Introduction :
The distinction between the financial year and the year of assessment is one of the most perplexing features of the Indian tax system.
Whether you are a taxpayer or simply interested in the Indian tax system, it is important to understand the nuances of these two terms. In this blog, we will explore the difference between year of assessment and fiscal year in income tax, what they mean and how they affect Indian taxpayers.
What is a fiscal year?
All taxpayers should understand the difference between a tax year and a fiscal year. However, due to the minute distinctions between the two, many people become rather perplexed when the topic of “assessment year vs. fial year” is brought up.
The fiscal year begins on April 1st of a calendar year and ends on his March 31st of the following calendar year. For example, fiscal year 2022-23 he begins on April 1, 2022 and ends on March 31, 2023.
For accounting purposes, the income earned by an individual, company or organization in India during the financial year is their annual income.
What is the assessment year?
A year of assessment is a year of assessment in which income tax is calculated on income earned in the previous year. The evaluation year runs from April 1st to March 31st after the end of the previous fiscal year. For example, fiscal years 2021-2022 have a valuation year of 2022-2023. In the year of assessment, the taxpayer must file an income tax return and pay tax based on the income of the previous financial year.
The distinction between fiscal year and tax year is very subtle, but it is necessary to have a clear understanding of the two. Simply put, a fiscal year is the period during which you earn income and a tax year calculates your tax liability for that particular fiscal year.
For example, if an individual had income in her 2021 to her 2022 fiscal year (i.e. 1 April 2021 to 31 March 2022), the year of from 2022 he will be in 2023.
A taxpayer’s tax liability is calculated based on the income tax rate applicable to each year of assessment. These fees are set by the government and are subject to change at any time. The government has made several provisions in the Income Tax Act 1961 and subsequent amendments to help taxpaying companies maximize their tax savings without avoiding their tax liability.
The tax year determines the schedule for filing tax returns and is important for taxpayers who are entitled to a refund or settlement of their tax liability. The year of assessment is also important in determining penalties and interest that can be imposed if a taxpayer fails to file a tax return by the due date or fails to pay the tax after the due date.
| Financial Year | Assessment Year | |
| Definition | The financial year runs from April 1st to March 31st of any given year. | The assessment year is the year that follows a particular financial year. |
| Recording & taxation | For accounting purposes, it is considered to be the period during which you earn your income from various sources (for that particular year). | The income earned during a financial year is evaluated for taxation purposes in the following assessment year. This is the period during which you are expected to settle your tax obligations for the associated financial year. |
| Example | The current financial year 2022-23, started from April 1st, 2022, and will run until March 31st, 2023. | The assessment year for the financial year 2022-23 is AY 2023-24.
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Why is the fiscal year important?
The Income Tax Act 1961 and other tax laws in India are based on the fiscal year. For example, the income tax return for the fiscal year must be filed by July 31st of the following year.
In February, the Government of India will release its annual budget for next year. The budget includes government spending plans, revenue projections, and policy initiatives for the coming year.
The significance of the fiscal year in India lies in its role in determining individual and corporate tax liability. The Indian Income Tax Authority uses the fiscal year to determine income and taxes payable by individuals and corporations.
India tracks fiscal years for several reasons. This streamlines the accounting and tax reporting process for individuals and businesses, making it easier for governments to track and regulate financial activity. It also helps governments with efficient budgeting and planning.
The financial year runs from April 1 until March 31.
Conclusion
Rating years and fiscal years are closely related concepts, but they serve different purposes. A fiscal year is the period during which revenue is generated and expenditure is incurred. On the other hand, the year of assessment refers to the year in which the income earned in the previous financial year is assessed and taxed. A clear understanding of tax and fiscal years is essential for individuals and businesses to manage their tax obligations and plan their finances effectively.
