Important Keyword: Assessment Year, Due date, financial year

Difference between Assessment Years (AY) and Financial Year (FY)

Understanding the distinction between Financial Year (FY) and Assessment Years (AY) is crucial for taxpayers, as these terms are integral to income tax filing, TDS return filing, and income tax payment. Let’s delve into the difference between Financial Year and Assessment Year:

1. Financial Year (FY): The Financial Year refers to the period in which you earn income. It runs from 1st April of a given year to 31st March of the following year. During this period, you receive income from various sources such as salary, business, interest, rent, and investments.
2. Assessment Years (AY): The Assessment Years, on the other hand, is the year immediately following the Financial Year in which you assess and file your income tax return based on the income earned during the Financial Year. It is the year in which your income is assessed, and you determine the tax liability based on the income earned in the preceding Financial Year.

To illustrate the difference, let’s consider an example:

Suppose the Financial Year is 2022-23, which begins on 1st April 2022 and ends on 31st March 2023. During this period, you earn income from various sources.

Now, the Assessment Years corresponding to the Financial Year 2022-23 would be 2023-24. This is the year in which you assess your income earned during the Financial Year 2022-23 and file your income tax return accordingly. You calculate your tax liability for the Assessment Year 2023-24 based on the income earned in the Financial Year 2022-23.

What is the Financial Year (FY)?

The Financial Year (FY) is the period that starts from 1st April and concludes on 31st March of the following calendar year. During this time, individuals earn income from various sources such as salary, investments, or business activities. This period is significant because it marks the duration within which financial transactions take place and income is generated. You’ll often find references to the Financial Year in documents like Form 16, Salary Pay slips, Loan repayment documents, etc. It’s a fundamental concept in financial planning and tax management for individuals and businesses alike.

What are Assessment Years (AY)?

The Assessment Years (AY) is a crucial term in the realm of income tax filing and payment. Unlike the Financial Year (FY), which marks the period in which income is earned, the Assessment Year follows immediately after the conclusion of the FY. In simpler terms, it’s the year in which taxpayers are required to file their Income Tax Returns (ITRs) based on their income earned during the previous Financial Year.

For instance, if the Financial Year runs from 1st April 2023 to 31st March 2024, then the corresponding Assessment Year would be 2024-2025. During the Assessment Year, individuals and entities submit their ITRs, declaring their income and paying any applicable taxes to the government.

Difference between the Assessment Year (AY) and Financial Year (FY)

Consider the case of Mr. Ajay, a recent graduate who commenced employment at a company on 7th July 2018 and remained employed until 31st March 2019.

For Mr. Ajay, the Financial Year (FY) denotes the period in which he earned income, spanning from 1st April 2018 to 31st March 2019. During this timeframe, Ajay received his salary and other earnings.

However, when it comes to his Income Tax Return (ITR) filing and assessing his tax obligations, Mr. Ajay will do so in the Assessment Year (AY) 2019-20. Despite earning income in the FY 2018-19, Ajay is required to file his ITR for the AY 2019-20, which immediately follows the conclusion of the FY.

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Official Income Tax Return filing website: https://incometaxindia.gov.in/