Section 3 of Income-tax Act, 2025: What Is a Tax Year?
Section 3 defines the tax year for Indian income-tax purposes. Ordinarily it is the financial year from 1 April to 31 March. A special rule applies when a business, profession or source of income first comes into existence during that year.
What does Section 3 provide?
Section 3(1): For the purposes of the Act, the tax year means the twelve-month period of the financial year commencing on 1 April.
Section 3(2): For a newly set-up business or profession, or a source of income newly coming into existence in a financial year, the tax year begins on the date the business or profession is set up, or the new income source comes into existence, and ends with that financial year.
The full authoritative wording should be checked against the official consolidated Act.
Meaning of "tax year" under Section 3(1)
For an established source of income, the tax year normally covers 1 April through 31 March of the following calendar year. Thus, tax year 2026-27 begins on 1 April 2026 and ends on 31 March 2027.
Section 3(2): First tax year of a new business or income source
The first tax year need not comprise twelve months. Where a business or profession is newly set up during a financial year, its first tax year starts on the date of setting up and ends on 31 March. Similarly, where an income source newly comes into existence, its first tax year begins on that date.
The statutory phrase is "set up", not merely the date of first sale or receipt. The relevant facts and applicable judicial principles must be examined to identify when a particular business was set up.
How does the tax year differ from the old previous year and assessment year?
Under the Income-tax Act, 1961, the previous year generally described the period when income was earned, while the assessment year was the following year. The 2025 Act uses the expression tax year as its principal reference period for income from 1 April 2026 onward. This terminology does not mean that every return or assessment is completed within the same financial year.
For earlier income periods, transitional treatment and continuing proceedings must be considered under section 536 of the 2025 Act.
Practical examples of tax year
A business operating throughout 2026-27 has a tax year from 1 April 2026 to 31 March 2027.
A business set up on 1 December 2026 has its first tax year from 1 December 2026 to 31 March 2027.
If a separate source of income first comes into existence on 15 January 2027, the first tax year for that source begins on that date and ends on 31 March 2027.
Frequently asked questions
Is the tax year always twelve months?
No. Under section 3(2), the first tax year for a newly set-up business or profession or a newly arising source of income may be shorter.
When does the first tax year under the 2025 Act begin?
The Act took effect on 1 April 2026. Its first ordinary tax year is 2026-27.
Does the tax year change the accounting year?
No. The Income Tax Department explains that the tax year aligns with the financial year, so the introduction of the term does not itself require a change to business accounting periods.
Which provision addresses older tax years?
Section 536 contains repeal and savings provisions relevant to earlier years and proceedings under the Income-tax Act, 1961.
Official law and guidance
Updated: 10 November 2026. General legal information; statutory text and applicable notifications prevail.