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CA Intermediate · Taxation · Basic Concepts

Meera Textiles, a partnership firm, began business on 10 August 2026. Its first financial year ends on 31 March 2027. Under the Income-tax Act, 2025, what is the tax year for the income of the firm earned from 10 August 2026 to 31 March 2027?

The tax year is 2026-27, running from 10 August 2026 (date of setting up) to 31 March 2027. The tax year is the 12-month period starting 1 April, but for a newly started business it begins on the date of setting up and ends on the next 31 March.

  1. ATax year 2026-27, being the period from 10 August 2026 to 31 March 2027Correct
  2. BTax year 2027-28, being the year following the previous year
  3. CTax year 2026-27, but only from 1 April 2026 to 31 March 2027 with income before 10 August treated as nil for a different tax year
  4. DA tax year chosen by the firm, up to 12 months from the date of setting up

Explanation

Under the 2025 Act the tax year is the financial year beginning 1 April; for a newly set up business it runs from the date of setting up to the following 31 March. So the firm's first tax year is 10 August 2026 to 31 March 2027, i.e. tax year 2026-27. Option B reflects the old assessment-year idea of taxing in the following year, which is no longer used.

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