What is an Assessment Year (AY) and Financial Year (FY)?
Financial Year (FY) and Assessment Year (AY) are two key terms that you must know about if you are a taxpayer. In this article, let’s learn their exact meaning and the differences between them.
Due to technological advances, tax filing has now become a very easy process that you can carry out online even from the comfort of your home. But, before you start doing that by yourself, you must know about some crucial accounting terms. These terms include Financial Year and Assessment Year, which are usually denoted as F/Y and A/Y. This will not only remove the confusion about the two terms but also enable you to file your taxes properly, smoothly, and easily.
Let us understand the exact meaning of AY and FY and elaborate on the differences between them. Among other things, we shall also find the answer to the most basic question during tax filing: When is income generated taxed?
What is Financial Year?
The Financial Year can be simply defined as a period of 12 months in which income is earned.
Any revenue generated between April 1, 2022, and March 31, 2023, will be assessed for the current Fiscal Year (FY) 2022-23. The primary goal of the fiscal year is to compute income statements.
Just like all other businesses, a financial year in insurance companies starts on April 1 and ends on March 31. This is the time when revenue is generated through insurance policies. Throughout a fiscal year, insurance businesses apply for financial reporting and budgeting. A fiscal year is commonly used in accounting to calculate the financial statement.
What is Assessment Year?
The Assessment Year is the 12 month-period that comes right after the financial year. It is the period from April 1 to March 31, during which revenue produced during the fiscal year is taxed.
For example, the Assessment Year for any revenue produced between April 1, 2022, and March 31, 2023, would be 2023-24.
In layman terms, the assessment year is the year in which income is taxed and all taxes are paid and tax returns are filed. Always remember to file your income tax return within the relevant AY.
FY and AY for Recent Years
Period: April 1, 2022 – March 31, 2023
Financial Year: 2022 - 2023
Assessment Year: 2023 – 2024
Period: April 1, 2021 – March 31, 2022
Financial Year: 2021 - 2022
Assessment Year: 2022 – 2023
Period: April 1, 2020 – March 31, 2021
Financial Year: 2020 - 2021
Assessment Year: 2021 – 2022
What is the difference between AY and FY?
Several differences exist between an Assessment Year and a financial year, which include the following:
A Financial Year is a 12-month period in which a person obtains income for tax purposes. An Assessment Year is a period when the previous year's earnings are assessed, taxes are due, and the filing of Income Tax Returns (ITRs) is done.
Both the Assessment Year and the Financial Year beginning on April 1 of a year and end on March 31 of the following year. For example, Financial Year 2022-23 refers to the fiscal year that runs from April 1, 2022, to March 31, 2023. The AY starts right after the FY ends. Therefore the assessment year for FY 2022-23 will be AY 2023-24.
As a result, the Financial Year is when corporations, salaried professions, and the elderly earn their money, while the next year, the accounting year, or AY, is when the income produced in the previous year is assessed.
Why does an ITR form have AY?
Income is not taxable until it is received. Negative occurrences may occur at any point of the year, whether it is the beginning, middle, or end of the year. An assessment year is included in the income tax forms because revenue for any fiscal year is computed and taxed in the following year. As a result, while filing income tax returns, you must select the Assessment year.
What is the financial year and assessment year called in Hindi?
In Hindi, a Financial year is called वित्तीय वर्ष (Vitteey varsh) and Assessment year is called निर्धारण वर्ष (nirdhaaran varsh).
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ARN - ED/05/23/2047
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