The terms assessment year and financial year are crucial within the domain of finance and economy. Every earning individual in India should be abreast of the meaning behind these two words. In addition, a grasp of taxation terminologies can help us better understand the nitty-gritty of financial control and reporting.
Financial control refers to policies and procedures that an organization frames to manage, document, evaluate, and report financial transactions within an organization. In other words, financial controls are the tools and instruments adopted to control financial matters.
Financial Year & Assessment Year in Finance & Economics
Finance is pivotal for both organizations and individuals. Financial management is the science that deals with finance management and control. In today’s day and age of interconnectivity, economic fluidity, and rampant monetary digitalization, financial control has gotten a new level of precedence. Similar to finance control, the reporting of finance is also equally important. What is financial reporting? Let us find out.
Financial reporting entails documenting and conveying financial activities and performances over specific periods, usually on a quarterly or yearly basis. Organizations, institutions, companies, and even countries use accounting data and report on the current financial status of a cohort. Financial reports are pivotal to making economic predictions, determining the future profitability of an economy, gauging the current economic status, and much more. Some of the steps involved in financial reporting are:
- Tracking of cash flow
- Evaluation of assets and liabilities
- Analysing shareholder equity
- Measuring profitability
Now that we know the basics of financial control and reporting, let us dovetail into two of its essential elements – assessment year and financial year, and their veritable differences.
Assessment Year: Meaning
Simply put, an assessment year (1st April to 31st March) can be defined as a stipulated timeframe wherein the income you earn in one financial year is taxed. Thus, you have to file your income tax return in the relevant assessment year, which is the year succeeding a financial year. For instance, the income you earned in the current financial year 2021-2022 will be taxable in the Assessment Year 2022 – 2023.
Financial Year: Meaning
In simple words, we can understand financial year, abbreviated as FY, as the ‘year’ wherein you earn the income. A financial year starts on the 1st of April and ends on the 31st of March of the following calendar year. For instance, the income you earn from 1st April 2022 to 31st March 2023 is earned in the Financial Year (FY) 2022-2023.
What is the Previous Year?
For income tax returns, we use the terms - financial year and ‘previous year’ interchangeably. Thus, the financial year 2022 to 2023 can be alternately called the previous year or PY. The income of one financial year or previous year is taxable in the assessment year (AY) 2023 to 2024.
Let us understand the three terms – assessment year, financial year, and previous year with a tad bit more nuance via the assistance of a table.
|Period||Financial Year||Previous Year||Assessment Year|
|1 April 2019 to 31 March 2020||2019 to 2020||2019 to 2020||2020 to 2021|
|1 April 2020 to 31 March 2021||2020 to 2021||2020 to 2021||2021 to 2022|
|1 April 2021 – 31 March 2022||2021 to 2022||2021 to 2022||2022 to 2023|
Difference between Assessment Year and Financial Year
In the tax lexicon, a financial year is a year when a person earns an income, whereas an assessment year is a year that follows the financial year. It is during the assessment year that the previous year’s income is taxed. Let us understand the difference between the Assessment Year and the Financial Year with the help of a table.
|Financial Year||Assessment Year|
|It is the period when a person earns an income||It is the year that comes next to the financial year, and the period wherein tax returns are filed.|
|During the financial year, salaried persons and senior citizens earn their income||During an assessment year, that income is taxed by the IT department|
|The money earned in one financial year cannot be taxed in that same period||After a person earns money in one financial year, it is evaluated in the next term known as the assessment year for taxation|
What is the Current Assessment Year?
The current assessment year is 2023 to 2024. In other words, the income you earned in the financial year 2022 to 2023 (1st April to 31st March) will be taxed in the AY 2023 to 2024.
Why do ITR Forms have Assessment Years?
As the revenue for one financial year is calculated and taxed in the next year, that is, the evaluation year, income tax forms include an assessment year.
So, there we have a crisp and comprehensible overview of AY and FY, their meaning, differences, and much more. In today’s times, financial literacy is of utmost importance; thus, knowing about taxation terminologies is a step in the right direction.
Frequently Asked Questions
AY stands for Assessment Year, and FY stands for Financial Year.
The Assessment Years and Financial Years start in India on the 1st of April of one calendar and end on the 31st of March of the following calendar year.
The current assessment year in India is 2023 to 2024.
A taxpayer should file an income tax return in the assessment year or AY. For instance, for the income earned in the financial year 2021 to 2022, you will file your income tax in the AY 2022 to 2023.
The relevant Assessment Year for the Financial year 2020-21 is 2021-22.