Apr 189 min read

Assessment Year and Financial Year: Difference between FY and AY

Q: Q1. What is the format of the financial year?

The Indian government's financial year begins on April 1 and ends on March 31 of the following year. The fiscal year that runs from April 1, 2024, to March 31, 2025, is commonly shortened to FY 2024–25, FY2024–25, FY2024/2025, or FY24/25; however, depending on the year it ends, it may also be referred to as FY 2025 or FY25.

Updated: Nov 7

If you’ve ever filed your income tax returns in India, you’ve probably come across the terms Financial Year (FY) and Assessment Year (AY). While these terms might seem confusing at first, they are actually quite simple. The financial year refers to the year in which you earn your income, and the assessment year is the year in which the income is assessed and taxed. In this article, we’ll explain the difference between the two in a clear and straightforward way to help you understand how they impact your tax filing process.

Assessment Year and Financial Year: Budget 2024 Update

Finance Minister Nirmala Sitharaman has announced key changes for individuals opting for the new tax regime.

Standard Deduction for Salaried Employees: The standard deduction for salaried employees is proposed to be increased from INR 50,000 to INR 75,000. Additionally, the deduction on family pension for pensioners is set to increase from INR15,000 to INR 25,000.

Revised Tax Rate Structure: The tax rate structure under the new tax regime is proposed to be revised as follows:

Income up to INR 3 lakh: NIL tax

Income between INR 3 lakh to INR 7 lakh: 5% tax

Income between INR 7 lakh to INR 10 lakh: 10% tax

Income between INR 10 lakh to INR 12 lakh: 15% tax

Income between INR 12 lakh to INR 15 lakh: 20% tax

Income above INR 15 lakh: 30% tax

With these changes, a salaried employee under the new tax regime can save up to INR 17,500 in income tax.

Meaning of Financial Year

The calendar year in which you earned your income is referred to as the financial year. Every year on April 1st, it starts and concludes on March 31st of the following year. "F.Y." is an acronym for "financial year" that is occasionally used. The income tax return must be filed in the Assessment Year, which is the following year, even if the assessee must measure and plan taxes for the fiscal year.

For example, the income earned from April 1, 2022, to March 31, 2023, is the income earned in the current Financial Year (FY) 2022–2023. Income earned in the Financial Year (FY) 2022–2023 is the term used to describe any money that you make between April 1, 2022, and March 31, 2023.

Meaning of Assessment Year

The assessment year is the period (April 1 through March 31) during which you owe taxes on the money you make within a certain fiscal year. Your income tax return must be filed during the relevant assessment year. The year immediately following the Financial Year is known as the Assessment Year.

For example, in case you're seeking a distinctive approach to self-expression. Income earned during the current Financial Year 2022–23 (that is, from April 1, 2022, to March 31, 2023) will be subject to taxation in Assessment Year 2023–24 (that is, from April 1, 2023, to March 31, 2024). Income received in Financial Year 2022–23 (i.e., from April 1, 2022, to March 31, 2023) will be taxable in Assessment Year 2023–24 (i.e., from 1st April 2023 to 31st March 2024).

Assessment Year and Financial Year for Recent Years

Period	Financial Year	Assessment Year
1st April 2024 to 31st March 2025	2024-25	2025-26
1 April 2023 to 31 March 2024	2023-24	2024-25
1 April 2022 to 31 March 2023	2022-23	2023-24
1st April 2021 to 31 March 2022	2021-22	2022- 23
1 April 2020 to 31 March 2021	2020-21	2021-22

Assessment Year and Financial Year Differences

For tax purposes, the year that an individual gets money is known as their financial year. The year following the fiscal year in which the income from the previous year is evaluated, taxes are paid, and the ITR is submitted is known as the assessment year. For instance, the fiscal year 2022–2023 is defined as starting on April 1, 2022, and concluding on March 31, 2023. Since the assessment year begins after the financial year concludes, the assessment year for FY 2022–2023 will be AY 2023–2024.

The Financial Year concludes on March 31st, and the Assessment Year starts on April 1st. Therefore, the Financial Year is the year that senior persons, professionals on a salary, and businesspeople get paid. On the other hand, the year that follows is known as the Assessment Year, at which time the revenue from prior earnings is assessed. Income earned in the financial year prior to the academic year (AY) is subject to assessment and taxation. Income Tax Return Forms are known to utilise the term AY rather than FY just for this reason.

Things to Consider When Filing Taxes During a Financial Year

You can claim deductions even if you don't have receipts. Regular taxpayers should take note of the fact that deductions can be made in the FY without presenting any proof of purchase. This is one of the most significant points. For this reason, taxpayers must obtain as much supporting documentation as they can from individuals who can attest to their spending, retain photo or video records along with the dates that particular items were purchased, and maintain thorough journal entries, diaries, or other written records in addition to the dates that any goods or services were acquired.
Expense reports need to be kept in order. Organisation of spending records is a key tax approach that taxpayers can use to reduce their tax obligations during the fiscal year (FY). A taxpayer may overlook significant deductions that could have a detrimental financial impact on him if their receipts are not timely and properly organised.
It is important for taxpayers to understand the ins and outs of tax filing procedures. Educating oneself is a good way for taxpayers to learn more about tax payment procedures both online and off. Taxation certification courses are available in local universities and schools and can be pursued in this context.
Tax filing can be made more convenient by using tax preparation software. For a hassle-free tax filing experience in FY, tax preparation software can also be obtained from the internet. This programme is virus-free, user-friendly, and free of cost of any kind. Taxpayers can take advantage of the IRS Free File Programme to ensure that their taxes are paid on time and without having to spend any money at all.
If a taxpayer receives income from recurrent or fixed deposits, they must consider transferring that money to their children's bank accounts. They will be able to save a significant sum of money on taxes for a certain financial year.
It is strongly advised not to file joint returns in FY. Married individuals ought to think about filing separate tax returns. This is due to the possibility that filing a combined tax return will have been ineffective and that individuals who file jointly will not likely save much money as a result.

Things to Consider When Filing Returns During an Assessment Year

When completing tax returns, transparency is required. Taxpayers must make it a point to be as open and honest as possible when completing tax returns throughout the assessment year regarding their prior tax payments, the different forms they used to file their taxes, and the receipts they obtained from the income tax department after filing online.
While submitting the returns online, the receipts and other supporting documentation should be gathered into one file. The tax refunds for a specific Assessment Year will likely be generated on time if all necessary paperwork is in order, including capital gains tax statements, Form 16A, and Form 26S. The transfer of monies from tax returns is not expected to encounter any issues.
It is recommended to file tax returns online. When using e-filing services for tax returns, taxpayers from all walks of life—including businesspeople and older citizens—can sit back and easily file their taxes from home. When using the income tax department's e-filing services, taxpayers can file their tax returns quickly and worry-free about their tax return filing procedure taking longer than a few weeks or months.

Conclusion

If taxpayers accurately comprehend the meanings of the two periods, the Financial Year and Assessment Year, the entire process of filing taxes in the FY and claiming refunds in the Assessment Year can be completed in a highly efficient manner. The financial year always precedes the assessment year, and assessments are completed in the latter once revenue has been received in the former.

FAQ

Q1. What is the format of the financial year?

The Indian government's financial year begins on April 1 and ends on March 31 of the following year. The fiscal year that runs from April 1, 2024, to March 31, 2025, is commonly shortened to FY 2024–25, FY2024–25, FY2024/2025, or FY24/25; however, depending on the year it ends, it may also be referred to as FY 2025 or FY25.

Q2. Why is the financial year different from the calendar year in India?

The English government decided to observe January 1st as the New Year in 1752. The accountants objected to the date change because they thought it would be unfair. As a result, the fiscal year started on April 1 and continued thereafter. The Indian agricultural harvest cycle coincides with the April–March fiscal year.

Q3. What is the assessment year 2024?

The year following the financial year in which the income from the previous year is evaluated, taxes are paid, and the ITR is submitted is known as the assessment year. Financial Year 2024–25, for instance, is the term used to describe the fiscal year that starts on April 1, 2024, and ends on March 31, 2025.

Q4. Why does the ITR form have an Assessment Year?

The assessment year is included in the income tax forms and the evaluation year since the revenue for any financial year is computed and taxed in the subsequent year. Income cannot be taxed until it is received. Unfavourable events can occur at any point in the year, whether it is in the middle or towards the end. As a result, choosing the Assessment year is now required when completing income tax returns.

Q5. What is the difference between Financial Year (FY) and Assessment Year (AY)?

The Financial Year (FY) refers to the year in which you earn the income, while the Assessment Year (AY) is the year following the FY in which your income is assessed and taxed. For example, for income earned in FY 2024–25, the Assessment Year would be AY 2025–26.

Q6. What is the deadline for filing Income Tax Returns (ITR) for FY 2023–24?

The deadline for filing ITR for individuals (non-audit cases) for FY 2023–24 (AY 2024–25) is typically July 31, 2024, unless extended by the government. For companies and taxpayers requiring audits, the deadline is usually October 31, 2024.

Q7. Can I file my ITR after the due date?

Yes, you can file a belated return after the due date but before the end of the relevant Assessment Year. For example, for FY 2023–24, you can file a belated return until March 31, 2025. However, penalties and interest may apply for late filing.

Q8. What is a revised return, and when can it be filed?

A revised return can be filed if a mistake or omission is discovered in the originally filed ITR. It can be filed anytime before the end of the relevant Assessment Year or before the completion of the assessment, whichever is earlier. For example, a revised return for FY 2023–24 can be filed up to March 31, 2025.

Q9. What is the tax audit limit for FY 2023–24?

For businesses with a turnover exceeding ₹1 crore and for professionals with gross receipts exceeding ₹50 lakh in a financial year, a tax audit is required under section 44AB of the Income Tax Act. However, the threshold is increased to ₹10 crore for businesses if their total cash receipts and payments are less than 5% of the total receipts and payments.

Q10. What is the rebate under section 87A for FY 2023–24?

For FY 2023–24 (AY 2024–25), resident individuals with a total income of up to ₹7 lakh can avail of a rebate under section 87A, which reduces their tax liability to zero. This applies only under the new tax regime.

Q11. Can I switch between the old and new tax regimes every year?

Salaried individuals can choose to switch between the old and new tax regimes every financial year. However, individuals with business or professional income must stick to the chosen tax regime unless they decide to change, in which case, they can revert to the old regime only once in a lifetime.

Q12. What is the financial year in India?

In India, the financial year begins on the 1st of April to the 31st of March.

Q13. How do I calculate my income and tax liability to file an income tax return?

You must calculate the income for the complete financial year. And when an income tax return needs to be filed when the basic exemption limit is beyond INR 2.5 lakhs for an individual under 60 years of age.

Q14. When should taxpayers file an income tax return?

Taxpayers should file the income tax return in the assessment year which is the year that follows financial year closure.

Q15.Is the Financial Year and Previous Year the same?

Yes, the Financial Year and Previous Year have the same meaning for ITR Filing purposes. For example, the previous Year 2024-25 also means the Financial Year 2024-25.

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