What is the Difference Between Assessment Year and Financial Year, AY and FY Meaning in Income Tax

Understanding the difference between Financial Year (FY) and Assessment Year (AY) is essential for anyone who needs to file an income tax return . In India, a financial year or accounting year is different from calendar year. A calendar year starts from 1stJan and ends at 31stDecember. However, a financial or accounting year starts on 1stApril of a particular year and ends at 31stMarch of the following year.For instance, if someone refers to financial year 2012-13, it implies the period starting from 1stApril 2012 and ending on 31stMarch 2013. In broad terms, financial year is used by governments, businesses and other organizations for inter alia, accounting, auditing and taxation purposes. Hence, before going into the details of assessment year and financial year, one needs to bear in mind that calendar year is of no significance in India when it comes to accounting or taxation.

A financial year in income tax is the period starting from 1stApril of a particular year and ending on 31stMarch of the following year. This is the year when a person earns income. The income can be from salary, business etc. 31stMarch is a cut off date till which a income for a year is counted for tax purposes. For instance, income earned in financial year 2013-14 is the income earned from 1stApril 2013 to 31stMarch 2014. For income tax purpose, financial year is called as Previous Year.

Assessment year as the name suggests is the year in which the income of an assessee for a previous year is assessed. For income tax purpose, assessment year is the year immediately succeeding the previous year. In the assessment year, a person is supposed to file his income tax return for the previous year. For instance, for previous year 2013-14, the assessment year shall be 2014-15, i.e. from 1stApril 2014 to 31stMarch 2015.The assessment year contains the due dates for various forms and returns for a specific previous year. For example, the due date for filing income tax return for persons who are not required to perform audit of their books of accounts is 31stJuly of the assessment year. Continuing the above example, the due date for filing income tax return for the previous year 2013-14 is 31stJuly 2014. As can be seen, the due date i.e. 31stJuly 2014 falls in the assessment year 2014-15. Similarly, the major compliances under income tax for a particular previous year are done in the assessment year. This can be illustrated with the help of the following:

The rationale behind having such a structure is to keep a clear discretion between the period when income is earned and when it is taxed.

It is necessary for all the taxpayers to understand that financial year and assessment year are two different years, where the latter follows the former.