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You are probably familiar with what is known as the “calendar year” which is what we refer to as the year beginning in January and ending in December. However, for all things financial in nature, including paying your taxes, the year starts and ends with different months. There are periods known as the assessment year and the financial year and these must be known by individuals. Besides this, for the payment of taxes and Income Tax filing, one year is considered and not the other. While income tax filing happens in the assessment year, the financial year is considered for other purposes. The aim here is not to confuse you, so without further ado, let’s go about clarifying concepts.
While discussing the assessment year and the financial year, a clarification must be made about each period separately. In India, the financial year is a year in which you make certain calculations about your finances. This is not just for individuals but is considered by companies too. Simply put, a financial year begins on 1 April and concludes on 31 March.
So, if you have to calculate your own financials for the financial year 2024, you have to consider your finances from 1 April 2023 to 31 March 2024. Since the period technically comprises two years, starting in 2023 and ending in 2024, the financial year is termed as 2023-24. Note that if you are using one year to indicate the financial year, it will be termed as the Financial Year 2024 based on the ending year and written (and spoken) as FY 2024 or simply FY24. A financial year or a fiscal year is vital for the Income Tax Department as well as companies as all the financial reports, assessments of tax, etc, are conducted according to the financial year.
Several people get confused between the AY vs FY (assessment year vs financial year). Therefore, it is important to understand what the assessment year is and its impact. The assessment year is the year in which an individual's finances are evaluated or assessed and subsequently taxed. For the purpose of tax assessment and tax payments, the assessment year is critical as this is the year in which the finances of the previous year (financial year) are assessed and then taxed. The period of the assessment year also begins on 1 April of one year and concludes on 31 March of the next year. You could say that the assessment year begins just after the financial year ends.
“Financial Year” is often abbreviated as “FY”, and assessment year is shortened to “AY”. In case you read a company’s report, you will find certain statements like “revenue for the FY22”. The abbreviation “AY” is commonly found in documents related to income tax as the term is often used for taxation and assessment of tax reasons.
While you grasp the terms “financial year” and “assessment year”, you may understand them better if you know the differences between the two concepts. Here are the key differences based on certain parameters:
The assessment year and the financial year mainly serve the purpose of the levying of taxes. The assessment of income earned in the financial year is done in the assessment year and then tax is levied upon the income earned in the financial year. Tax can only be levied after the income has been earned, hence the concepts of financial year and assessment year.
In case you are a new taxpayer, you must take care to choose the appropriate assessment year for which the income is being assessed for taxation. It is important to remember that the assessment year is always a year ahead of the financial year for which income tax is being assessed.
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