The terms “financial year” and “assessment year” are very different from each other and should be clearly understood by taxpayers. If the assessment year or financial year is incorrectly referred to, no message will be sent or received correctly. In terms of income tax, the words financial year and assessment year are decades old. However, a lot of people are still uncertain about these two terms.
When completing income tax returns, many assessees and taxpayers mistakenly believe that both phrases refer to the same thing. After finishing this blog, you will be able to clearly understand the difference between the assessment year and the financial year.
Key takeaways
Key differences between Financial Year and Assessment Year
- Financial Year is the year in which the income is earned.
- Assessment Year is the year in which the income is assessed and taxed.
- ITR uses AY because income for any particular financial year is evaluated and taxed in the assessment year.
What is Financial Year?
Financial Year is the accounting year in which you receive income. It starts on April 1 of every calendar year and lasts until March 31 of the following year. The letter “F.Y.” is sometimes used to shorten the term “financial year.” The income tax return must be submitted the next year or the Assessment Year.
What is an Assessment Year?
The assessment year is the timeframe (April 1 through March 31) in which you are subjected to tax on the money you earn in a specific financial year. You must file your income tax return during the relevant assessment year. The Assessment Year is the year that immediately follows the Financial Year.
What is the difference between Financial Year and Assessment Year?
From the perspective of tax, a financial year is a year that a person receives income, while, Assessment Year is the year after the financial year. It is the time when the previous year’s income is assessed, the tax gets due, andITRs are filed.
Both Assessment Year and Financial Year close on March 31 and start on April 1. Therefore, the financial year is when businesses, salaried professionals, and elderly citizens earn their money, while the next year, the accounting year, or AY, is when the revenue that has already been earned is assessed.
Financial Year 2022–23, for instance, refers to the accounting year running from April 1, 2022, through March 31, 2023. The assessment year starts after the financial year closes, so for FY 2022–23, AY 2023–24 will serve as the assessment year.
Financial Year
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Assessment Year
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The time frame during which money is earned is the financial year.
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The financial year and time frame for filing tax returns is the assessment year that comes after.
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Senior citizens and professionals on salaries make their money during the financial year.
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While AY is when the revenue earned throughout the financial year is assessed.
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For the money earned during the fiscal year, taxation and evaluation are completed in the AY.
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Forms designed specifically for the assessment and taxation of FY income are called income tax return forms.
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Income cannot be taxed prior to it is earned; it must always be earned within the financial year.
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Once an individual has earned money, it will be assessed for taxation purposes in the latter or the AY.
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Why do Finance Professionals use Assessment Year for ITR?
The evaluation year and income tax forms include an assessment year since the revenue for any fiscal year is computed and taxed in the following year. Income cannot be taxed until it is received. At the beginning, middle, or end of the year, negative events can happen at any time. As a result, choosing the Assessment year is required when completing income tax returns.
FAQs- FY vs. AY
1. Is the financial Year and Previous Year the same for ITR filing purposes?
Yes, the previous year and financial year are the same for ITR purposes
2. How can a person calculate income and tax liability for the purpose of filing an income tax return?
They should calculate income for the full financial year and calculate the tax thereon. In case the income exceeds ₹2.5 lakhs, they will have to file an income tax return.
3. When should I file an income tax return?
The income tax return should be filed in the Assessment Year, which is the year after the end of a financial year.
