The Difference Between Assessment Year and Financial Year
One of the reasons why taxes are something that scare the common man is the complicated nomenclature that comes with it. There are many terms that are a part of filing one’s income tax returns that most people don’t know about. This becomes a big pain point for them because taxes by itself are hard to do, no one wants to spend more time on them to understand the basic terms as well.
The common taxpayer isn’t even to blame for this, nor is the government. The Income Tax Department tries to simplify taxation for everyone, but there are some things that cannot be changed. Take the terms ‘financial year’ and ‘assessment year’ for instance. One would think that these would be the easiest income tax-related terminology to understand, but that is not always the case. A lot of taxpayers face difficulties with understanding which is the financial year and which is the assessment year.
Let us try to clear this ambiguity. AY is assessment year and FY is financial year. Everyone knows this. But when most taxpayers have to e-file their income tax returns or pay taxes, they grapple with the issue of which year to enter in the AY column and which to enter in the FY column. We have come across numerous queries related to this issue, even though it seems fairly easy to understand.
A financial year is the year in which you earn an income. An assessment year is the year following the financial year in which you have to evaluate the previous year’s income and pay taxes on it. This income could be salary income as well as other incomes like house property income, freelance income, interest income from savings bank account, etc. All of this income that you earn from various sources is clubbed together to compute the taxable income for a financial year and tax on the same is paid in the assessment year.
Both AY and FY begin on the 1st of April and end on the 31st of March. For example, if your financial year is from 1 April 2015 to 31 March 2016, then it is known as FY2015-16. The assessment year for income earned during this period would begin after the financial year ends–that is on 1 April 2016 till 31 March 2017. Hence, the assessment year would be AY2016-17.
Simply put, the assessment year begins after the financial year ends. So, if you’re looking to e-file returns for your income between 1 April 2015 and 31 March 2016, which is FY2015-16, you need to select AY2016-17 while e-filing your income tax returns.
The following are the financial year and assessment years for the past three years
Dates | Financial Year | Assessment Year |
1 April 2013 to 31 March 2014 | 2013-14 | 2014-15 |
1 April 2014 to 31 March 2015 | 2014-15 | 2015-16 |
1 April 2015 to 31 March 2016 | 2015-16 | 2016-17 |
This is how assessment year and financial year are different from each other. Many of you would ask—what is the need to have both terms? Well, the answer to that is that income is earned in one and year and taxed in another year. It cannot be taxed in the same year before it is even earned, which is why the two terms.
When you e-file your income tax returns, it is very important for you to choose the correct assessment year. A wrong selection can lead to incorrect tax returns.
