What is Financial Year in India? A Complete Guide

A financial year (FY) in India runs from April 1 to March 31 of the following calendar year. The current financial year is FY 2026, 27, covering April 1, 2026 to March 31, 2027. The assessment year (AY) that follows, AY 2027, 28, is when the Income Tax Department reviews that income. For most individual taxpayers, the ITR filing deadline for AY 2026, 27 income is July 31, 2026.

What Does “Financial Year” Actually Mean?

Most people track their personal life by the calendar year: January to December. The financial year works differently. Defined under Section 3 of the Income Tax Act, 1961, a financial year is the 12, month accounting period that runs from April 1 of one calendar year to March 31 of the next. It is the period during which income is earned, recorded, and attributed for tax purposes.

The purpose is standardisation. Every business, employer, and government department in India reports income, expenses, and financial performance against the same April, to, March clock.

This makes comparisons across organisations consistent and gives the tax machinery a fixed window to process returns after the earning period closes.

For HR leaders and CHROs specifically, the financial year governs when salary increments take effect, when annual appraisal cycles close, when payroll compliance obligations reset, and when workforce budgets are approved and spent. The FY is not just an accounting technicality; it is the backbone of how organisations plan headcount, compensation, and HR spend.

The current financial year, FY 2026, 27, began on April 1, 2026, and closes on March 31, 2027.

When Does the Financial Year Start and End in India?

India’s financial year always starts on April 1 and ends on March 31 of the following year. This is fixed by statute. The April, to, March structure dates back to British colonial administration and was formally retained in independent India’s fiscal framework through notifications issued by the Ministry of Finance, which governs India’s fiscal calendar.

The year divides into four quarters:

• Q1: April 1 to June 30
• Q2: July 1 to September 30
• Q3: October 1 to December 31
• Q4: January 1 to March 31

Most listed companies report quarterly earnings against these divisions. HR teams use Q1 to roll out annual increments and finalise appraisal outcomes from the previous year. Q4 is typically the crunch period for utilising training budgets, completing compliance filings, and freezing the next year’s headcount plan.

A handful of companies operate on a different financial year with SEBI or RoC permission. Nestle India, for instance, follows a January, to, December calendar year. Gillette India historically closed on June 30. These are exceptions; the April, March cycle is the rule for the vast majority of Indian entities.

What Is an Assessment Year, and How Is It Different from the Financial Year?

This is the question that trips up most first, time ITR filers. The financial year is when you earn. The assessment year is when the government assesses what you earned and taxes it.

Because income can only be fully calculated after the earning period is over, the Income Tax Department reviews income from FY 2025, 26 (April 1, 2025 to March 31, 2026) during AY 2026, 27 (April 1, 2026 to March 31, 2027). The assessment year always follows the financial year by exactly one year.

A simple formula: AY = FY + 1.

The table below shows recent and current FY, AY pairs, updated for August 2026:

When you open an ITR form on the Income Tax India e-filing portal, the first dropdown you see asks for the assessment year, not the financial year. Select AY 2026, 27 if you are filing for income earned between April 1, 2025 and March 31, 2026. Select AY 2027, 28 for income earned in the ongoing FY 2026, 27, once that year closes.

Why Do ITR Forms Ask for the Assessment Year, Not the Financial Year?

This puzzles a lot of taxpayers. The reason is rooted in the realization principle of income tax law: income is only assessable after it has been fully and definitively earned. You cannot calculate the exact tax liability on income that has not yet been realised.

Consider a practical scenario. A salaried employee receives a performance bonus in March 2026 for work done through the year. That bonus is part of FY 2025, 26 income. Only after March 31, 2026 can the employee total up all salary, bonus, interest, and other income, subtract applicable deductions, and arrive at taxable income.

The assessment year (AY 2026, 27) is the legally defined window for this calculation and for filing the return.

Several mid, year events make early assessment impossible:

• Job changes that split income across two employers
• Advance payments received for services not yet rendered
• Capital gains from equity sold in the final quarter
• Business income that fluctuates right until year, end

All of these settle only after March 31. The assessment year structure accommodates this reality. It gives both taxpayers and the tax department four months (April through July) to complete the paperwork before the standard ITR deadline of July 31.

What Are the Key Financial Year 2026, 27 Dates Every HR and Finance Professional Should Know?

For HR leaders, tax obligations, payroll compliance, and budget cycles all hinge on specific dates within the financial year. The table below is a quick, reference calendar for FY 2026, 27 and AY 2026, 27.

Missing the July 31, 2026 ITR deadline for AY 2026, 27 triggers a late filing fee under Section 234F: Rs 5,000 for total income above Rs 5 lakh, and Rs 1,000 if income is between Rs 2.5 lakh and Rs 5 lakh. File on time to avoid this.

For HR teams, Q1 (April, June) is also when annual increment letters go out, Form 16 issuance is planned, and investment declarations for the new FY are collected from employees. Getting these internal timelines right depends entirely on understanding the FY, AY framework.

New vs Old Tax Regime: What Changes Each Financial Year?

One of the most consequential decisions Indian taxpayers make at the start of each financial year is choosing between the old tax regime and the new tax regime. This choice was introduced in Budget 2020 and has been progressively refined since.

From FY 2023, 24 onwards, the new tax regime is the default. If a salaried employee does not submit a declaration opting for the old regime to their employer at the start of the FY, the employer will deduct TDS under the new regime automatically.

The choice resets each financial year for salaried individuals; those with business income have more restricted switching rights.

The new regime offers lower slab rates but eliminates most exemptions, such as HRA, LTA, and deductions under Section 80C, 80D, and others. The old regime allows these deductions but applies higher slab rates. Neither regime is universally better; the right choice depends on the employee’s total income, housing situation, insurance premiums, and investment profile.

For CHROs and HR leaders, this matters operationally. Payroll teams must collect regime declarations from every employee before the first salary run of each financial year. Delayed declarations create TDS calculation errors that are painful to correct mid, year. The Income Tax India portal publishes the applicable slab rates for each FY, and it is worth bookmarking for the regime comparison tools available there.

As India’s workforce expands across sectors, understanding how each financial year resets these tax choices is increasingly important for compensation planning. Our analysis of hiring trends shaping India’s GCC sector shows that competitive compensation design must account for post, tax take, home, which means factoring in regime selection at the FY start.

Why Does the Financial Year Matter for HR Leaders and Organisations?

The financial year is not just a tax concept. For CHROs and HR leaders, it is the structural container for almost every major HR process.

Budgeting and headcount planning. Annual workforce plans, hiring targets, and HR technology budgets are all built around the April, March cycle. Finance teams present budget approvals in Q4 of the outgoing FY (January, March) so that hiring can begin from Q1 of the new FY. Misalignment between HR timelines and the FY calendar causes delayed requisitions and budget lapses.

Payroll and compliance. Tax obligations tied to employee salaries, TDS deductions, and professional tax filings all follow the FY calendar. HR teams must ensure Form 16 is issued to employees by June 15 of the assessment year, covering income from the just, closed financial year.

Performance and compensation cycles. Most large Indian organisations align their annual appraisal cycle to the FY. Ratings are finalised by March, increment letters go out in April, and revised salaries apply from April 1. This is a direct operational consequence of the FY structure.

Statutory compliance. Provident Fund, ESI, gratuity provisioning, and bonus calculations all reference the financial year as their base period. HR leaders who are unclear on the FY boundaries create compliance risks.

Understanding FY 2026, 27 as the live year right now is foundational to getting all of these cycles right. If your HR reporting still references FY 2024, 25 benchmarks as “current,” those figures are two years old and should be refreshed.

Sector, specific workforce dynamics also play out against the FY calendar. For instance, the talent acquisition trends in India’s IT sector illustrate how hiring demand spikes in Q1 as organisations deploy newly approved FY budgets.

How to Avoid the Most Common FY vs AY Mistakes

Even experienced professionals mix these up. Here are the errors that come up most often, and how to prevent them.

Filing under the wrong assessment year. This is the most consequential mistake. If you select AY 2025, 26 instead of AY 2026, 27 when filing for FY 2025, 26 income, the return gets rejected or matched to the wrong year’s tax demand. Always double, check the AY dropdown before submitting.

Treating the calendar year as the financial year. Employees who join a company in October sometimes assume their first “financial year” runs October to September. It does not. Their income from October 2026 to March 2027 belongs to FY 2026, 27, regardless of when they joined.

Confusing advance tax deadlines with ITR deadlines. Advance tax is paid in four instalments during the FY itself. ITR is filed in the following AY. These are separate obligations with separate deadlines.

Using an outdated FY reference in payroll or compliance documents. If your offer letters, increment annexures, or HR policy documents still say “FY 2024, 25 compensation structure,” that is two years stale. Update all templates to reference FY 2026, 27.

Skipping the regime declaration at FY start. As discussed above, not collecting regime declarations in April forces employers to default to the new regime, which may not suit all employees. Build this into the Q1 onboarding checklist.

Frequently Asked Questions

Key Takeaways

• The current financial year is FY 2026, 27 (April 1, 2026 to March 31, 2027).
• The assessment year always follows the financial year by one year: AY = FY + 1.
• ITR forms ask for the assessment year, not the financial year. For FY 2025, 26 income, select AY 2026, 27.
• The ITR filing deadline for AY 2026, 27 is July 31, 2026.
• From FY 2023, 24, the new tax regime is the default. Employees must declare their regime choice at the start of each FY.
• For HR leaders, the financial year governs budgeting, payroll, appraisal cycles, and statutory compliance. Getting the FY boundaries right is an operational necessity, not just a tax concept.
• Keep all financial records organised by April, March periods, not calendar year, to match how the Income Tax Department processes data.

Curious about more HR buzzwords like interview-to-hire ratio, behavioral interview, casual leave, leave encashment, relieving letter, resignation letter or more? Dive into our HR Glossary and get clear definitions of the terms that drive modern HR.

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