financial year and assessment year

What is Financial Year & Assessment Year?

Financial Year is different from the Assessment Year. Most of the assessees think that the Financial Year and Assessment Year are one of the same things, but they both are not the same.

Meaning of Financial Year and Assessment Year

Financial Year is the year in which the assessee earns the total income. On the other hand, the Assessment Year is the year which comes after the Financial Year.

financial year and assessment year

Both terms in Hindi

Financial Year in Hindi is known as वित्तीय वर्ष and Assessment Year in Hindi is known as निर्धारण वर्ष.

Also Read: 7 Reasons why you should file your Income Tax Return?

Income Tax Perspective

As per the Income Tax Act, Financial Year is the year in which the income is earned and is known as Previous Year for the purpose of taxation and the Assessment Year is the year in which the income is assessed and taxed.

The purpose behind distinction between Financial and Assessment Year under the Income Tax Act is that the Income cannot be taxed before it is earned. The tax can be calculated on income only when it has been earned. The income earned during the Financial Year is assed and taxed in the Assessment Year. Therefore, the assessees have also to select their Assessment Year before filing of their Income Tax Returns.

Also Read: Best ways to save your taxes in 2022

Tax planning

The assessee cannot claim any deductions or save taxes through investments made in the same financial year. The investments made in the FY can be used in saving taxes only in its AY.

For instance, Ram invests in LIC policy in the FY 2021-2022. He can claim deduction under Section 80C only in the AY 2022-2023 i.e., the year in which his income will be assessed and taxed.

Also Read: Ways to save tax other than Section 80C

Examples

Period

Financial Year

Assessment Year

1st April, 2021 to 31st March, 2022

2021-2022

2022-2023

1st April, 2020 to 31st March, 2021

2020-2021

2021-2022 

1 April, 2019 to 31 March, 2020

2019-2020

2020-2021

1 April, 2018 to 31 March, 2019

2018-2019

2019-2020

1 April, 2017 to 31 March, 2018

2017-2018

2018-2019

1 April, 2016 to 31 March, 2017

2016-2017

2017-2018

Conclusion

– Financial Year 2021-2022 income means income earned from 1st April, 2021 to 31st March, 2022.
– Income of Financial Year 2021-2022 will be assessed and taxed in Assessment Year 2022-2023.
– Both FY & AY, begin on 1st April & end on 31st March.
– Therefore, FY 2021-2022 & AY 2022-2023 are the same things.

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