Introduction

An increasing number of taxpayers tend to file their income tax returns on their own. Therefore it is very important to understand the difference between the financial year and assessment year.

Financial Year

The Financial Year (FY) is the year in which you earn the income. It may be the year that starts from 1st April and ends on 31st March.

Assessment Year

The Assessment Year (AY) is the year immediately following the Financial year in which the previous year’s income is evaluated. This is done to  to compute the taxes on it. AY may be the year in which income tax returns are filed for income that was earned in the previous Financial Year that ended.

For example - if you have earned an income between 1st, April 2016 to 31st, March 2017, then 2016-2017 will be known as Financial Year and Assessment Year would be between 1st, April 2017 to 31, March 2018.

Understand the difference between AY and FY in taxation

A tax return should be filed in the Assessment Year, which may be the year after the end of a financial year

Once you complete your education and start earning, there comes a period when you are required to file income tax return. However, as a first-time taxpayer, you may get confused between the financial year (FY) and assessment year (AY).

For some, AY is similar to the gross annual year, and for others, AY tends to be as same as FY. These misunderstandings may lead you to create mistakes when the time of filing your earnings tax returns.

What is FY?

The financial year is determined by the year in which you received your money. It commences on April 1 and finishes on March 31 of another calendar year. Occasionally, the term “financial year” is abbreviated as “F.Y.” While an assessee must prepare and arrange for taxes for the financial year, the tax return arrives the following year, or assessment year.

For example, the current financial year (FY) 2021-22 is defined as the period from April 1, 2021, to March 31, 2022. From April 1, 2021, to March 31, 2022, any money you earn is referred to as income earned in financial year (FY) 2021-22.

What is AY?

The assessment year is the time (from April 1 to March 31) during which your income earned during a given financial year is assessed. You must file your income tax return in the assessment year. The AY may be the year immediately following the financial year.

Income earned during the current financial year 2021-22 (i.e., from April 1, 2021, to March 31, 2022) will be assessed in 2022-23. (i.e., from 1 April 2022 to 31 March 2023).

The income tax department has further extended the filing of tax returns (ITR) from  September 30, 2021, to December 31, 2021, for the income earned in FY 2020-21.

Points to note

-Due to the fact that revenue for any financial year is calculated and assessed another year, income tax returns (ITR) forms include an assessment year column. Income cannot be taxed until it is received. Because of this, while completing tax returns, the assessment year should be specified clearly.

-A tax return should be filed in the assessment year, which is the year after the end of a financial year.

-The AY is employed to evaluate income earned through the financial year.

Conclusion

After having earned a particular income there comes a period when there is the need to file the income tax return. Then both of the above conditions enter into relevance. Though both conditions are closely related to each other, yet they are very different from one another.

For any help on ITR Filing feel free to check with the tax professionals at LegalRaasta. You can file ITR yourself via our ITR software or get CA’s help on filing income tax return. Also you can use the option of Business Return, Bulk Return or Revised Return Filing. Go to the website for more information on our website.