Many people get confused between AY (Assessment Year) and FY (Financial Year). Often, they consider them to be the same and make errors while filing their ITR. To avoid such errors, you must know the difference between Financial Year and Assessment Year.
Keep reading to know what is assessment year is, what is a financial year and the main differences between them.
A financial year refers to a year during which a person earns his/her income. It begins on April 1 of a year and ends on March 31 of the next year. You should compute and plan taxes for an FY, but you must file your income tax returns during the next year or AY. Your income from April 1, 2021 to March 31, 2022 denotes your earnings in the financial year 2021-22.
An assessment year refers to a year (from April 1 to March 31) during which your income in a specific financial year will be taxed. You must file your ITR during the required AY. It is a year following the financial year.
For instance, your income in FY 2020-21 (from April 1, 2020 to March 31, 2021) is taxable during AY 2021-22 (from April 1, 2021 to March 31, 2022).
Also Read: Income Tax Assessment: Meaning And Types
Here’s a tabular representation of the differences between the assessment year and financial year:
|Assessment Year||Financial Year|
|The earnings during the financial year will be taxable during the assessment year.||You earn income under different heads during a financial year.|
|Your income from the previous year will be assessed and taxed in an AY.||Since you are still earning in an FY, your income will not be assessed during that FY.|
|You are not eligible to claim deductions for investments made in an AY, even if you wish to invest for the relevant FY. Investments post March 31 will be applicable for the succeeding FY.||You must plan taxes in an FY or prior to the FY.|
For a better understanding of this concept, go through the chart below:
|Duration||Financial Year||Assessment Year|
|April 1 2016 – March 31 2017||2016-17||2017-18|
|April 1 2017 – March 31 2018||2017-18||2018-19|
|April 1 2018 – March 31 2019||2018-19||2019-20|
|April 1 2019 – March 31 2020||2019- 20||2020-21|
|April 1 2020 – March 31 2021||2020-21||2021-22|
|April 1 2021 – March 31 2022||2021-22||2022-23|
As your income for a specific financial year is applicable for evaluation and taxation during the assessment year, your ITR (Income Tax Return) form will have AY. The income you earn in an FY is not taxable before it is earned. That’s why it’ll be taxable during the succeeding year.
Situations such as new investments, job change and loss of employment can arise by the end or middle of an FY. Besides, your earnings during an FY will not be accurate before the FY ends. That’s why the evaluation begins just after an FY ends.
Keep in mind the following pointers before filing your tax returns:
Go through the following facts to make your ITR filing error-free:
You can effectively file your taxes during a financial year and claim your tax returns during an AY, provided you have the correct knowledge regarding the two time periods. Remember that in an assessment year, the income earned during the preceding financial year is evaluated.
In India, the fiscal year and financial year are the same. The year begins from April 1 of a year to March 31 of the next year. That said, a fiscal year differs from one country to another.
Your earnings cannot be evaluated during or before an FY. It will be assessed during the succeeding year (AY). So, you should specify the AY at the time of filing your ITR. If you make a mistake in choosing an AY, there arises a default in ITR filing.
Your income during a financial year will be taxable in the next year (assessment year). Thus, for the financial year 2022-23, the assessment year will be 2023-24; FY 2022-23 begins from April 1 2022 and ends on March 31 2023.
In the context of IT returns, the terms previous year and financial year are interchangeable. Hence, you can mention FY 2021-22 as PY (previous year) 2021-22. The earnings from that year are taxable in AY 2022-23.
Since your annual income is Rs. 2 lakh, you do not need to file your ITR. Keep in mind that only individuals whose income goes beyond Rs. 2.5 lakh should file their income tax returns.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
|Section 145A||Section 80P||Section 92CD|
|Section 281||Section 32(2)||Section 270A|
|Section 1399||Section 192A||Section 11|
|Section 35AD||Section 80C||Section 32|
|Section 206AA||Section 92E||Section 9|
|Section 153||Section 10(10D)||Section 194DA|
|Section 10AA||Section 80GG||Section 80TTB|
|Section 80JJAA||Section 1940||Section 23B|
|Section 206AB||Section 44AB||Section 87A|
|Section 115JB||Section 154||Section 194D|
|Section 194J(1)(ba)||Sectio 80U||Section 194K|
|Section 56-59||Section 80TTA||Section 234C|
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