Have you ever wondered while the normal year starts in January and ends in December, the financial year starts on April 1st and ends on the 31st of March? More to wonder is why ITR is filed in the assessment year and not in the financial year. Are you a little confused about why they are different and what’s the importance of making the financial year and assessment year different? Let’s find out in this article below where we will discuss the major differences between the two and also talk about why ITR considers AY for the assessment of taxes and a lot more.
What is Financial Year?
To start with let’s understand what a financial year in India means! So, as the term says, it is a year when you receive your finances. The financial year starts on the 1st of April of any year and ends on the 31st of March of the next year. This means if you have to calculate your finances for the financial year 2023, then you have to start from the 1st of April, 2023 and it will end on the 31st of March, 2024. Since it includes two years, the financial years are named 2023-24.
A financial year is crucial for businesses and Income-tax Department as all the reports, tax assessments are done according to the financial year.
What is Assessment Year?
Now, the assessment year meaning is the year in which your finances are assessed and taxed. For tax assessment and payments, the assessment year is crucial as in this year, the finances of the previous financial year are assessed and taxed. This year also starts on the 1st of April and ends on the next year’s 31st of March. This is the year proceeding with the financial year for which the finances are taxed.
So, for the current financial year 2023-24, the assessment year will be 2024-25 that is from the 1st of April 2024 to the 31st of March, 2025.
Abbreviations for the financial year and Assessment Year
Financial Year is often shortly termed as FY while assessment year is shortly termed as AY. If you go through any company’s annual year, you will find instances like income or gains for FY 2022-2023 or revenue for FY 2021-22.
AY, you can find it in the context of income tax returns primarily as it is mainly used for income tax assessment and taxation purposes.
What are the past five AY and FY?
Let’s take a look at the past five financial years and corresponding assessment years –
|1st April 2019 to 31st March 2020
|1st April 2020 to 31st March 2021
|1st April 2021 to 31st March 2022
|1st April 2022 to 31st March 2023
|1st April 2023 to 31st March 2024
Major Differences between an Assessment Year and Financial Year
The primary differences between FY and AY are stated below –
|Flow of finances
|It is the year when the income is generated
|It is the year when taxes are levied on those incomes
|The financial year is used in company annual reports, stock reports, analysis of financial condition and taxation
|The assessment year is mainly used for tax assessment and taxation purposes
|Deductions & exemptions
|In the financial year, you pay for all your investments and savings schemes
|In the assessment year, you need to submit proof of the investments made in a previous financial year for the assessment of taxes.
|Assessment and Payment of tax
|In the Financial year, incomes are generated
|From the start of the assessment year, the incomes from the previous financial year are assessed and then the payment for the taxes has to be made within that assessment year only.
Why does Income Tax Return consider Assessment Year?
It is not possible to levy taxes on any income that is not earned or even accrued, isn’t it? So, the concept of the financial year and assessment year came into play.
Assessment of taxes and payments of the same is carried on in the assessment year following the financial year so that all the income and losses can be computed accurately and the right amount of taxes can be paid.
Thus, while paying the taxes, you need to select the assessment year on the Income tax department’s website and the financial year will be automatically selected once you select the assessment year.
Empower Your Family's Financial Security - Click to Learn About our Life Insurance Solutions."
If you are a new taxpayer, make sure you are choosing the right assessment year for your tax assessment. If you are paying taxes for the 2022-23 financial year, you have to select the AY as 2023-24. So, the assessment year is the year ahead of the financial year for which you are assessing the income tax.
*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time’
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
Make responsible financial decisions. Consult with your financial advisor before making any decisions on insurance purchase.