Difference Between Financial Year and Assessment Year

Financial Year (FY) and Assessment Year (AY) are two very basic terms used in Income Tax, which we all should understand to avoid any confusion. If you understand these concepts clearly, then only you can understand the concepts of advance tax, self assessment tax, TDS, etc. Therefore, today we are going to understand these two terms in the simplest way.

Financial Year (FY) and Assessment Year (AY) both consist twelve months beginning from 1st of April and ending on 31st of March.

Financial year is a period of twelve months beginning from 1st April and ending on 31st March. Assessment year is also a period of twelve months beginning from 1st April and ending on 31st March, but these twelve months of assessment year are immediately succeeding (following) a particular financial year. In short, during financial year, a person earns the income and during assessment year that income is assessed. The financial year is also called Previous Year (PY). 

Let's understand these concepts with the help of an example. 

Mr. X started his job on 15th May, 2021. His monthly salary is Rs. 60,000/-. Therefore, his total income for FY 2021-22 will be Rs. 6,30,000/-. His financial year will be FY 2021-22, means starting from 1st April, 2021 and ending on 31st March, 2022. For any financial activity done during this period, the applicable financial year will be 2021-22.

Now, Mr. X will have to file his Income Tax Return (ITR) on or before 31st July, 2022. It means, he will assess his total income and file his ITR on or before 31st July, 2022. Therefore, 2022-23 will be called assessment year as the income earned during FY 2021-22 will be assessed during 2022-23. So 2022-23 will be considered assessment year corresponding to FY 2021-22.

In the following image, the green line indicates financial year and the blue line indicates assessment year.

Here we have taken an example of salary income. There can be any income like interest, dividend, capital gain on sale of any asset, income from business or profession or any other income. For any income earned during FY 2021-22, the assessment year will be 2022-23.

If you will check your ITR, you will find written Assessment Year (AY) at many places. If you have filed your ITR for FY 2020-21, that is for income earned up to March, 2021, then you can check your ITR Acknowledgement. On the top right side of it, you will find written 'Assessment Year 2021-22', as shown in the image below. You can check it for any ITR available with you of any year. 

I hope that this write up will help you understand the difference between Financial Year and Assessment Year very clearly and will also help you to avoid any confusion related to these two terms.