Section 3 - Previous year defined

Defining 'Previous Year' Under Income Tax Act for New Businesses and Income Sources - Section 2(1)

For the purposes of the Income Tax Act, 'previous year' generally means the financial year immediately preceding the assessment year. In cases where a business, profession, or source of income is newly established during the financial year, the previous year is the period from the date of commencement to the end of that financial year. An assessee may have different previous years for separate income sources. Once an option regarding the previous year period is exercised or an assessment made, it cannot be changed without the tax authority's consent. Specific provisions apply to newly set up businesses with accounts prepared up to a date within the assessment year, allowing certain options for defining the previous year. The definition has evolved through amendments, but the core principle remains the alignment of the previous year with the financial year preceding the assessment year, subject to exceptions for new sources of income.