Difference Between Assessment year and Financial year

Introduction

For individuals, financial year and assessment year might seem like two terms that describe the same period; however, they are not the same. Financial Year is 12 months used for financial recording by companies and organizations, while Assessment Year is the financial year following a financial year in which taxes are calculated. 

This article will discuss what is financial year and assessment year and the difference between assessment year and financial year to understand these terms better. Understanding these differences can be invaluable when making financial decisions or filing tax returns. To learn more about financial years and assessment years, read on!
 

What is a Financial Year?

A financial year (also known as a fiscal year) is a twelve-month period used by governments and businesses for accounting and tax purposes. It begins on April 1 of one year and ends on March 31 of the next. During the financial year, all income and expenses are tracked to determine how much profit or loss has been made and which taxes must be paid. 

The financial year also affects individuals who must pay taxes; they will often receive their Notice of Assessment from the taxation authority at the start of each financial year. This document details any changes to your tax obligations compared with previous years and allows you to claim any deductions or credits that you may be entitled to.
 

What is an Assessment Year?

An assessment year is a financial year of which taxes are calculated. It is a financial period for which income tax liability is assessed. The assessment year runs from 1st April to 31st March, beginning the financial day after the financial year has commenced. Taxpayers are expected to file their returns within this period to be eligible for any tax benefits or deductions that may be available.

Difference Between AY and FY

Mentioned below are the major differences between financial year (FY) and assessment year (AY):

1. The financial year is the 12-month period during which a company or individual earns income and incurs expenses to calculate financial performance. Subsequently, the assessment year is the fiscal period that follows the financial year in which income was generated.

2. Financial year begins on 1st April every Year while Assessment Year Begins on 1st April of next financial Year. For example, the financial year 2018-19 starts from 1st April 2018 and ends on 31st March 2019. On the other hand, Assessment Year for FY 2018-19 will begin from 1st April 2019 till 31st march 2020.

3. During the financial year, a person or company earns income and pays taxes accordingly, whereas in assessment year, one needs to file the return of income earned in the financial year under various heads such as salary, house property, business/ profession etc.

4. Financial Year is used for financial reporting and taxation purposes, while Assessment Year is used to assess the total amount of tax liabilities of a particular financial year.
 

AY and FY for Recent Years

Financial Year (FY) and Assessment Year (AY) are commonly used in financial matters. In recent years, the financial year typically starts from April 1 and ends on March 31, while the assessment year usually begins from April 1 of the financial year and ends on March 31 of the next financial year.

The financial year is used to calculate your income for that financial period. It helps assess your income taxes, investments, deductions, etc., per the applicable government regulations. On the other hand, assessment year is when you are required to file your returns according to what you calculated in the financial year.

Financial year and assessment years do not match - they are two different periods with separate calculations required over each one of them.
 

Why does an ITR form have AY?

The Income Tax Return (ITR) form has an Assessment Year (AY) section that indicates which fiscal year the taxpayer's declared income pertains to. In other words, the Assessment Year reflects the period during which any income or gains made by the taxpayer must be reported to the Income Tax Department.

The financial year in India is between April 1 and March 31 of the following calendar year. This means that any income earned by an individual during this time frame must be reported during a corresponding assessment year. For example, if an individual earns income from April 2019 to March 2020, then their tax return for that year would fall under AY 2020-21.

Since many individuals may have investments that are carried over from previous years as well as new investments made in the current fiscal year, it is important to distinguish between old and new investments on one's ITR form. Thus, the AY section provides clarity as to which assets and liabilities should be included in a particular tax return filing.

It is essential to remember that although the Assessment Year on an ITR form follows the current financial year, one's taxable income can extend across multiple assessment years. For example, if an individual earns income between April 2019 to June 2020, then their income would be taxable under both AY 2020-21 and 2021-22.
 

Important Things to Know When Filing Tax Returns During Assessment Year

Filing taxes can be a complicated process, especially during the assessment year. During this time, it is important to understand certain aspects of filing tax returns unique to the assessment year.

Firstly, taxpayers should ensure they are familiar with all applicable laws and regulations related to taxation in their country or state. Knowing these will help them make informed decisions when filing their returns. Furthermore, checking the due date for submitting tax returns is essential. This date should be noticed as the government could impose penalties if it is delayed.

Taxpayers should also determine whether they qualify for any deductions or credits before taxing to maximize their financial savings. Depending on one’s circumstances, deductions and credits may be available that can significantly reduce the amount of taxes owed. To ascertain this, taxpayers should research extensively and speak to a professional if necessary.

Additionally, taxpayers need to check for accuracy when filing their returns. Any mistakes or omissions made during the process could lead to major problems. To ensure accuracy, double-check all information and calculations before submitting tax documents.

Finally, filing tax returns during the assessment year requires dedication and patience to ensure accuracy and compliance with applicable laws. Taking the time to do so will help taxpayers save money in the long run and avoid any legal repercussions from government bodies.

By understanding these important aspects of filing taxes during the assessment year, taxpayers can properly prepare and submit their tax documents and save money.
 

The Bottom Line

It's important to understand the differences between financial year and assessment year to ensure you comply with tax rules and regulations. The financial year represents the period that income is earned and expenses are incurred, while the assessment year denotes when taxes must be paid on those incomes. 

Knowing how these terms are used in conjunction with one another can help you plan more effectively for your business or investments. Additionally, understanding these distinctions will ensure that you pay only what is due each tax season.