Difference between Financial Year and Assessment Year
The distinction between the Assessment Year (AY) and the Financial Year (FY) is often unclear to taxpayers. They frequently have a tendency to regard them similarly, which causes errors when they file their income tax forms. With the advancements in technology, filing taxes is now a fairly simple process that you can complete online, even from the comfort of your home. However, there are a few essential accounting terminologies you should understand before you begin doing so on your own. Among these are the abbreviations FY and AY for the Financial Year and Assessment Year, respectively. Not only will this clear up any misunderstanding over the two terms, but it will also make it simple, easy, and correct for you to file your taxes.
Let's clarify what AY and FY actually mean and discuss how they differ from one another. We will discover the solution to the most fundamental query during tax filing, among other things: When is income generated subject to taxation?
Table of Contents:
What is a 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.
What is the Assessment Year?
The assessment year is the period of time (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).
Difference between Financial Year and Assessment Year
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. It is very likely that the tax refunds for a specific Assessment Year will 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.
