Direct and Indirect Taxation · Residential Status and Scope of Total Income

Basic Concepts: Person, Assessee, Previous Year and Tax Year

Updated 10 October 2026 · Fact-checked

A person is anyone the Act treats as a taxable unit, such as an individual, HUF, firm or company. An assessee is a person who is liable to pay tax or is otherwise assessed under the Act. The tax year is the twelve months of the financial year starting 1 April. Identify the person, then the tax year, then test residence.

Understand Basic Concepts: Person, Assessee, Previous Year, Tax Year

Every income-tax question starts with two things: who is being taxed, and for which period. The Act answers these with the terms person, assessee and tax year. If you get them wrong, the residential status and scope of income that follow will also go wrong.

Person is the widest label. It covers individuals, Hindu undivided families (HUFs), firms, companies, associations of persons and other taxable units. Section 6 shows these categories when it gives separate residence tests for an individual (section 6(2)), a HUF, firm or other association of persons (section 6(9), one test for all three), a company (section 6(10)) and every other person (section 6(11)). You do not need to be an adult or even a living human being to be a person for tax. A company is a person.

Assessee is narrower in use. It is a person by whom tax or any other sum is payable under the Act, and it also covers a person against whom proceedings are going on, or who is deemed an assessee. So every assessee is a person, but not every person is an assessee. A student with no income and no proceedings is a person but is not an assessee. Take the exact wording of the definition from your ICMAI study material. The key idea here is that assessee is about liability or proceedings.

Tax year is defined in section 3(1) as the twelve months of the financial year commencing on 1 April. For 2026-27 the period is 1 April 2026 to 31 March 2027.

Section 3(2) gives a special rule. If a business or profession is newly set up, or a source of income newly comes into existence, during a financial year, the tax year begins on the date of setting up or the date the source comes into existence. It ends with that financial year. So that tax year can be shorter than twelve months. Residential status is decided for a tax year under section 6(1), which is why the tax year is the base of this whole chapter.

Key rules to remember

Tax year (general rule): Tax year = 12 months of the financial year starting 1 April (1 April to 31 March); Section 3(1). Tax year 2026-27 runs from 1 April 2026 to 31 March 2027.
Tax year for a new business or source: Tax year = date of setting up (or date source arises) to 31 March of that financial year; Section 3(2). For a business or profession newly set up, or a source newly coming into existence, the tax year can be shorter than 12 months.
Person and assessee: Every assessee is a person; not every person is an assessee; Person is the taxable unit. Assessee is a person liable to tax or other sum, or under proceedings, or deemed an assessee.
Residential status is year-specific: Residential status is decided separately for each tax year (section 6(1)); The same person can be resident in one tax year and non-resident in another.
Writing the period: Write the period as: tax year 2026-27 (1 April 2026 to 31 March 2027); Section 3 defines "tax year". Stating the dates makes your answer clear.

How to solve Basic Concepts: Person, Assessee, Previous Year, Tax Year questions

Use this order for any question that asks you to identify the person, the assessee or the tax year, or to set up residential status.

1Read the facts and list every taxable unit named: individual, HUF, firm, company, AOP or other.
2Label each unit a person. Then decide whether it is an assessee: does it owe tax or another sum, face proceedings, or count as deemed assessee?
3Identify the financial year in question and write it as a tax year, for example tax year 2026-27 (1 April 2026 to 31 March 2027).
4Check whether a business or profession was newly set up, or a new source of income began, in that year. If yes, start the tax year from that date under section 3(2) and end it on 31 March.
5Decide residential status for that tax year only, using the rule that fits the type of person under section 6.
6State your conclusion in one line using the term tax year with its dates.

Quickest way: Who, which year, which rule

When to use it: Use this for MCQs and short-note questions where you have about two minutes.

Ask who: if the unit is any taxable entity, it is a person. If it owes tax or faces proceedings, it is also an assessee.
Ask when: the tax year is 1 April to 31 March. Check for a new business start date.
If a statement says every person is an assessee, mark it wrong.
Match the final answer to the date range or the label asked for, then move on.

Common mistakes in Basic Concepts: Person, Assessee, Previous Year, Tax Year

Treating person and assessee as the same thing.
Both words are used loosely in daily talk, and most examples involve someone who pays tax.
Fix: Remember that person is the taxable unit and assessee needs liability, proceedings or deeming. A person with no tax liability and no proceedings is not an assessee.
Writing the period without the term "tax year" or without its dates.
Students carry over terms from earlier study and leave the period vague.
Fix: Use the term defined in section 3 and add the dates, for example tax year 2026-27 (1 April 2026 to 31 March 2027).
Always giving a new business a full twelve-month tax year.
Students remember section 3(1) and forget section 3(2).
Fix: If the business is set up mid-year, the tax year for the business runs from the date of setting up to the following 31 March.
Deciding residential status once and using it for all years.
Residence feels like a permanent label, as nationality does.
Fix: Section 6(1) fixes status for a person in a tax year. Test each tax year on its own facts.
Forgetting that companies, firms and HUFs are persons too.
Students think of a person as an individual.
Fix: Remember the groups section 6 tests separately: an individual, a HUF, firm or other association of persons (together), a company, and every other person.

Worked examples

Example 1

Meera started a boutique in Pune on 1 October 2026. For which period is the tax year for this business under section 3(2)?

Show the solution

Identify the facts: a business is newly set up, so section 3(2) applies.
The financial year is 1 April 2026 to 31 March 2027.
Under section 3(2)(a), the tax year for the business begins on the date of setting up, which is 1 October 2026.
It ends with the financial year, which is 31 March 2027.
The period is 1 October 2026 to 31 March 2027, which is six months.

Answer: Under section 3(2), the tax year for Meera's business is 1 October 2026 to 31 March 2027, a period of six months.

Example 2

Rahul Sharma HUF has no income and no proceedings against it. Sunrise Textiles Pvt Ltd owes ₹4,50,000 as tax. State whether each is a person and whether each is an assessee.

Show the solution

A HUF is a taxable unit, so Rahul Sharma HUF is a person. A company is also a person.
Test the HUF for assessee status: it owes no tax or other sum, faces no proceedings, and nothing in the facts deems it an assessee. So it is not an assessee on these facts.
Test the company: it owes tax of ₹4,50,000 under the Act, so it is a person by whom tax is payable. It is an assessee.
Conclude by stating the relation: both are persons, but only the company is an assessee.

Answer: Both are persons. Sunrise Textiles Pvt Ltd is an assessee because tax is payable by it. Rahul Sharma HUF is not an assessee on the given facts.

Exam tips

In MCQs, the usual trap is the statement "every person is an assessee". It is false. The correct direction is that every assessee is a person.
Always write "tax year" with the dates, such as tax year 2026-27 (1 April 2026 to 31 March 2027). This shows you know the 2025 Act.
If a question gives a business start date mid-year, apply section 3(2) before any other step and count the months.
In written answers, name the type of person first, because the residential status rule in section 6 depends on it.
Keep the exact definition of assessee from your ICMAI study material ready for short notes, and add a one-line example.

Practice questions from Residential Status and Scope of Total Income

Basic Concepts: Person, Assessee, Previous Year, Tax Year in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Basic Concepts: Person, Assessee, Previous Year, Tax Year: frequently asked questions

What is the difference between a person and an assessee?

A person is any taxable unit the Act recognises, such as an individual, HUF, firm or company. An assessee is a person who owes tax or another sum, faces proceedings, or is deemed an assessee. So every assessee is a person, but not every person is an assessee.

What is the tax year under the Income-tax Act, 2025?

Under section 3(1), it is the twelve months of the financial year commencing on 1 April. For 2026-27 it runs from 1 April 2026 to 31 March 2027.

How should I write the period in an answer?

Section 3 defines "tax year" as the twelve months of the financial year commencing on 1 April. Write it with its dates, such as tax year 2026-27 (1 April 2026 to 31 March 2027).

Can the tax year be less than twelve months?

Yes. If a business or profession is newly set up, or a source of income newly comes into existence, the tax year starts on that date and ends with that financial year, that is, on 31 March, under section 3(2). So it can be shorter than twelve months.