Tax year in new income tax bill: The new income tax bill is likely to simplify the language of direct tax laws for the common man

New income tax bill to introduce ‘Tax Year’: No more confusion of FY, AY as new bill is likely to remove assessment year, previous year According to sources, the government may introduce the concept of a tax year to avoid confusion. Read on to know what a tax year is and how it can simplify the tax laws for the common man

The new income tax bill is likely to introduce the concept of ‘Tax Year’ for the taxpayers. The concept of the tax year will replace the current concept of financial year (or previous year) and assessment year from the Income Tax Act, 1961. According to sources, the concept of the tax year is being introduced to reduce the complexity caused by various terms representing a specific time period in the context of income tax filing. This move is expected to simplify the meaning of the time period for payment of taxes, income tax return filing and other compliances that will be required to be fulfilled under the Income Tax Bill, 2025.

The tax year will be defined as the twelve months period of the financial year commencing on the 1st April. Further, the new tax bill says, 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—
(a) the date of setting up of such business or profession; or
(b) the date on which such a source of income newly comes into existence, and,
ending with the said financial year.

Also read | New Income Tax Bill 2025 Expectations Live

It is important to note that there is no change in the definition of financial year. The financial year will start form April 1 and end on March 31, unlike other countries that follow calendar year (January 1 to December 31) as a financial year.

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What are current income tax laws to determine taxability of income?
Currently, the Income Tax Act 1961, follows the concept of the assessment year. It is a year followed by the financial year in which the income is earned. The concept of assessment year is being replaced by the tax year.

Also read | Will deadline for income tax filing change in the new income tax bill?

Currently, income tax laws use the concept of the assessment year and previous year to differentiate the years in which the income is earned and income is assessed. The new income tax bill will change this terminology to the tax year concept. According to government sources, it is expected that the use of tax year instead of assessment year and previous year will help taxpayers to easily comply with the income tax rules.

Taxpayers, mostly common citizens, face issues while depositing tax (self-assessment tax and advance tax) because of the concept of assessment year and previous year. The income tax laws require taxpayers to deposit taxes based on the assessment year. As assessment year is the year followed by the financial year in which income is earned. Many taxpayers get confused about the tax deposit for the wrong assessment year. This leads to a long drawn battle of getting taxes tax refunds from the tax department while also depositing taxes for the correct financial year.

This story originally appeared on: India Times - Author:Faqs of Insurances