Section 3: definition of "tax year"

Introduction

Section 3 defines the tax year used throughout the 2025 Act. It ordinarily aligns with a financial year, with a shorter first tax year for a newly set-up business or newly arising income source.

Key takeaways

What Section 3 says

"(1) For the purposes of this Act, 'tax year' means the twelve months period of the financial year commencing on the 1st April."

"(2) In the case of a business or profession newly set up, or a source of income newly coming into existence in any financial year, the tax year shall be the period beginning with (a) the date of setting up of such business or profession; or (b) the date on which such source of income newly comes into existence, and ending with the said financial year."

What this means in practice

For most taxpayers, the "tax year" is the standard twelve-month period from 1 April to 31 March, the same period that was called the "previous year" under the 1961 Act.

If a business or profession is newly set up during a financial year, or a new source of income first arises during a financial year, the tax year for that business or source starts from the date it was set up (or the date the income source came into existence) and runs until the end of that same financial year - it is not a full twelve months in that first year.

Practical scope

For an ordinary tax year, use the financial-year period beginning on 1 April and ending on the following 31 March. For the new-business or new-source situation, the statutory starting point is the date of setting up or the date the source comes into existence.

The relevant date is a factual question. A first invoice, incorporation entry or bank receipt may be evidence, but should not automatically be substituted for the statutory setting-up or source-existence test without examining the facts.

Limits and separate checks

The first period ends with the financial year; it does not normally run for twelve months from a mid-year start. Conversely, a business set up on 1 April need not have a shorter first period.

Section 3 defines a period. It does not itself give a return due date, direct every amount to be annualised or decide which expense is deductible. Those issues need their own provisions.

Step-by-step computation review

1. Identify the financial year for which income is being computed.

2. Determine whether the business, profession or source was newly set up or came into existence during that year.

3. Document the applicable starting date and end the period with that financial year.

4. Allocate records to the identified period, then separately apply the computation and filing rules.

Records and checklist

Records supporting the setting-up or source-existence date.

Ledger and transaction cut-offs for the correct financial year.

Separate records of the applicable filing deadline and computation rules.

Official amended Act source

• Income-tax Act, 2025 as amended by Finance Act, 2026: Section 3

Step-by-step flow for identifying the tax year under Section 3

1. 1

   Which financial year is the income being computed for?

   Under Section 3(1), the ordinary tax year is the twelve-month financial year commencing on 1 April.

2. 2

   Was a business or profession newly set up, or did a new source of income come into existence, during that financial year?

   • No: The tax year is the full twelve-month financial year.
   • Yes: Go to the next step.
3. 3

   Fix the starting date

   Under Section 3(2), the first tax year begins on the date of setting up the business or profession, or the date the new source of income comes into existence. This date is a question of fact and should be supported by records.

4. 4

   Fix the end date

   The first tax year ends with that same financial year (31 March). It is not a twelve-month period counted from the start date.

Practical checklist

Glossary

Tax year

The time period whose income is being assessed under the Act.

New income source

A source first coming into existence during a financial year, triggering the shorter first period.

Frequently asked questions