Assessment Year (AY)
The year following the financial year, in which the income you earned is assessed to tax and the return is filed. Income earned in FY 2025-26 is assessed in AY 2026-27.
In short
- Always the year immediately after the financial year in which income was earned.
- FY 2025-26 income is assessed in AY 2026-27.
- The ITR form and the challan must both carry the assessment year, not the financial year.
- Picking the wrong AY on a tax challan is a common cause of unmatched tax credit.
- The Income Tax Act, 2025 replaces the FY/AY split with a single 'tax year' from 1 April 2026.
The assessment year is the twelve-month period, again running 1 April to 31 March, that immediately follows the financial year in which income was earned. Tax law separated the two because income can only be assessed once the year of earning is complete: you cannot finally compute a year's income until that year has ended. So income earned between 1 April 2025 and 31 March 2026, which is FY 2025-26, is assessed in AY 2026-27.
This distinction is not academic paperwork. It appears on the return form you select, on every tax payment challan, and on the intimation you eventually receive. When you pay self-assessment or advance tax, the challan asks for the assessment year, not the financial year, and selecting the wrong one is one of the most common reasons a legitimately paid tax fails to show against a return. The money reaches the department but sits tagged to the wrong year, and the return shows a shortfall until it is corrected.
The same logic explains why an assessment year label often looks a year ahead of intuition. Someone filing in July 2026 for salary earned during the year ending March 2026 is filing the AY 2026-27 return, even though it feels like last year's income, because the assessment year is the year of assessment rather than the year of earning.
A significant change is now underway. The Income Tax Act, 2025, effective from 1 April 2026, abandons the two-label system entirely and uses a single 'tax year' for the period income is earned in, with no separate assessment year label attached a year later. The stated aim was simplification, since the FY/AY split confused taxpayers for six decades without adding much.
During the transition, both vocabularies coexist. Income earned before 1 April 2026 continues to be governed by the 1961 Act and keeps its previous year and assessment year labels, even where the return is filed or assessed after that date. So a return covering FY 2025-26 income remains an AY 2026-27 return regardless of when it is processed. The first returns to use genuine 'tax year' terminology cover income earned from 1 April 2026 onward.
Also referred to as: AY, assessment year.
Frequently asked questions
What is the assessment year for FY 2025-26?
AY 2026-27. The assessment year is always the twelve months immediately following the financial year in which the income was earned.
Do I enter the financial year or the assessment year on a tax challan?
The assessment year. This trips up a lot of people, and selecting the wrong one is a frequent cause of tax that was genuinely paid failing to appear against your return. The payment reaches the department but is tagged to the wrong year.
Why does India separate the financial year from the assessment year at all?
Because a year's income can only be finally computed once that year has ended. The 1961 Act built that logic into its vocabulary. The Income Tax Act, 2025 removes the split and uses a single 'tax year' instead.
Does the assessment year still exist under the Income Tax Act, 2025?
Not as a separate label going forward. From 1 April 2026 the new Act uses one 'tax year' for the period income is earned in. Income earned before that date keeps the old previous year and assessment year terminology even if it is filed or assessed later.
I filed in 2026 for income earned during the year ended March 2026. Which AY is that?
AY 2026-27. The label refers to the year of assessment, not the year you happened to file in, which is why it often looks a year ahead of what feels intuitive.
Disclaimer
This glossary entry is for general informational purposes only and does not constitute professional tax, legal, or financial advice. Rules and rates change, so consult a qualified Chartered Accountant for advice specific to your situation.