Financial Year (FY) and Assessment Year (AY) are key terms in the Indian tax system. Understanding their differences is crucial for accurate tax filing.
What is a Financial Year (FY)?
The Financial Year is the 12-month period during which you earn income.
- Duration: April 1 to March 31 of the following year.
- Purpose: To record all income earned from various sources like salary, business, or investments.
- Example: Income earned between April 1, 2024, and March 31, 2025, falls under FY 2024-25.
What is an Assessment Year (AY)?
The Assessment Year is the year immediately following the Financial Year, during which the income earned is assessed and taxed.
- Duration: April 1 to March 31 of the next year.
- Purpose: To evaluate and file taxes on the income earned in the preceding Financial Year.
- Example: For income earned in FY 2024-25, the corresponding AY is 2025-26.
Key Differences Between FY and AY
| Aspect | Financial Year (FY) | Assessment Year (AY) |
|---|---|---|
| Definition | Year in which income is earned | Year in which income is assessed |
| Time Frame | April 1 to March 31 | April 1 to March 31 (following year) |
| Purpose | Earning period | Tax evaluation and filing period |
| Example | FY 2024-25 | AY 2025-26 |
Why Does the ITR Form Mention AY?
Income Tax Return (ITR) forms require the Assessment Year because taxes are filed after the income is earned. This allows for a complete assessment of the previous year’s income.
Real-Life Example
If you earned income from April 1, 2023, to March 31, 2024 (FY 2023-24), you would file your tax return in the period April 1, 2024, to March 31, 2025 (AY 2024-25).
Important Dates
- FY 2024-25: April 1, 2024 – March 31, 2025
- AY 2025-26: April 1, 2025 – March 31, 2026
- ITR Filing Deadline: Typically July 31 of the Assessment Year; for AY 2025-26, the deadline is September 15, 2025.
Summary
- Financial Year (FY): Period when income is earned.
- Assessment Year (AY): Period when income is assessed and taxed.
Understanding the distinction between FY and AY ensures accurate and timely tax filing.
