Indian Financial year
Financial year and assessment year
A Financial Year (FY) is the period between 1 April and 31
March – the accounting year in which you earn an income. A fiscal year (or
financial year, or sometimes budget year) is used in government accounting,
which varies between countries, and for budget purposes. The purpose of having
a financial year is to enable businesses and organizations to track their
financial performance over a specific period, make financial projections, and
prepare financial statements such as balance sheets and income statements. A
financial year is 12 months used for accounting and financial reporting
purposes. It is also known as a fiscal year, and it can be different from the
calendar year. In countries, like Australia and India, the financial year
starts on July 1st and ends on June 30th of the following year. refers to
government finances, particularly related to revenue generation and expenditure
management. It relates to the financial policies, practices, and procedures of
the government to manage its resources and achieve its economic and social
objectives It is also used for financial reporting by businesses and other
organizations. Laws in many jurisdictions require company financial reports to
be prepared and published on an annual basis but generally not the reporting
period to align with the calendar year (1 January to 31 December). Taxation
laws generally require accounting records to be maintained and taxes calculated
on an annual basis, which usually corresponds to the fiscal year used for
government purposes. The Financial Year
is from the 1st of April 2021 to the 31st of March 2022, then its term will be
known as FY 2021-22.
- 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
The Assessment Year for the income earned during this period
will start after the end of the financial year, that is, the 1st of April 2022
to the 31st of March 2023. The assessment year (AY) is the year that comes
after the FY. This is the time in which the income earned during FY is assessed
and taxed. Both FY and AY start on 1 April and end on 31 March. For instance,
for FY 2020-21, the assessment year is AY 2021-22.
- 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).
Difference between financial year and assessment year
Financial year and
Assessment year are two very different and crucial terms that 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 assess/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. From
the tax perspective, a financial year is a year in which a person earns an
income. The 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 the
financial year 2020-21. The assessment year begins after the financial year
ends, so the assessment year of FY 2020-21 would be AY 2021-22.
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