What is the difference between assessment year and financial year

The Financial Year and the Assessment year are the two important terms that every taxpayer must be familiar with to file their taxes and return tax in a smooth and hassle-free way without any confusion.

The Financial Year is the time period within which the income is received, Whereas the assessment year is the year that follows the financial year, and it is the time when tax returns are filed.

Hence, the financial year is the time where people in business, professionals on salary, and senior citizens receive their pay. Taxation and evaluation are conducted for income that is received in the year before the Assessment year, which is the financial year. While income is consistently received in the period, termed as the financial year, It cannot ever be taxed before being earned. Therefore, it is only after money that an individual has first received that it will be assessed for the purpose of tax, and the latter is what takes place throughout the assessment year.

A fiscal year is used in government accounting, which is different in every country for budget plans. Businesses and other organisations also used it for financial reporting. Laws in several jurisdictions need business financial reports to be made and issued annually. Taxation laws usually need accounting reports to be managed and taxes calculated yearly, which generally relates to the fiscal year used for government purposes.

The tax calculation on a yearly basis is appropriate, particularly for direct taxes, such as income tax. Many year-end government payments—such as license fees and council tax, are also levied on a fiscal year basis, but the others are charged on an annual basis. Fiscal Year and Financial Year are terms similar to each other. These two terms have always been encountered by every employed person. It is also applied for financial reporting by businesses and other organisations. Both the terms are connected as they are a period that governments apply for budget and accounting purposes.

The tax computation on a yearly basis is especially applicable for direct taxation, such as income tax. Some countries call the Financial year the Fiscal year and this remarks the only difference between the term Fiscal and Financial. For example, the UK and most Commonwealth countries like to use the phrase financial year, whereas the US calls it the fiscal year.

Technically there is no variation in their meaning and hence are utilised in an interchangeable manner. The fiscal year and financial year direct to a period of 12 months. In some countries, this happens in 52 weeks, whereas 53 weeks in others. How is take home different from CTC?

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Was this article helpful? Have a query? ITR Resources. Mutual Fund Resources. Terms Privacy Legal. Both have very different meanings and should be distinguished thoroughly before using any one of them. The difference between Previous Year and Assessment Year is that while Previous Year is the year when the actual transactions happened or the period to which our data of Income sources belong, Assessment Year is the following for tax revenue collection or any other year in which the data is processed.

For instance, if we have to process and evaluate the tax records of , the previous year would be the year for which data is collected , while would be the assessment year when the actual process of analysis and tax collection takes place.

We pay Income Tax as a percentage of all the sources of income in the financial year which starts from 1 st April of one year to 31 st March of the succeeding year. We pay the Income-tax in the year succeeding the year in which we earned. All the actual transactions happen during this year.

It may be less than or equal to 12 months. It is equal to 12 months if the sources of income were active throughout the year and less than 12 months if the sources were set up late or ended up before the financial year ended.

For example, a person retires in the middle of the financial year or a startup company emerges in the middle of a financial year. When we talk about paying taxes or collecting taxes in the current year, the year preceding the current year is the Previous Year. This year is important in terms of the collection of data regarding income and their sources. Every year we pay taxes over the Income earned in the Previous Year that is, the transactions that took place in the preceding year of the current year.

Not every taxpayer would pay the tax at the same time and same day.