AY 2026-27 vs Tax Year 2026-27: Which Income Tax Act Applies?

From 1 April 2026, India moved from the Income-tax Act, 1961 to the Income-tax Act, 2025. At the same time, the new law introduced the concept of a Tax Year and discontinued the use of the terms Previous Year and Assessment Year for income governed by the new Act.

This creates an important transition-year situation: both Assessment Year (AY) 2026-27 and Tax Year (TY) 2026-27 exist, but they refer to different periods of income and are governed by different Income-tax Acts.

AY 2026-27 and Tax Year 2026-27 are not the same

What does Assessment Year 2026-27 mean?

Under the Income-tax Act, 1961, income earned during a Previous Year is generally reported and assessed in the following Assessment Year.

Therefore:

• Previous Year / Financial Year: 2025-26
• Income earned: 1 April 2025 to 31 March 2026
• Assessment Year: 2026-27
• Applicable law: Income-tax Act, 1961

Consequently, an ITR filed for AY 2026-27 continues to be governed by the Income-tax Act, 1961 even though the return itself is filed after 1 April 2026, when the Income-tax Act, 2025 has already come into force.

The Income Tax Department has specifically clarified that the ITR for income earned during FY 2025-26 must be filed for AY 2026-27 under the provisions of the Income-tax Act, 1961.

What does Tax Year 2026-27 mean?

The Income-tax Act, 2025 introduced the term Tax Year. Section 3 of the new Act generally defines a Tax Year as the twelve-month period of the financial year commencing on 1 April.

Accordingly:

• Tax Year: 2026-27
• Income period: 1 April 2026 to 31 March 2027
• Applicable law: Income-tax Act, 2025

Under the new Act, the separate terminology of Previous Year and Assessment Year has been discontinued for income governed by the Income-tax Act, 2025.

Thus, income earned during FY 2026-27 itself belongs to Tax Year 2026-27.

Why do AY 2026-27 and Tax Year 2026-27 exist at the same time?

This happens because 2026-27 is the transition period between the two Income-tax Acts.

The Income-tax Act, 2025 came into force from 1 April 2026 and repealed the Income-tax Act, 1961. However, repeal does not mean that the old Act immediately stops applying to income earned in earlier years.

Section 536 of the Income-tax Act, 2025, dealing with repeal and savings, preserves the application of the Income-tax Act, 1961 for earlier periods and proceedings connected with them.

Therefore, both frameworks operate simultaneously for different periods:

• Compliance relating to FY 2025-26 / AY 2026-27 continues under the Income-tax Act, 1961.
• Income and compliance relating to FY 2026-27 / Tax Year 2026-27 fall under the Income-tax Act, 2025.

Which Act should you select for different compliances?

Example: AY 2026-27 vs Tax Year 2026-27

Suppose Rahul earns salary and capital gains during 1 April 2025 to 31 March 2026.

This income belongs to FY 2025-26. Rahul will report this income in his ITR for AY 2026-27, and the return will be governed by the Income-tax Act, 1961.

Now assume Rahul earns salary and capital gains between 1 April 2026 and 31 March 2027.

This income belongs to Tax Year 2026-27 and is governed by the Income-tax Act, 2025. The return for this Tax Year will become due after the Tax Year ends.

Therefore, the number “2026-27” may appear in both cases, but the underlying income periods and applicable laws are completely different.

What happens to notices and assessments for AY 2026-27?

The commencement of the Income-tax Act, 2025 does not convert an old-year proceeding into a proceeding under the new Act.

For example, if a taxpayer files an ITR for AY 2026-27 and subsequently receives a notice regarding that return, the proceeding continues under the Income-tax Act, 1961.

Section 536(2) of the Income-tax Act, 2025 preserves proceedings relating to tax periods beginning before 1 April 2026. This can include, depending on the nature of the proceeding:

• assessment
• reassessment
• rectification
• revision
• penalty proceedings
• appeals and
• other proceedings relating to earlier years

Does the Income-tax Act, 1961 still apply after 1 April 2026?

Yes, for earlier years and matters protected by the repeal and savings provisions.

Although the Income-tax Act, 1961 has been repealed from 1 April 2026, its provisions continue to apply wherever the Income-tax Act, 2025 preserves their operation for earlier periods.

This is why taxpayers may continue to see references to sections of the Income-tax Act, 1961 while filing returns, responding to notices or handling proceedings relating to AY 2026-27 or earlier years.

Common mistakes taxpayers should avoid

1. Treating AY 2026-27 and Tax Year 2026-27 as interchangeable

They represent different income periods. AY 2026-27 relates to FY 2025-26, whereas Tax Year 2026-27 relates to FY 2026-27.

2. Applying sections of the Income-tax Act, 2025 to the AY 2026-27 ITR

The return for AY 2026-27 is governed by the Income-tax Act, 1961 even though it is filed after the new Act has commenced.

3. Assuming every compliance after 1 April 2026 falls under the new Act

The relevant factor is not merely the date on which the compliance is performed. You must determine the income period or proceeding to which the compliance relates.

4. Selecting the wrong Act while making an online tax payment

The Income Tax Department has clarified that self-assessment tax relating to AY 2026-27 should be paid under the Income-tax Act, 1961, whereas advance tax relating to Tax Year 2026-27 falls under the Income-tax Act, 2025.

Simple rule to remember

Frequently Asked Questions

Is AY 2026-27 the same as Tax Year 2026-27?

No. AY 2026-27 relates to income earned during FY 2025-26, while Tax Year 2026-27 relates to income earned during FY 2026-27.

Which Act applies to the ITR for AY 2026-27?

The Income-tax Act, 1961 applies to the ITR for AY 2026-27.

Which Act applies to income earned during FY 2026-27?

Income earned during FY 2026-27 is treated as income of Tax Year 2026-27 and is governed by the Income-tax Act, 2025.

Why is the Income-tax Act, 1961 still visible on the e-Filing portal?

The portal needs to support compliances relating to earlier years that continue to be governed by the Income-tax Act, 1961 while simultaneously supporting Tax Year 2026-27 onwards under the Income-tax Act, 2025.

If I receive a notice for AY 2026-27 after 1 April 2026, which Act applies?

The proceeding generally continues under the Income-tax Act, 1961 because it relates to an earlier period protected by the repeal and savings provisions of section 536 of the Income-tax Act, 2025.

Conclusion

The transition to the Income-tax Act, 2025 does not mean that every tax compliance performed after 1 April 2026 automatically falls under the new law.

For income earned during FY 2025-26, taxpayers will continue to use AY 2026-27 and comply with the Income-tax Act, 1961.

For income earned during FY 2026-27, the new Tax Year 2026-27 framework applies under the Income-tax Act, 2025.

Therefore, whenever you see “2026-27”, first check whether it refers to Assessment Year 2026-27 or Tax Year 2026-27 before determining the applicable law, section, tax payment or compliance requirement.

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