What is Financial Year?

The financial year is the year in which you have earned the income. It starts on the 1st of April of the calendar year & ends on the 31st of March of the next calendar year. The term “Financial Year” is also commonly referred to as F.Y. For example, the financial year 2023-24 started on April 1st, 2023, and will end on March 31, 2024.

An assessee is required to calculate and plan taxes for the financial year, but an income tax return is to be filed in the next year or Assessment Year. For instance,

• The income you earned from 1st April 2022 to 31st March 2023 is the income earned in the current Financial Year (FY) 2022-23. Also,
• Any income earned by you for the period starting from 1st April 2022 to 31st March 2023 can be simply stated as income earned in Financial Year (FY) 2022-23.

What is Assessment Year?

Assessment year means the year (from 1st April to 31st March) in which income you earn in a particular financial year is taxed. You are required to file your income tax return in the relevant assessment year. The assessment year is the year just succeeding the Financial Year. E.g.,

• Income earned in the current Financial Year 2022-23 (i.e., from 1st April 2022 to 31st March 2023) will become taxable in Assessment Year 2023-24 (i.e., from 1st April 2023 to 31st March 2024 ).
• Income earned in Financial Year 2021-22 (i.e., from 1st April 2021 to 31st March 2022 ) will become taxable in Assessment Year 2022-23 (i.e., from 1st April 2022 to 31st March 2023 ).

Assessment and Financial Year in India for the Recent Years

What is the difference between Assessment Year and Financial Year?

From the tax perspective, a Financial year is a year in which a person earns an income. On the other hand, The assessment year is the year followed by the financial year in which the previous year’s income is evaluated, tax is paid on the same, and an Income tax Return (ITR) is filed.

For instance, if we consider the financial year from 1 April 2022 to 31 March 2023, it is known to be the Financial year 2022-23. The assessment year begins after the financial year ends, so the assessment year of FY 2022-23 would be AY 2023-24.

Why does an ITR form have an Assessment Year?

Income tax forms have an assessment year because the income for any financial year is evaluated and taxed in the following year, i.e., the assessment year. Income cannot be taxed before it is earned. Adverse situations can come up either at the beginning, middle, or end of a financial year. Hence, it is made mandatory to select the Assessment year while filing income tax returns.

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