The central government has clarified that the new tax regime, which will be implemented from April 1, 2026, will not affect the old income. The government has said that there will be no conflict or overlap between the new tax year system and the current assessment year. That is, the old rules on income earned so far will remain in effect.
Old rules will be applicable only on old income
According to the government, the income up to the financial year 2025-26 will be taxed only as per the Income Tax Act, 1961. This income will be assessed in assessment year 2026-27. While income earned after April 1, 2026 will be taxed under the new Income Tax Act. Hence it is clear that different rules will apply for old and new income.
No confusion between assessment year and tax year
The big question facing the government was whether the new tax system would create confusion during the transition period. The government's answer is clear. The assessment year 2026-27 will relate to the income of the financial year 2025-26 only and not to the financial year 2026-27. The FAQ also clarified that under the new law, the tax year 2026-27 will be applicable only on the income of the financial year 2026-27.
How will the transition process be implemented?
The government has explained that the income for the financial year 2025-26 will be assessed under the Income Tax Act, 1961 in the assessment year 2026-27. While the income for the financial year 2026-27 will be assessed in the tax year 2026-27 under the new Income Tax Act. Even though both are assessed in the same calendar year, the rules will be different as the income periods are different.
What is a new tax year?
In the new Income Tax Act, the term “tax year” has been used instead of the term “previous year”. A tax year is a period of 12 months falling within a financial year. Now income, tax rate and assessment will all be linked to a single tax year. The government says that earlier there was confusion among taxpayers due to the difference between previous year and assessment year, which the new system will ease.
Can the tax year be shortened?
Yes, the tax year can be shortened in some special cases. If a person starts a new business or a new source of income in the middle of the year, the period from that date to March 31 will be the tax year.
Taxpayers need not panic
In simple words, income till March 31, 2026 will be taxed as per the old law and income after April 1, 2026 will be taxed as per the new law. There will be no double taxation and there is no change in the old income rules. The government's intention is only to simplify the language and structure of the tax system, not to suddenly change the tax deadline.
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