Understand the difference between Assessment Year and Financial Year
Financial year is the period between 1 April and 31 March in which you earn an income. Assessment year is the following year in which this income is assessed and taxed.
What is Financial Year?
The financial year (FY) is the year in which you earn an income.
What is Assessment Year?
The assessment year (AY) is the year following the FY in which the income is evaluated.
AY comes after FY. Both AY and FY begin on the 1st of April and end on the 31st of March. Income is earned in FY and taxes on that income is paid in AY.
AY and FY for recent years
1 April 2013 to 31 March 2014
1 April 2014 to 31 March 2015
1 April 2015 to 31 March 2016
What is the difference between AY and FY?
AY is the assessment year and FY is the financial year. From an income tax perspective, FY is the year in which you earn an income. AY is the year following the financial year in which you have to evaluate the previous year’s income and pay taxes on it.
For example, if your financial year is from 1 April 2015 to 31 March 2016, then it is known as FY2015-16. The assessment year for income earned during this period would begin after the financial year ends–that is on 1 April 2016 till 31 March 2017. Hence, the assessment year would be AY2016-17.
What is assessment year and previous year for income tax?
As mentioned above, assessment year is the year in which income is evaluated and taxed. This evaluation and taxation is done on income that is earned in the previous year, which is known as the financial year.
When does the new financial year start?
Every financial year and assessment year starts on the 1st of April and ends on the 31st of March.
Why does an ITR form have AY?
Since income for any particular financial year is evaluated and taxed in the assessment year, income tax return forms have AY. Income is earned in a financial year but cannot be taxed before it is earned, hence it has to be evaluated and taxed after the financial year ends. Hence, taxpayers have to select AY while filing their income tax returns.
What is financial year and assessment year called in Hindi?
Financial year (FY) in Hindi is called वित्तीय वर्ष and assessment year (AY) in Hindi is called निर्धारण वर्ष.