Q.Distinguish between 'Previous Year' and 'Assessment Year' under the Income Tax Act, 1961. Illustrate with the Previous Year and the corresponding Assessment Year for income earned between 1st April 2025 and 31st March 2026.

The Act always taxes income one step after it is earned, which is exactly why it needs two separate year-labels.

Under Section 3, the Previous Year is the financial year in which income is actually earned. Under Section 2(9), the Assessment Year is the financial year immediately following the Previous Year, in which the Previous Year's income is assessed and the tax on it is paid. The two periods are always exactly one year apart and never overlap. For income earned between 1st April 2025 and 31st March 2026, that period IS the Previous Year 2025-26; the corresponding Assessment Year, in which this income is assessed to tax, is 2026-27 (1st April 2026 to 31st March 2 …

Students frequently swap the two terms (calling the year income is EARNED the 'Assessment Year') — remember the Assessment Year always …