Definition of “tax year”
[Section 3 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 3(1) of Income Tax Act 2025
3(1) For the purposes of this Act, “tax year” means the twelve months period of the financial year commencing on the 1st April.
Section 3(2) of Income Tax Act 2025
3(2) In the case of a business or profession newly set up, or a source of income newly coming into existence in any financial year, the tax year shall be the period beginning with—
- 3(2)(a) the date of setting up of such business or profession; or
- 3(2)(b) the date on which such source of income newly comes into existence, and,
ending with the said financial year.
FAQs on Section 3 of Income Tax Act 2025
1. What is the definition of a “tax year” under the Income Tax Act, 2025?
A tax year is a twelve-month financial year starting from April 1st, as per Section 3(1) of the Act.
2. When does the tax year begin and end?
The tax year begins on April 1st and ends on March 31st of the following year.
3. Does the definition of the tax year apply to all taxpayers?
Yes, the standard definition applies to all taxpayers unless a specific provision states otherwise.
4. What is the tax year for a newly set up business or profession?
For a newly set up business, the tax year begins on the date the business is set up and ends on March 31st of that financial year.
5. What if a new source of income comes into existence during the financial year?
The tax year for such a source of income will start from the date it comes into existence and end on March 31st of the same financial year.
6. Is the tax year different for a newly established business compared to an existing business?
Yes, for newly established businesses, the tax year starts from the date of setup, whereas for existing businesses, it follows the regular financial year from April 1st to March 31st.
7. What happens if a business is set up on March 30th?
The tax year for that business will be from March 30th to March 31st (only two days), and from the next April 1st, it will follow the regular tax year.
8. Can a taxpayer choose a different tax year?
No, the tax year is strictly defined by the Act and cannot be changed at the taxpayer’s discretion.
9. Does the tax year affect the filing deadline for income tax returns?
Yes, tax returns are filed based on the tax year, and deadlines are set accordingly.
10. If a business is set up in February, does it get a full 12-month tax year?
No, the tax year will end on March 31st of that financial year, meaning it will be a short tax year.
Conclusion
The tax year, as defined under Section 3 of the Income Tax Act, 2025, follows a twelve-month financial year starting from April 1st and ending on March 31st of the following year. However, for newly established businesses or new sources of income, the tax year begins from the date of setup or commencement and ends on March 31st of that financial year.
This standardization ensures consistency in taxation, simplifies compliance, and aligns with financial reporting periods. Taxpayers should be mindful of these provisions to accurately determine their tax obligations and filing deadlines.
