In India, the terms Financial Year (FY) and Assessment Year (AY) are used to describe different periods relevant for income tax purposes. Here's a breakdown of each:
Financial Year (FY)
- Definition: The Financial Year (also known as the Previous Year) is the period during which income is earned. It starts on April 1 of a particular year and ends on March 31 of the following year.
- Example: For the Financial Year 2023-24, the period is from April 1, 2023, to March 31, 2024.
Assessment Year (AY)
- Definition: The Assessment Year is the year following the Financial Year, during which the income earned in the Financial Year is assessed and taxed. The assessment year is when taxpayers file their income tax returns for the income earned in the Financial Year.
- Example: For the Financial Year 2023-24, the Assessment Year would be 2024-25.
Relationship Between FY and AY
- Income Earned: Income earned from April 1, 2023, to March 31, 2024 (FY 2023-24) is assessed in the Assessment Year 2024-25.
- Filing Returns: Taxpayers file their returns for FY 2023-24 in the AY 2024-25, typically by the due date, which is usually July 31 of the AY for individuals and September 30 for businesses.
Understanding the distinction between FY and AY is crucial for timely and accurate tax filing, as well as for planning deductions and exemptions effectively.
