Difference Between Assessment Year and Financial Year, Previous Year, Fiscal Year in World: If you have paid your income tax or filed your ITR, you might probably know the assessment and the financial year. The financial year is the period between 1st April and 31st March in which the income is earned. The year that comes after the financial year is known as the assessment year (AY). This is the time in which the income earned during the Financial Year is assessed and taxed. Both Financial Year and Assessment Year start on 1 April and ends on 31 March. This means that AY 202-21 and FY 2019-20 are the same for calculation purposes. To get a clearer picture of the terms, let’s understand the differences between the Financial Year and Assessment Year. The Fiscal Year and the Fiscal Year of other countries.
The year where the income is received is known as the Financial Year. Financial Year starts from 1st April of the calendar year & concludes on 31st March of the next calendar year. The Financial year is also abridged as FY. The assessee needs to calculate and plan taxes for the financial year, but an income tax return is to be registered in the next Year or Assessment Year. For instance,
- The income received from 1st April 2019 to 31st March 2020 is the income received in the current Financial Year (FY) 20219-20. Also,
- Any income obtained for the period starting from 1st April 2019 to 31st March 2020 can be stated as income earned in Financial Year (FY) 2020-21.
From 1st April to 31st March, where the income received in a particular financial year is charged, it’s implied as the Assessment Year. One is expected to file his/her income tax return in the relevant assessment year. The year succeeding the financial year is known as the Assessment Year. For example,
- Income received in the current Financial Year 2020-21, i.e. beginning on April 1, 2020, to March 31, 2021, to be considered the taxable period for the year 2020-2021.
- Similarly, income earned in Financial Year 2019-20, i.e. beginning on April 1, 2019, to March 31, 2020, to be considered the taxable period for the year 2020-2021.
The Assessment Year and Financial year for the Recent Year is given below:
|Period||Financial Year||Assessment Year|
|1st April 2019 to 31st March 2020||2019-20||2020-21|
|1st April 2018 to 31st March 2019||2018-19||2019-20|
|1st April 2017 to 31st March 2018||2017-18||2018-19|
|1st April 2016 to 31st March 2017||2016-17||2017-18|
Previous Year or PY is specified in the Income-tax Act, 1961. The previous year indicates the financial year immediately conducting the assessment year. It is the same as the fiscal year. In case of an occupation or business newly set up, or a fresh source of income that comes into existence, in the stated financial year. The previous year shall be the period commencing with the date of establishing the occupation or business or, as the situation may be, the date on which the source of income newly comes into the occurrence and concluding with the stated financial year.
Differences 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. Both Financial Year and Assessment year starts on the 1st of April and ends on the 31st of March.
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. For this sole reason, Income Tax Return Forms are acknowledged to apply the type term Assessment year instead of 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
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 records for accounting and tax purposes are needed to be maintained under the taxation law of any country, this is generally the financial/fiscal year for governmental use. 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. However, the dates may change depending on the nation’s preference and its income tax department.
India Fiscal Year
The British are the ones who left The financial year as a legacy left behind by the British. The period for collecting tax in Indian is the April to March fiscal year pattern, which began in the year 1867 and has been followed on. This financial year pattern is aligned with the British system of taxation. The logic is followed by the main economic driver in India, which is the agricultural sector. As agricultural produce is generally reaped during the months of February and March, and the new year begins during the month of April for many regions in India, the British government adjusted the financial year accordingly. The English government formed its annual budget based on forecasted revenue slips, defining the planned expense and custom of new taxes and duties throughout the year. Interestingly the UK fiscal year starts on 6 April and ends on 5 April of the subsequent year.
Fiscal Year in World
The International Monetary Fund and the World Bank follow the January-December cycle. As compared to the financial year, 156 nations abide by the calendar year. In Australia, a fiscal year is generally termed as “financial year” (FY) and begins from 1 July and concludes on the next 30 June. In the United States, the financial/ fiscal year is a twelve-month period that begins on the 1st of October and ends on the 30th of September. The classification of a fiscal year is the calendar year in which it terminates; thus, the fiscal year, which began on 1 October 2018 and will end on 30 September 2019, is 2019. It is often written as “FY2019” or “FY19”.
However, until 1976, the period for the fiscal year began on the first day of July and ended on the last day of June. In Brazil, the fiscal period follows the normal calendar i.e., it starts on the first day of the year and ends on the last day of the year. Some people believe that India must change the financial year the same as Calendar Year from the 1st April to 31st March. A variation in the financial year would claim amendments in different statutes and shifts in tax laws during the transitional phase.
Every individual who earns above the mandated tax limit is bound to pay their taxes to the tax collecting authority of India i.e., the Income Tax department. For the purposes of the tax payment, it is essential to understand some of the important terminologies that are crucial in the process. Two such terminologies are the financial year and the assessment year. This article helps the reader to understand the terminologies and helps to differentiate between both. It is very important for a tax-paying person to understand the difference between these two terms, and this article is a great place to begin.