New Income Tax Bill: What does replacing ‘assessment year’ with ‘tax year’ mean for taxpayers? FinMin FAQ explains

Finance Minister Nirmala Sitharaman on Thursday tabled the much-anticipated Income Tax Bill, 2025, in the Lok Sabha. Slated to take effect from April 1, 2026, the draft bill has been hailed by tax experts and industry leaders as a landmark reform, designed to modernise India’s tax framework, eliminate ambiguity, and enhance clarity. Explaining the broad scope of the new Income Tax Bill, 2025, the finance ministry has released FAQs, which provide clarity regarding the key changes introduced in the new bill. Among various questions shared via FAQs, the ministry talks about changing the terms 'previous year' and 'assessment year' to 'tax year'

"The timelines and computation in the Bill are now with reference to the financial year for which the income is liable to be taxed. It is expected that the use of ‘tax year’ will make the new Bill easier to comprehend. Further, many of the comparable tax jurisdictions in the world are using one single term, for the purpose of denoting the unit period of taxation. ‘Tax year’ is commonly used in many countries," says the finance ministry.

With the introduction of ‘tax year’, the principles that have been adopted are ‘Tax Year’: The unit period of taxation, which will be referred to in respect of all transactions and income for that period, and ‘Financial Year’, which is for the purposes of timelines for compliance and for procedural issues.

The new income tax bill simplifies the provisions of TDS and TCS, which the ministry says have been made easier to comprehend by providing tables. "There are separate tables for payment to residents and non-residents, and where no deduction at source is required."

On the simplification carried out for salaried employees in the new bill, the FAQs say all the provisions about salary have been consolidated in one place for ease of understanding. This will ensure the taxpayer does not have to refer to separate chapters for filing the return of income. The deductions, which were earlier allowed under section 10 of the Income Tax Act,1961, like gratuity, leave encashment, commutation of pension, compensation on VRS and retrenchment compensation, are now part of the salary chapter itself.

Some of the allowances like HRA are now provided in Schedule II of the new Bill that finds reference in the provisions relating to salary, the FAQs say. On certain changes in the New Income Tax Bill with regards to "virtual digital assets", the FAQs say it contains all amendments proposed in Finance Bill 2025. "Therefore, the users are advised to compare the provisions of the Income Tax Act, 1961, as updated with proposed amendments in Finance Bill 2025, while reading the Income Tax Bill, 2025. There is, therefore, no change in the scope of ‘virtual digital asset’ under the Income Tax Bill, 2025."

As a next step, the new Income Tax Bill will pass through the Rajya Sabha and then need the President's approval, after which the Act will become operational.