Difference Between Assessment Year and Financial Year

Mostly people file Income Tax Returns through Chartered Accountant or Financial planners but if anyone wants to file their own they need to understand two commonly used terms while filling return i.e. Financial Year & Assessment Year.

Financial Year

It simply means the year in which the income is earned. Financial year starts from 1 April and ends on 31 March. The financial year is denoted as FY. For the purpose of Income tax financial year is sometimes called as Previous Year as it is the year preceding to the assessment year.

Assessment Year

As per section 2(9) of income tax act, “assessment year” means the period of twelve months commencing on the 1st day of April every year. It simply means the year in which the income earned is assessed and taxed. Assessment year also starts same as financial year. Return of income of the financial year is filed in the assessment year. The assessment year is denoted as AY. Assessment year is the year immediately following the financial year.

Examples of the Financial Year & Assessment Year

Period of which income is earned

 

Financial Year Assessment Year
1 April, 2016 – 31 March, 2017 2016-17 2017-18
1 April, 2015 – 31 March, 2016 2015-16 2016-17
1 April, 2014 – 31 March, 2015 2014-15 2015-16

 

Important Points Related to Assessment Year & Financial Year

  • Saying this only might confuse you, there are some exceptions to above said rules. Salary income is the one of the main exceptions. It applies to all the incomes except some specified incomes like salary income. In salary income tax is paid even before the income comes to your hand. Such tax deduction is called Tax Deducted at Source (TDS). Advance tax is different concept from TDS. In these exceptional cases tax is paid in the same year in which you earn the income i.e. financial year.
  • Normally, the tax is always paid after the completion of the Financial year for all other incomes.
  • The due dates for filing income tax returns for the financial year are 31 July/ 30 Sept of the Assessment year. Therefore if the income tax returns are being filed for the financial year 2015-16, the due date for filing the income tax returns would be 31 July 2016/ 30 Sept 2016 and so on.
  • This confusion between Assessment year and Financial year is most likely as documents provided for the purpose of tax filing including form 26AS, form 16A, TDS, capital gain statement among others is available with respect to FY while the ITR form are available with respect to AY.

Why Income Tax Forms Require Assessment Year?

ITR form have Assessment Years because income for any particular financial year is evaluated and taxed in the assessment year. Income cannot be taxed before it is earned, that’s why it is evaluated and taxed after the end of financial year. Hence, taxpayers have to select AY while filing their income tax returns.

Solution in case of wrong mention of Assessment Years on ITR (Income Tax Returns) Forms

In case the return is filed within due date but with wrong AY then it can be corrected by filing a revised return under section 139(5) of the income tax act. The previous filed or original return will be held void. Revised ITR with correct AY will be held valid.


About the Author

arpit goyalArpit Goyal is pursuing CA and B.com & also working as an article assistant in Gurgaon. He has an immense interest in Taxation. He loves to use technology to spread knowledge about taxation & accounts.

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  1. It was useful. Very simple way of explaining.

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