Budget Update 2025
The Income Tax Bill 2025, seeks to simplify India's tax laws and simplify compliance for taxpayers. One of the key changes in the bill is the introduction of the "tax year," which replaces both the Financial Year (FY) and the Assessment Year (AY).
It is usually a 12-month period from April 1 to March 31.
- For new businesses, it starts from the date of establishment.
- For new sources of income, it starts from the date the income arises.
What is financial year in India?
The financial year is the year in which you have earned the income. It starts on the 1st of April of the calendar year & ends on the 31st of March of the next calendar year. The term “Financial Year” is also commonly referred to as F.Y. For example, the financial year 2024-25 started on April 1st, 2024, and will end on March 31, 2025.
An assessee is required to calculate and plan taxes for the financial year, but an income tax return is to be filed in the next year or Assessment Year.
What is Assessment Year?
Assessment year means the year (from 1st April to 31st March) in which income you earn in a particular financial year is taxed. You are required to file your income tax return in the relevant assessment year. The assessment year is the year just succeeding the Financial Year. E.g.,
- Income earned in the current Financial Year 2023-24 (i.e., from 1st April 2023 to 31st March 2024) will become taxable in Assessment Year 2024-25 (i.e., from 1st April 2025 to 31st March 2026 ).
Financial Year vs Assessment Year in India for the Recent Years
| Period |
Financial Year |
Assessment Year |
| 1 April 2018 to 31st March 2019 |
2018-19 |
2019-20 |
| 1 April 2019 to 31st March 2020 |
2019-20 |
2020-21 |
| 1 April 2020 to 31st March 2021 |
2020-21 |
2021-22 |
| 1 April 2021 to 31st March 2022 |
2021-22 |
2022-23 |
| 1 April 2022 to 31st March 2023 |
2022-23 |
2023-24 |
| 1 April 2023 to 31st March 2024 |
2023-24 |
2024-25 |
| 1 April 2024 to 31st March 2025 |
2024-25 |
2025-26 |
| 1 April 2025 to 31st March 2026 |
2025-26 |
2026-27 |
What is the difference between Assessment Year and Financial Year?
From the tax perspective, a Financial year is a year in which a person earns an income. On the other hand, The assessment year is the year followed by the financial year in which the previous year’s income is evaluated, tax is paid on the same, and an Income tax Return (ITR) is filed.
For instance, if we consider the financial year from 1 April 2024 to 31 March 2025, it is known to be the Financial year 2024-25. The assessment year begins after the financial year ends, so the assessment year of FY 2024-25 would be AY 2025-26.
| Point |
Financial Year (FY) |
Assessment Year (AY) |
| Definition |
The year in which income is earned |
The year in which the income of the FY is assessed and tax return is filed |
| Period |
1st April to 31st March (e.g., 1 April 2024 – 31 March 2025) |
The year immediately following the FY (e.g., 1 April 2025 – 31 March 2026) |
| Purpose |
To record and earn income |
To evaluate and file taxes on income earned during the FY |
| ITR Filing |
Income is earned during this year |
ITR is filed in this year for the income earned in the FY |
| Example |
FY 2024-25 (income earned in this year) |
AY 2025-26 (return filed and tax assessed for FY 2024-25) |
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. Adverse situations can come up either at the beginning, middle, or end of a financial year. Hence, it is made mandatory to select the Assessment year while filing income tax returns.
Things to Remember While Filing ITR During the AY
You must remember the following while filing ITR during the AY -
- Maintain Accurate Records: Organize all financial documents, including income statements, expense receipts, and investment proofs, from the Financial Year (FY). This organization facilitates accurate reporting and can expedite the filing process.
- Stay Informed on Tax Laws: Tax regulations may change annually. Review the latest amendments and updates to ensure compliance and to take advantage of any new deductions or benefits.
- Select the Appropriate ITR Form: Different ITR forms apply to various income sources and taxpayer categories. Choosing the correct form is essential for accurate filing. For instance, ITR-1 (Sahaj) is typically used by salaried individuals with income up to ₹50 lakh, while ITR-2 is suitable for those with additional income sources such as capital gains.
- Adhere to Filing Deadlines: Timely submission of your ITR is crucial to avoid penalties. Generally, the deadline for individuals is July 31st of the Assessment Year. However, it's advisable to verify the specific due dates annually, as they may vary.
- Verify Pre-Filled Information: When filing electronically, the Income Tax Department may provide pre-filled data based on previous returns and available information. Ensure all pre-filled details are accurate and update any discrepancies to reflect your current financial situation.
- E-Verify Your Return: After submitting your ITR, complete the e-verification process within 30 days to validate your filing. This step is essential for processing your return and any potential refunds.
FY and AY in Hindi
FY (Financial Year) → वित्तीय वर्ष
AY (Assessment Year) → आकलन वर्ष
(If the financial year is 2024-25, then its assessment year will be 2025-26.)
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