Financial Years and Assessment Years: A Guide for Taxpayers

Financial Years and Assessment Years: A Guide for Taxpayers

Tax season can be confusing, especially when dealing with different terms and words. This article explains the difference between Financial Year (FY) and Assessment Year (AY).

Financial Year: When You Earn Your Income

The financial year (FY) refers to the 12-month period you earn your income. In India, the financial year begins in April 1st and ends in March 31st of the following year. This timeline is unique to India. For example, the current financial year is FY 2022-23, from April 1, 2022, to March 31, 2023.

Assessment Year: When You File Your Tax Return

The assessment year (AY) follows the financial year. This is the period when we assess the income you earned in the previous fiscal year for taxes. You must file your Income Tax Return (ITR) during this assessment year. So, for the income you earned in FY 2022-23, the assessment year will be AY 2023-24 (from April 1, 2023, to March 31, 2024).

Key Differences to Remember

You earn income during the FY period, and authorities assess and tax it during the AY period.

•      Focus: The FY is about income generation, while the AY is about tax calculation and filing.
•      ITR Filing: ITR forms require you to specify the assessment year, not the financial year. Taxpayers earn income in the previous financial year and use it to calculate the tax return.

Important points:

Why the Difference?

This system allows the government time to process income information and determine tax liabilities. It also ensures you file your tax return after receiving your income for the relevant financial year.

Understanding this difference between FY and AY is important for filing your income tax returns correctly and on time.