Difference of Assessment year and Financial year

 

Financial Year

What is Financial year?

Financial year or Fiscal year in India, is a time counted in 12 months, from 1st April to 31st March, when an amount of money is earned. As per the Government’s Income Tax policy, the income of this time is considered to be taxable in the succeeding year, that is called Assessment year. In this context, another important point should be told that both Financial year and Assessment year are counted by 12 months, starting from 1st April to 31st March. Only when a Financial year ends, the annual income of a taxpayer earned in this time can be recorded and computed for tax evaluation in the coming Assessment year. Here, an example is shown for this:

The annual income of Mr Ram Kumar Gupta in the Financial year 2019-20 is filed in ITR and taxes are computed in Assessment year 2020-21.

Usually, the due date of filing Income Tax Returns for a Financial year in India is 31st July/30th September of the Assessment year.

 income tax return deadlines extended

 

Tips to Handle Income during a Financial year

Whether you’re a taxpayer or not, it is a good practice to be careful in handling the money that you’re earning.

  • Keep an organized record of accounts to note the expenses. Review and rectify logically to save your income.
  • Do logical investments for getting tax deductions and other benefits.
  • Preserve your income/expenses documents, such as Form 16, payslips, bills, investment records, etc. and check them thoroughly to ensure its correctness.
  • Remain aware of the Government Income Tax policies. Take updates of tax rules and slab rates.

 

Assessment Year

 

What Assessment year means?

In India, tax for a year’s income, that is the annual net income, is evaluated and charged in the next year called Assessment year, denoted as ‘AY’. Like Financial year, the time when the money is earned, Assessment year also begins from 1st April and ends in 31st March. We’re giving some examples below to make it clear how Assessment year and Financial year differ from one another:

 Year’s Starting Date  Year’s Ending Date  Financial Year  Assessment Year
 1st April 2020  31st March 2021  2020-21  2021-22
 1st April 2017  31st March 2018  2017-18  2018-19
 1st April 1991  31st March 1992  1991-92  1992-93

 

For the net income of a Financial year, say 2017-18, its return filing and tax evaluation are done in the following Assessment year 2018-19. For any financial computation or tax payment, knowledge on these two facts is most important for a taxpayer in India.

 

Difference of Assessment year and Financial year

Financial Year

Assessment Year

1.    It is the time period when income is earned

 

2.    It comes before AY

3.    No income is evaluated or taxed during a running Financial year

1.    In this time period, return filing and taxes are charged on past year’s income

2.    It comes after FY

3.    Tax rules and slab rates of preceding FY is levied during a AY

 

Importance of Assessment Year in ITR Filing

Since income of a Financial year is recorded, evaluated and charged by Tax Department of India in the next Assessment year, these are the main points for a taxpayer to remember while filing ITR:

  • ITR forms always use AY (Assessment year). Make sure not to treat it as FY (Financial year).
  • Referring documents for ITR, such as, Form 26AS, Form 16A, Capital Gains Statements, TDS, should be from the correct Financial year (FY) and mentioned properly.
  • FY (Financial year) is always used in every proofs submitted for ITR.
  • Once a Financial year ends, then only its annual income is assessed and charged in the next Assessment year.