Assessment year

Assessment Year 

Assessment year (AY) is the period from April 01 to March 31 next year. During this period, your previous year’s income is taxed and assessed for income tax filing purposes. Since your income cannot be taxed prior to being earned, it will be assessed the following year right after the financial year ends. For example, your income from the financial year (1st April 2022 to 31st March 2023) will be taxed and assessed as soon as the financial year ends I.e., from 1st April 2023 to 31st March. 

Financial Year 

Financial year is the period that also starts from 1st April to 31st March the following year. This is the period when your income is earned. The income earned is taxed after the financial year ends. For example, the income you have earned from 1st April 2022 to 31st March 2023 will be called the Financial Year. After that, your AY (Assessment Year) begins. 

What are the difference between the assessment year (AY) and financial year (FY)?

As per the income tax point of view, the financial year is the year when you actually work and earn an income, and the assessment year is the year when this particular income is evaluated and your tax is paid.

Few points to keep in mind while filing tax during an assessment year (AY)

• Documents of the financial year (FY) are used in the assessment year (AY) to evaluate the income.
• Documents which are required; Form 26AS of FY and previous year’s tax return.
• Fill in the details accurately.
• Keep the documents ready.
• Disclose Exempt income.
• Details of your assets and liabilities.

Frequently Asked Questions

What is the Assessment Year in ITR filing? 

Assessment Year (AY) is the year that starts right after the Financial Year (FY) ends. The revenue or income earned in the Financial Year is assessed in the AY period (April 1st to March 31st next year). In this year, tax is collected and ITR (Income Tax Return) is filed. The ITR form contains details of the person’s income and the taxes to be paid. 

How do I calculate my income tax liability for income tax return? 

The new tax regime will be applicable from April 01, 2023. It will only be applicable to people who will earn income from 2023 to 2024. For the income earned in 2022 to 2023, the old tax regime applies.  

Under the new tax regime, Financial Year 2023 to 2024, income up to 7,00,000 lakhs is tax-free. Common exemptions such as Section 80C, 80D, 80TTA, and housing loan benefits are not available. Additionally, Health and Education tax is deducted at the rate of 4%. However, there would be a standard deduction of ₹50,000. This means, people earning up to ₹7,50,000 do not have to pay tax. People earning above this will have to pay tax rates according to the income slabs listed below: 

(Up to 3 lakh is 0 

Between 3 to 6 lakhs, it is 5% 

Between 6 to 9 lakhs, it is 10% 

Between 9 to 12 lakhs, it is 15% 

Between 12 to 15 lakhs, it is 20% 

Above 15 lakhs, it is 30%) 

For example, if an employee’s net income is 12 lakhs, the total tax deducted would be: 

Here, the tax rates will apply on ₹11,50,000 [₹12,00,000 – ₹50,000 (Standard deduction)] 

Since ₹11,50,000 falls under the 9 to 12 lakh income slab, we will be calculating tax until then. 

[0 + 15,000 (5% on 6 less 3 lakhs) + 30,000 (10% on 9 less 6 lakhs) + 7500 (15% on 12,00,000 – 11,50,000) = 52,500) 

The Health and Education tax deduction would be 4% on 52,500 I.e., 1200. 

Hence, the total tax payable by the employee is 54,600 lakhs. 

When should a taxpayer file an income tax return? 

A taxpayer can file an ITR anytime between 1st April to July 31st   of the relevant assessment year. In case he fails to file an ITR before July 31st, he can file the belated ITR from August 1st to December 31st by paying the penalty. Beyond this period, he will not be able to file an ITR unless the Income Tax Department sends a tax notice. 

Why does ITR form have an Assessment Year? 

Since income cannot be taxed prior to being earned, it is assessed immediately after the Financial Year (FY) ends I.e., in the Assessment Year. Hence the ITR forms have an Assessment Year (AY).