Assessment Year vs Financial Year - Know the Difference Before You File Taxes
What is GST and Income Tax differenceWhile they are closely connected, they are not the same. Understanding the difference will help you file your returns correctly and avoid mistakes.
What is Financial Year (FY)?
- The Financial Year is the 12-month period during which you earn your income.
- In India, the financial year starts on April 1 and ends on March 31 of the next year.
- Your salary, business income, rent, interest, capital gains – all earned in this period – are counted as income for that financial year.
Example:
If you earn income between 1 April 2024 and 31 March 2025, it is called Financial Year 2024-25.
What is Assessment Year (AY)?
- The Assessment Year is the year immediately following the financial year.
- It is the period in which you calculate, assess, and file your income tax return for the income earned in the previous financial year.
Example:
Income earned in FY 2024-25 will be assessed in AY 2025-26. You will file your ITR in AY 2025-26 for income earned in FY 2024-25.
Key Difference Between FY and AY
| Aspect | Financial Year (FY) | Assessment Year (AY) |
| Meaning | Period when income is earned | Period when income is assessed and taxed |
| Time Frame | Runs from April 1 to March 31 | Runs from April 1 to March 31 of the next yea |
| Example | FY 2024–25 | AY 2025–26 |
Why the Difference Matters
1. Filing the Right Year: ITR forms always ask for the Assessment Year, not the Financial Year.
2. Avoiding Penalties: Entering the wrong year can delay your refund or attract fines.
3. Clear Planning: Knowing this helps plan investments and tax savings before the FY ends.
Quick Tip for Taxpayers
Always remember:
You earn in the Financial Year, you file in the Assessment Year.
So, if you are preparing to file your income tax return this year, check which FY your income belongs to and select the correct AY while filing.
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