Difference Between Assessment Year Ay And Financial Year Fy

A financial year and assessment year are not the same. However, many taxpayers don’t know the difference between both. They often think that both are the same which leads to errors while filing. Let us now find out the distinctions between an assessment year (AY) and a financial year  (FY)

What Is A Financial Year?

The financial year (FY) is used to indicate the time period of 1 year during which the taxpayer earns income. It is the period which starts on the first of April every calendar year and ends on the 31st of March next calendar year. It is also called the fiscal year. The primary objective of the fiscal year is to compute the financial statements. The following are some activities that happen in the financial year

• Tax and TDS are paid in the financial year only. Since both of these taxes are based on an approximate calculation of your potential income, they may be more or less than the actual liability.
• For insurance companies, revenue is generated through insurance policies 
• Insurance businesses apply for financial reporting and budgeting. 

What is the Assessment Year?

An assessment year is the 12-month period during which the income you have received during the financial year is taxed. The assessment year begins immediately after the financial year. For instance, if the financial year is from April 1st 2022 to March 31st 2023, then the assessment year will be from April 1st 2023 to March 31st 2024. You must file your income tax in the appropriate assessment year. 

FY and AY for Recent Years

Differences Between AY and FY

Why Does an ITR Form Have AY?

Since the income received in the financial year is evaluated and taxed in the assessment year, ITR forms have an AY. Taxpayers have to choose AY while filing their income tax returns. Situations such as loss of job, change in occupation, or new deposits of cash could occur anytime during or at the end of the financial year. So, the income a person is going to earn will not be known until the FY ends. This is the reason why income earned can be assessed only after the financial year ends and why the assessment year starts only after the completion of the financial year. 

Things to Keep in Mind While Filing Tax Returns During the Assessment Year

• The financial year and the assessment year are different. They must not be confused with each other. 
• ITR forms issued will always use the term AY, and you should not confuse it with FY. 
• The documents which taxpayers refer to in the ITR form, such as capital gains statement, Form 26AS, Form 16A, and tax deducted at the source or TDS, shall all be for the financial year. 
• FY is used for all the proofs that will be assessed during the AY
• The income earned by taxpayers will be evaluated only when the financial year has come to an end.  

Things To Keep in Mind When Filing Tax Returns in The Assessment Year

• When filing tax returns during the assessment year, taxpayers have to be as transparent as possible about the various forms used for filing taxes, their past tax payments, and the receipts they have obtained from the income tax department after filing taxes online. 
• All kinds of taxpayers including senior citizens and businessmen can file their tax returns from anywhere if they choose the e-filing services for tax returns. 
• It is ideal for all taxpayers to make use of the tax returns calculator accessible online while filing tax returns during the assessment year. This is because such tax return calculators are free of charge and can give accurate figures of the tax deductions that may be claimed by individual taxpayers for the income they have received in the financial year

Conclusion 

The entire process of tax filing can be carried out in a very efficient manner provided people know the difference between financial year and assessment year. The financial year comes first and the assessment year comes next. 

FAQs

1. Why is a financial year 12 months?

The crop cycle comes in the months of April to March in India. The sowing of crops starts in April and the harvest takes place between October and March. Therefore, the fiscal year from April to March enables the government to align its budget with the country’s agricultural cycle. 

2. How are the financial year and assessment year known in Hindi?

The financial year (FY) and assessment year (AY) in Hindi are known as वित्तीय वर्ष and निर्धारण वर्ष respectively.

3. Can I claim credit for advance tax, TDS, and TCS paid or deducted from my income? 

You can claim credit for advance tax, TDS, and TCS paid during the financial year at the time of filing the return. 

4. When should a taxpayer file an income tax return?

A taxpayer should file an income tax return in the assessment year, that is in the year after the completion of the financial year.