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What is the difference Between Assessment Year (AY) and Financial Year (FY)
Learn everything about the assessment year and financial year, definition, comparison between assessment year and financial year.
Financial year and Assessment year are two very different and crucial terms that the taxpayers need to be familiar with. No communication will be made correctly if the assessment year or financial year has been wrongly referred to. Financial Year and Assessment Year have been ages old terms in Income Tax. Still, many taxpayers get confused between these two terms. Many assessees / taxpayers tend to presume both terms as one and the same thing & this leads to several problems while filing income tax returns. To help file the income tax return in a smooth & hassle-free manner, we will explain and solve all the queries of our readers related to the assessment year and financial year.
Important: e-verify your income tax return within 30 days, else your return will be considered as not filed.
What does Financial Year mean?
The financial year is the year in which you have earned the income. It starts from 1st April of the calendar year & ends on 31st March of the next calendar year. The term “Financial Year” is also commonly referred to as F.Y.
An assessee is required to calculate and plan taxes for the financial year but income tax return is to be filed in the next year or Assessment Year. For instance,
- The income you earned from 1st April 2021 to 31st March 2022 is the income earned in the current Financial Year (FY) 2021-22. Also,
- Any income earned by you for the period starting from 1st April 2021 to 31st March 2022 can be simply stated as income earned in Financial Year (FY) 2021-22.
What does Assessment Year mean?
Assessment year means the year (from 1st April to 31st March) in which income earned by you in a particular financial year is taxed. You are required to file your income tax return in the relevant assessment year. Assessment year is the year just succeeding the Financial Year. For e.g.
- Income earned in the current Financial Year 2020-21 (i.e. from 1st April 2020 to 31st March 2021) will become taxable in Assessment Year 2021-22 (i.e. from 1st April 2021 to 31st March 2022).
- Income earned in Financial Year 2019-20 (i.e. from 1st April 2019 to 31st March 2020) will become taxable in Assessment Year 2020-21 (i.e. from 1st April 2020 to 31st March 2021).
What does Previous Year mean?
For the purpose of income tax or income tax return, terms financial year and previous year are used interchangeably. So, the financial year (FY) 2020-21 can also be termed as the preceding (previous) year (PY) 2020-21 & the income of such year will become taxable in assessment year (AY) 2021-22.
Some examples of Assessment Year and Financial Year or Previous Year
| Period | Financial Year | Previous Year | Assessment Year |
|---|---|---|---|
| 1 April 2018 to 31st March 2019 | 2018-19 | 2018-19 | 2019-20 |
| 1 April 2019 to 31st March 2020 | 2019-20 | 2019-20 | 2020-21 |
| 1 April 2020 to 31st March 2021 | 2020-21 | 2020-21 | 2021-22 |
What is the difference between Assessment Year and Financial Year?
From the tax perspective, a Financial year is the year in which a person earns an income. Assessment year is the year followed by the financial year in which the evaluation of the previous year’s income is done, tax is paid on the same and ITR is filed.
For instance, if we consider the financial year starting from 1 April 2020 to 31 March 2021, then it is known to be Financial year 2020-21. The assessment year begins after the financial year ends, so the assessment year of F.Y 2020-21 would be AY 2021-22.
Why does an ITR form have an Assessment Year?
Income tax forms have an assessment year because the income for any financial year is evaluated and taxed in the following year i.e the assessment year. Income cannot be taxed before it is earned. There are adverse situations that can come up either in the beginning , middle or end of a financial year. Hence, it is made mandatory to select Assessment year while filing income tax returns.
Frequently Asked Questions (FAQs)
Q - What is the Assessment Year and Financial Year in India?
As described above, income earned in a financial year becomes taxable in the assessment year. E.g.
- Income earned in FY 2020-21 will be taxed in AY 2021-22. And,
- Income earned in the current Financial Year (FY) 2020-21 will be taxed in Assessment Year (AY) 2021-22.
Q - What is the full form of AY?
In general most of the taxpayers use the term AY instead of the full form that is Assessment Year.
Q - What is the full form of FY?
In general most of the taxpayers use the term FY instead of the full form that is Financial Year.
Q - What is the relevant Assessment Year for the Financial Year 2020-21?
For Financial Year (FY) 2020-21, the Assessment Year (AY) 2021-22 will be applicable.
Q - Is theFinancial Year and Previous Year the same?
Yes, for the purpose of ITR filing, financial year and previous year mean the same. For eg, the Financial Year 2020-21 also means Previous Year 2020-21.
Q - Financial Year ends in which month every year in India?
In the case of FY 2020-21, it is 31st March 2021. That means in India the Financial Year ends on every 31st March every year and the new financial year starts from the 1st April.
Q - What is the duration of Financial Year 2020?
Financial Year 2020 or FY 2020-21 started from the 1st April 2020 and will end on 31st March 2021. The assessment year 2021 or AY 2021-22 shall be relevant to the taxpayers earning income in this financial year 2020-21.
Q - What is the Current Assessment Year?
Current assessment year (AY) is 2021-22 and is relevant for the financial year (FY) 2020-21.
Q - What is the Assessment Year in ITR filing?
Income cannot be taxed before it is earned. There are uncertain situations that can come up either in the beginning , middle or end of a financial year. Hence, it is made mandatory to select Assessment year while filing income tax returns. For example Income earned in the current Financial Year 2020-21 (i.e. from 1st April 2020 to 31st March 2021) will become taxable in Assessment Year 2021-22 and also income tax return is to be filed in Assessment Year 2021-22.
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