Difference between Fiscal Year and Assessment Year

About to file your ITR? You might wanna know the difference between Fiscal Year and Assessment Year

The end of the Fiscal year is approaching, and with it, the last day for filing your Income Tax Returns (ITR). But what exactly is a Fiscal Year? You might have also heard the word 'Assessment Year' along with it sometime. Many taxpayers are puzzled by the distinction between the Fiscal Year (FY) and the Assessment Year (AY). They frequently treat them as the same, which leads to errors when filing their income tax forms.

Companies throughout the world typically produce their balance sheets and income statements for a one-year period. However, the commencement date of this time differs from nation to nation.

A Fiscal Year (FY) is a financial year in which you make money, or basically, earn your income. This one-year period in India begins on 1st April and concludes on 31st March. However, the Assessment Year (AY) is the year that follows the fiscal year (FY). After the conclusion of the Fiscal Year, that is in the Assessment Year, income tax returns are submitted, and taxes for a firm are paid. In simple terms, the Assessment Year is the period during which the income earned during the Fiscal Year is assessed and taxed.

Both FY and AY commence on 1st April and conclude on 31st March. So, if the accounts are being produced for the fiscal year beginning 1st April 2020, and concluding 31st March 2021, the period would be referred to as Financial Year 2020-21. And this income would be taxed the successive year, which would be known as Assessment Year 2021-22. As a result, the assessment year for FY 2020-21 is AY 2021-22. Since the financial year precedes the assessment year, it is also referred to as 'the Previous Year' for Income Tax purposes. The income tax regulations and slab rates in effect for the assessment year 2021-22 will be the same as those in effect for the fiscal year 2020-21, and so on.

Now, why does an ITR form have AY?

Scenarios such as employment loss, job shift, or new investments may arise in the middle or end of the fiscal year. Furthermore, the money earned in a fiscal year cannot be determined precisely until the conclusion of the fiscal year. As a result, the evaluation can begin only after the fiscal year has ended. As a result, taxpayers must mention AY when filing their income tax forms.

Although the real reason for the Financial Year beginning on April 1st rather than January 1st is uncertain, it is speculated that it is because India was under the control of the British for more than 150 years and in the United Kingdom, the fiscal year begins on April 1st, not January 1st. The British may have extended the same notion to India as well, and the Indian government did not amend this after independence. Again, it's just a hypothesis, and there is no confirmation to date.