Assessment Year(AY) and Financial Year(FY)
Most of us need to face these two terms frequently and specially at the time of filing of Income Tax Returns. For common man these terms are not used regularly. To understand the financial terms as well as income tax terminology one must understand these two terms clearly. In the Income Tax Act a year is defined by two terms-
Previous year and Assessment Year
Previous Year(PY) / Financial Year(FY)-
Previous year is a year comprising of 12 months starting from 1st April of a calender year and ending on 31st March of the immediate next calender year. If we talk about financial year 2012-13, it will be the year starting from 1st April 2012 and ending on 31st March 2013.
In simple terms and for Income Tax purposes, the income that you earn during the period from 1st April 2013 to 31st March 2014 is said to be earned in the previous year/financial year 2013-14.
Income of a year is taxable in the next year, ie. incomes earned during the previous year 2012-13 will be taxable during the year 2013-14. This next year is called the Assessment year. For previous year 2012-13 Assessment Year will be 2013-14.
These terms become relevant as, for incomes earned in a previous year, Income Tax returns are filed in the respective Assessment Year. So for previous year/financial year 2013-14, Assessment year is 2014-15 and Income tax returns for the incomes of the previous year 2013-14 will be filed in the Assessment Year 2014-15.
Mostly the mistake of entering wrong assessment year takes place at the time of payment of Income Tax. Hence one must be very careful and watchful to enter the correct Assessment Year at the time of making payment of Income Tax. Later due to the mistake of entering wrong Assessment Year while making payment of Income Tax many people receive income tax demands and it becomes very difficult to get this mistake rectified.
To be more specific some financial years with their respective Assessment Years-
How to Pay Income Tax?
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