Difference Between Financial Year And Assessment Year

Income Tax

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.  

What is Financial Year?

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. 

What is Assessment Year?

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

Difference between Financial Year and Assessment Year   

Here’s a tabular representation of the differences between the assessment year and financial year:

Most Recent FYs and AYs

For a better understanding of this concept, go through the chart below:

Why do ITR Forms have an Assessment Year?

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. 

Important Things to Remember While Filing ITR During for an AY 

Keep in mind the following pointers before filing your tax returns:

• You must know that FY and AY are separate time periods with respect to the procedure of filing ITR.
• Your ITR form will always specify ‘AY’, and you should not confuse it with FY.
• The relevant documents that you will refer to in your ITR form, namely the capital gains statement, Form 16A and Form 26AS, will be applicable for the FY. 
• The IT Department will use FY for the proofs submitted. Such details will be assessed during the AY.  
• The tax authority will evaluate your income for an FY after the FY ends.

Important Points to Remember while Filing ITR during an FY 

 Go through the following facts to make your ITR filing error-free:

• You can claim tax deductions during a financial year without submitting any receipts. You may just need some tangible proof for your activity or expense in order to avail a tax benefit. 
• To reduce your tax burden to some extent, you can maintain a systematic record of your expenses. If your receipts are disorganised, there is a possibility of missing out on huge deductions. 
• Taxpayers can opt for recognised certified courses on tax filing procedures and taxation to keep themselves well-informed. 
• You can download free and convenient software online that will help prepare your taxes.   
• You can avoid IRS services while filing ITR in an FY. Such facilities may lack accuracy and can differ from person to person. 

Also Read: Deductions Under Section 80C of The Income Tax

Final Word 

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. 

FAQs on Financial Year vs. Assessment Year 

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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.