return under section 268(1).

Section 318 – AOP or BOI or Artificial juridical person formed for a particular event or purpose

• Where, it appears to the AO, that the AOP, BOI, Artificial juridical person has been formed for a short period of time or for a particular event and its likely to be dissolved in the same tax year or immediately after such tax year, the total income of such AOP,BOI, Artificial juridical person for such tax year shall be chargeable to tax in that tax year.
• The AO has the power to estimate the income of such person for the aforesaid period where it cannot be readily determined in the manner provided in this Act.
• The Assessing Officer may serve a notice upon such person requiring him to furnish within such time, not being less than seven days, as specified in the notice, a return in the same form and verified in the same manner as a return under section 268(1).

Section 319 – Assessment of persons likely to transfer property to avoid tax

• Where, it appears to the Assessing Officer that any tax person is likely to charge, sell, transfer, dispose of or otherwise part with any of his assets with a view to avoid payment of any liability under the provision of this Act, the total income of such person for the period beginning from the first day of that current tax year up to the date when the Assessing Officer commences proceedings under this section shall be chargeable to tax in the current tax year.
• The AO has the power to estimate the income of such person for the aforesaid period where it cannot be readily determined in the manner provided in this Act.
• The Assessing Officer may serve a notice upon such person requiring him to furnish within such time, not being less than seven days, as specified in the notice, a return in the same form and verified in the same manner as a return under section 268(1).

Section 320 – Discontinuance of business or dissolution

• Where any business or profession is discontinued in any tax year, the income of the period beginning from the first day of that tax year up to the date of such discontinuance may, at the discretion of the Assessing Officer, be charged to tax in that tax year.
• The total income of each completed tax year or part of any tax year included in such period shall be chargeable to tax at the rate or rates in force in that tax year, and separate assessments shall be made in respect of each such completed tax year or part of any tax year.
• Any person discontinuing any business or profession shall give to the Assessing Officer notice of such discontinuance within fifteen days thereof.
• Where an assessment is to be made under the provisions of this section, the Assessing Officer may serve on the person whose income is to be assessed or, in the case of a firm, on any person who was a partner of such firm at the time of its discontinuance or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under section 268(1) and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under section 268(1).
• Irrespective of anything contained in section 268 or 280, where the provisions of sub-section (1) are applicable, the Assessing Officer may issue any notice under section 268 or 280, requiring the furnishing of the return by the person whose income is to be assessed in respect of any tax chargeable under any other provisions of this Act, within such period, not being less than seven days, as the Assessing Officer may think proper.