Knowing the difference between Assessment Year (AY) and Financial Year (FY) for a common taxpayer is quite baffling. People often use AY and FY interchangeably and this sometimes leads to errors at the time of filing the ITR (Income Tax Return).
In this article, we have put together all the minute details about Assessment Year is the AY full form and Financial Year (FY). This should help one clear out all the misconceptions about the difference between assessment year and financial year, financial year and assessment year, and much more.
In simplest words, a financial year is a year in which you earn income. That means if you transact for goods/services anytime between April 1st, 2020 and March 31st, 2021, the applicable financial year for you will be 2020-21
Assessment year meaning is the year in which your income is assessed and taxed by the income tax department is called the Assessment Year (AY). In other words, AY is the succeeding year of the financial year. For instance, if your current financial year is 2019-20, the assessment year will be assessment year 2020-21.
Note: As per the Indian laws, both financial year and assessment year in income tax starts on 1st April and ends on 31st March.
To clear out the dilemma between AY and FY, we have listed AY and FY for recent years ie. the current financial year and current assessment year.
|S.No.||Period||Financial Year||Assessment Year|
|1.||1st April 2020 to 31st March 2021||2020-21||2021-22|
|2.||1st April 2019 to 31st March 2020||2019-20||2020-21|
|3.||1st April 2018 to 31st March 2019||2018-19||2019-20|
|4.||1st April 2017 to 31st March 2018||2017-18||2018-19|
Example 1: Mr. X earned income from April 2020 to December 2020, now, in this case, the financial year (FY) would be 2020-20201. However, as we know his income will be assessed in the year following the financial year. Thus the assessment year would be 2021-22.
The need for assessment year (AY) in an Income Tax Return (ITR) arises because income for a specific financial year can be assessed and taxed earliest in the next year. Hence the name - Assessment Year. In other words, income earned in a financial year can't be taxed before it is earned and hence the concept of AY becomes necessary. To add, unforeseen situations like loss of business, change in job, new ventures, and more can come up anytime. This necessarily doesn’t need to happen at the beginning of the year. To cover all these situations and uncertainties, having a pre-defined AY can help taxpayers complete assessments and calculations easily after the applicable financial year closes.