Tax year
Under the Income Tax Act, 2025, the 12-month financial year beginning 1 April — or, for a newly set-up business or profession, the period from set-up to the end of that financial year.
In plain language
Income tax is charged year by year, so the law has to say which year. The workbook's Chapter 14 uses the term the Income Tax Act, 2025 uses: the tax year.
The definition (footnote to section 14.1):
- Tax year means the 12-month period of the financial year commencing on 1 April.
- For a newly set-up business or profession, the tax year is the period from the date of setting up to the end of that financial year — a short first year, not a full twelve months.
Everything else in the tax chapter hangs off this unit. Residential status is decided for a tax year. Income is computed for the relevant tax year. Losses are carried forward for a number of tax years. Reporting forms are due by dates in the following financial year.
How it works
Where the tax year is used in Chapter 14:
| Rule | How the tax year enters |
|---|---|
| Basis of charge (14.1) | Depends on the residential status of the taxpayer during a tax year and the nature of the income |
| Category III AIF income (14.1.2) | Non-business income taxed at applicable rates for the relevant tax year, paid by the trustee as representative assessee |
| Intra-head and inter-head set-off (14.2) | Losses of a tax year set off against income of the same tax year first |
| Business loss, non-speculative | Carried forward 8 tax years immediately succeeding the loss year; set off only against business income |
| Speculative business loss | Carried forward 4 tax years |
| Capital loss | Carried forward 8 years succeeding the tax year of loss; long-term loss only against long-term gains |
| Reporting (14.1.11) | Statement of income paid or credited to unit holders in a tax year: Form 78 to unit holders by 30 June, and Form 79 to the tax authorities by 15 June, of the following financial year |
Why the definition matters for an AIF. Most AIFs are trusts that begin mid-year. Under the newly-set-up rule, a fund's first tax year is short — from its set-up date to 31 March — and the carry-forward clock starts from that short year.
A worked example
The fund, dates and amounts are illustrative; the periods and form deadlines are the workbook's.
Krishna Absolute Return Fund is set up as a trust and starts business on 10 October 2026.
First tax year: 10 October 2026 to 31 March 2027 — under six months, because it is newly set up.
In that first tax year it makes a non-speculative business loss of Rs 2 crore and a speculative loss of Rs 30 lakh.
Business loss, Rs 2 crore: 8 succeeding tax years
→ last tax year for set-off: 1 April 2034 – 31 March 2035
Speculative loss, Rs 30 lakh: 4 succeeding tax years
→ last tax year for set-off: 1 April 2030 – 31 March 2031
The short first year counts as the year of loss; the eight and four years run from the next full tax year.
Reporting. In the first tax year the fund credits Rs 40 lakh of non-business income to unit holders.
| Form | To | Due by |
|---|---|---|
| Form 79 | Principal Commissioner / Commissioner of Income tax | 15 June 2027 |
| Form 78 | Each unit holder | 30 June 2027 |
The authorities get the statement fifteen days before the investors do.
Why NISM asks about it
Chapter 14 (Taxation), from section 14.1 (Taxation of AIFs) through 14.1.11 (Reporting compliances) and 14.2 (Set off and carry forward of loss), is written in tax years; the definition is in the footnote to section 14.1. Chapter 14 carries 8% weight. Expect the definition (1 April start; short first year for a new business), and carry-forward periods of 8 and 4 tax years.
Common exam traps
- A tax year starts on 1 April and runs 12 months — except the first year of a newly set-up business or profession, which runs from set-up to 31 March.
- Business loss: 8 tax years. Speculative loss: 4 tax years. Capital loss: 8 years. Long-term capital loss only against long-term gains.
- Form 79 (to the tax department) is due 15 June; Form 78 (to unit holders) is due 30 June — of the following financial year. The dates are close and easily swapped.
- Residential status is decided per tax year, so an investor can be resident one year and non-resident the next.
- Contradiction across chapters: Chapter 14 is written under the Income Tax Act, 2025 and its tax year. Chapter 9 (PPM contents, e.g. section 115UB) and Chapter 15 (NRI and residence discussion) still cite the Income-tax Act, 1961. For tax-chapter questions, use Chapter 14's terms and section numbers; be aware the other chapters have not all been updated.
Where this is taught
- Series XIX-E · Chapter 14: Taxationintroduced here
- Series XIX-D · Chapter 13: Taxationintroduced here
Related terms
- Long-term capital assetA capital asset held for more than the prescribed period before transfer — generally more than 24 months, and more than 12 months for listed securities and equity oriented fund units.
- Previous yearUnder the Income Tax Act, 1961, the year in which income is earned. It is taxed in the following assessment year; each runs from 1 April to 31 March.
- Residential statusThe classification — resident (ordinarily or not ordinarily), deemed resident or non-resident — that decides which income is taxable in India. Citizenship alone is not the test.
- Short-term capital assetA capital asset taxed as short-term: listed securities held 12 months or less, unlisted securities 24 months or less, plus MLDs, specified mutual funds and unlisted bonds deemed short-term whatever the holding.
- Maximum Marginal RateThe highest slab rate of income tax, applied to a Category III AIF's business income at fund level because the fund gets no pass-through — 30% before surcharge and cess.
- Representative AssesseeThe capacity in which the trustee of an AIF set up as a trust is assessed to income tax under Sections 161 and 164 — paying on behalf of the beneficiaries so the same income is not taxed twice.
- Revocable transferA transfer to a trust whose document lets the transferor get back the income or asset, or reassume power over it; income from it is taxed in the transferor's hands under sections 97 and 98 of the ITA.
- Pass-through statusTax treatment under which a fund's income is not taxed in the fund but directly in its investors' hands — and which the Income Tax Act does not give a Category III AIF.
- Withholding taxTax deducted from income at the point it is paid or credited — for an AIF, 10% on income distributed to a resident investor and 20% where a non-resident is paid dividend.
- Alternate Minimum TaxA floor tax on non-corporate assessees — 18.5% of adjusted total income, 15% for a co-operative society — payable when it exceeds their normal tax, with the excess carried forward as credit for 15 years.