Assessment Year and Financial Year

The financial year runs from April 1 to March 31. The assessment year follows, where income is taxed.
Assessment Year and Financial Year
3 min
02-July-2024

When you start to earn income, you need to become aware of the tax structure in India, so you can pay your taxes and file your Income Tax Returns (ITRs) as per the prevailing tax laws. In this regard, the assessment year and the financial year are two important concepts that you should know about. Let us dive into the meaning of these concepts and discuss the differences between the assessment year and the financial year.

What is the meaning of a financial year?

The financial year (FY) is a period of 12 months during which you earn income, gain profits or endure losses. In India, the financial year begins on April 1 of one calendar year and ends on March 31 of the following calendar year. The FY is divided into four quarters, namely:

  • First quarter or Q1, from April 1 to June 30
  • Second quarter or Q2, from July 1 to September 30
  • Third quarter or Q3, from October 1 to December 31
  • Fourth quarter or Q4, from January 1 to March 31

What is the meaning of an assessment year?

The assessment year is also a 12-month period. It follows the financial year and also ranges from April 1 of one calendar year to March 31 of the next. In the assessment year, the income and profits/losses earned or suffered in the financial year are assessed. You will then have to pay any taxes due on the income earned and file your ITR within the due date, which is generally July 31 of the assessment year.

Also read: Income tax slab for FY 24-25

Key differences between AY and FY

Having seen the meaning of the assessment year and the financial year and delved into some tax planning strategies for each period, let us see how the two differ. The table below summarises the assessment year vs financial year comparison in detail.

Particulars Financial year (FY) Assessment year (AY)
Meaning The year in which you earn income or profits The year in which you assess and pay taxes on the income earned in the financial year
Period Spans from April 1 to March 31 of the next year Follows the financial year and spans from April 1 to March 31
Purpose To keep track of the financial transactions within this period for tax and accounting purposes To compute the taxes on the income earned in the FY and file Income Tax Returns (ITRs)
Tax filing No tax filing is done in this period Tax returns are filed for the income earned in the FY

 

Financial Year (FY) vs Assessment Year (AY): An example

To better understand the assessment year and the financial year, let us look at an example. Consider the financial year from April 1, 2023, to March 31, 2024. The income you earn during this period can be grouped into five heads or categories: salaries, income from house property, business income, capital gains and income from other sources.

This income is then assessed in the assessment year — which spans from April 1, 2024, to March 31, 2025. You will have to pay any self-assessment tax due and file your tax returns by July 31, 2024. Sometimes, the government may extend the due date for filing tax returns.

Also read: How to save tax for salary above Rs. 20 lakh

A look back on the FY and AY of the past years

The following table outlines the assessment year and financial year for some of the past few years. Going through the table should help you better understand the concept of FY and AY.

Period Financial Year Assessment Year
April 1, 2023 to March 31, 2024 2023 - 2024 2024 - 2025
April 1, 2022 to March 31, 2023 2022 - 2023 2023 - 2024
April 1, 2021 to March 31, 2022 2021 - 2022 2022 - 2023
April 1, 2020 to March 31, 2021 2020 - 2021 2021 - 2022
April 1, 2019 to March 31, 2020 2019 - 2020 2020 - 2021
April 1, 2018 to March 31, 2019 2018 - 2019 2019 - 2020
April 1, 2017 to March 31, 2018 2017 - 2018 2018 - 2019
April 1, 2016 to March 31, 2017 2016 - 2017 2017 - 2018

 

Why does an ITR form have an assessment year?

Every income tax return form clearly specifies the assessment year for which the form is being filed. You can usually find the assessment year at the top right corner of the ITR form.

As you have already seen, the income you earn during any financial year is only assessed and taxed during the assessment year. Mentioning the assessment year on the ITR helps taxpayers easily identify the time period that the tax return covers.

In addition to easy identification, it also prevents taxpayers from mistakenly filing returns for the wrong financial year. Furthermore, it also helps the tax authorities properly organise and process tax returns for the appropriate year.

Also read: Is SIP tax free

Important things to remember when filing ITR during the FY

Filing an income tax return during a financial year is not possible. In fact, filing an ITR for a particular financial year is only possible once it comes to an end and the assessment year begins. This is because the income you earn in a financial year can only be assessed and taxed during the subsequent financial year (assessment year). Furthermore, the income tax authorities publish online filing tools for a particular financial year only after it ends.

That said, here are some important things you need to consider to make ITR filing easier during the assessment year.

  • Maintain proper records
    Having an organised record of the various expenses and income can make filing a lot simpler. Therefore, make sure to collect all expense and investment receipts pertaining to the current financial year and categorise them for easy identification.
  • Update yourself on tax laws and amendments
    Every year, the government of India presents the Union Budget in parliament. The budget usually brings about various new tax laws and amendments to existing tax laws. Keeping yourself updated on the tax laws can simplify income tax return filing during the assessment year.
  • Look for ways to decrease tax payments
    Contributing to certain investments, especially those listed under section 80C of the Income Tax Act, can help you reduce your tax liability. However, keep in mind that to reap the benefits of 80C deductions, you must invest on or before the 31st of March of the financial year.
  • Compare old and new tax regimes
    The old income tax regime lets you claim a host of deductions, such as the ones that section 80C of the Income Tax Act offers, but at the cost of higher income tax rates. The new regime, meanwhile, only offers a standard deduction of Rs. 50,000, but with lower tax rates.

Since you cannot file ITRs when the financial year has not ended, you can use this time to compare the old and new tax regimes to determine which is more favourable to you. ITR filing becomes a lot easier during the assessment year when you have clarity on the tax regime.

Also read: Short term capital gains tax

Important things to remember when filing ITR during the AY

Many taxpayers find filing income tax returns during the relevant assessment year to be stressful. However, with the right approach, you can quickly and easily file your ITRs. Here are some key things you need to keep in mind before starting your journey.

  • Keep documents handy
    Gather all your income statements, bank account statements, investment proofs, and expense receipts for the financial year for which you are filing returns. Having all of the documents ready can make the ITR filing process smooth and seamless. It can also minimise the chances of mistakes and erroneous entries, which can lead to severe consequences.
  • Consider using tax preparation software
    If you are new to filing income tax returns, consider using tax preparation software instead of the Income Tax India e-filing portal. These programmes often provide guidance, including detailed explanations for every section and category of income. Some software can even flag potential mismatches so that you can correct the mistakes and omissions before filing returns.
  • File early
    As the due date for filing income tax returns nears, the Income Tax India e-filing portal usually gets busier by the day. This could potentially lead to glitches that can prevent you from filing your returns on time. Fortunately, you can avoid all of that by filing your ITR at least a month away from the due date. Filing early could also mean getting your income tax refund faster if you are eligible to receive one.
  • Be transparent
    When filing income tax returns, you must make sure to declare all of your sources of income. Any discrepancies, whether wilful or ignorant, can lead to serious consequences that can range from a penalty to imprisonment.
  • Check Form 26AS
    Form 26AS is a comprehensive statement that shows details of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS). It can be accessed by logging into your Income Tax India e-filing account. When filing ITRs, you must ensure that the income you declare matches the amount of income mentioned in Form 26AS.

Financial year and assessment year in Hindi

In Hindi, the term financial year is written as Vitteya Varsh (वित्तीय वर्ष), with Vitteya meaning financial and Varsh meaning year. In the case of the assessment year, it is written as Nirdharana Varsh (निर्धारण वर्ष), with Nirdharana meaning assessment and Varsh meaning year.

Also read: How mutual funds are taxed for NRIs investors in India

Tax planning tips for the financial year and the assessment year

Here are some tips that can help you with tax planning in the assessment year and the financial year:

  • Start your tax planning early in the financial year.
  • Invest in tax-saving schemes and assets in the relevant FY.
  • Pay any advance tax due within the due dates in the FY.
  • Keep the necessary tax documents handy for filing your income tax returns in the assessment year.
  • Assess your overall tax liability after the close of the financial year.
  • Get to know whether you need to pay any additional income tax or if you are eligible for a refund.
  • Pay any additional self-assessment tax due and then file your tax returns.

Conclusion

Now that you know the meaning of the assessment year and the financial year as well as the nuances of the FY vs AY comparison, you can plan your investments to maximise your tax benefits easily. Of the many tax-saving investment options available in India, Equity Linked Savings Schemes (ELSS) come with the shortest lock-in period — of only 3 years. So, if you want to save taxes and simultaneously intend to leverage the benefits of market-linked growth and liquidity, these mutual fund schemes may be suitable.

You can invest in ELSS via the Bajaj Finserv Mutual Fund Platform. It is easy for you to compare mutual funds online before making an investment decision. Once you know which ELSS scheme you want to invest in, you can make a lump sum investment or start a SIP in that fund.

Essential tools for mutual fund investors

Mutual Fund Calculator Lumpsum Calculator Mutual Funds SIP Calculator Step Up SIP Calculator
SBI SIP Calculator HDFC SIP Calculator Nippon India SIP Calculator ABSL SIP Calculator
Tata SIP Calculator BOI SIP Calculator Motilal Oswal Mutual Fund SIP Calculator Kotak Bank SIP Calculator

Frequently asked questions

What is the meaning of the financial year?
A financial year is a duration of 12 months for which the profit, loss and income are calculated and taxed as per the prevailing tax laws.
What is the meaning of the assessment year?
The assessment year is a period of 12 months that follows the financial year. During this period, the income earned in the financial year is assessed and taxed.
What is the difference between the financial year and the fiscal year?
The terms financial year and fiscal year mean the same thing. They are used synonymously and interchangeably.
What is the difference between the assessment year and the previous year?
The previous year precedes the assessment year. It is the 12-month period for which the income and profit/loss are computed. Such gains and earnings are assessed and taxed in the assessment year.
What is the financial year in India?
The financial year in India begins on April 1 of one calendar year and ends on March 31 of the following calendar year.
How many quarters does a financial year have?
A financial year is a 12-month period. So, it can be divided into four quarters of three months each.
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Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.