Financial Year vs Assessment Year: What’s the Difference?
Career Tax May 28, 2024
Abhibyakti Singh
Executive Assistant, Lxme
A common confusion among women is the difference between Financial year vs Assessment year. While it may be easy to get confused between the two, there are some very important differences between the terms. As a woman, it is imperative to understand the difference between Assessment year vs Financial year so that no errors are made while filing your ITR!
What is Financial Year?
The Financial Year is the year in which you receive your income. It is measured from 1st April of the current year to 31st March of the next year.
Example – The Current Financial Year or F.Y. is from 1st April 2024 to 31st March 2025 (FY 2024-25).
What is Assessment year?
The Assessment Year is the year after the Financial Year. In this year, the tax liability of the Financial Year is calculated, paid and income tax returns are filed.
Example – The Assessment Year of the current Financial Year FY 2024-25 is AY 2025-26, i.e. 1st April 2025 to 31st March 2026.
What is the difference between Assessment Year and Financial Year?
| PARAMETERS | FINANCIAL YEAR | ASSESSMENT YEAR |
| Purpose | It is the year in which income is earned and expenses are incurred. For businesses, this year is used for accounting purposes. | It is the year in which income earned during the previous year is assessed and taxed. |
| Time Period | Runs from 1st April of the current year to 31st March of the next year. | Runs from the year immediately after the end of the Financial Year. |
| Example | FY 2024-25 will run from 1st April 2024 to 31st March 2025. | If the Financial Year is 2024-25, then the Assessment year will be from 1st April 2025 to 31st March 2026. |
This was all about assessment year vs financial year
What is an example of Financial Year vs. Assessment Year?
Garima is a 30-year-old woman working in the IT sector. During the year 2023-24, she has earned income from various sources such as her salary, her investments as well as her side business. The income she has earned from 1st April 2023 to 31st March 2024 is the income she has earned during the Financial Year 2023-24.
Now, Garima also has to pay taxes on the income earned by her. Since she has earned the income in FY 2023-24, her taxes will be assessed in the next year. In the next year, she will be required to calculate her tax liability, pay her taxes and file her ITR based on the income earned by her in FY 2023-24. This upcoming year will be referred to as the Assessment Year 2024-25.
What is the connection between Assessment Year and Taxation? Why do ITR Forms have an AY?
Income earned in a particular year(financial year) is taxed the next year(assessment year). This is because you cannot pay taxes on income you haven’t earned yet. Assessment of your income can only begin once the current financial year has ended. And this is why an ITR form has an option for entering the Assessment Year.
Click here to know the Benefits of Filing Income Tax Returns
To sum up, the difference between assessment year and financial year is simple! FY is the year in which income is earned. AY is the next year when this income is taxed.
FAQ’s
What is the difference between financial and assessment year?
FY is the year in which income is earned and expenses are incurred. While AY is the year in which income earned during the previous year is assessed and taxed.
What is the financial year of income tax?
The Financial Year is measured from 1st April of the current year to 31st March of the next year.
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