Assessment Year And Financial Year & why assessment year in considered in filing ITR

Assessment Year and Financial Year are key terms in income tax and financial planning, used to determine how income is taxed.

Although both terms are essential for understanding tax obligations and financial planning, they have distinct meanings, purposes, and implications. In this article you will learn the differences between Assessment Year and Financial Year and their importance in taxation, financial reporting, and planning.

Financial Year

• Your income year is called the financial year. It begins on April 1st of a calendar year and concludes on March 31st of the following year. It's often abbreviated as FY. For instance, Financial Year 2024-25 runs from April 1st, 2024, to March 31st, 2025.
• Taxpayers calculate and plan their taxes for the financial year, but they file their income tax return in the following year, known as the Assessment Year.

Assessment Year

• The assessment year (also running from April 1st to March 31st) is the year after the financial year in which the income you earned is assessed and taxed. You must file your income tax return during the assessment year. It immediately follows the financial year. For example…
• Income earned during the current Financial Year 2023-24 (April 1, 2023, to March 31, 2024) will be taxed in the Assessment Year 2024-25 (April 1, 2024, to March 31, 2025).

Assessment and Financial Year in India

Difference between Assessment Year And Financial Year

• For tax purposes, the Financial Year is when income is earned, while the Assessment Year, which follows, is when that income is evaluated, taxed, and reported via an Income Tax Return (ITR).
• For example, the financial year spanning April 1, 2022, to March 31, 2023, is designated as Financial Year 2022-23. Since the assessment year follows the financial year, Financial Year 2024-25 would correspond to Assessment Year 2025-26.

Why is Assessment Year considered in ITR form?

Income tax forms use the assessment year because income earned in a given financial year is evaluated and taxed after that year, in the following assessment year. Since income can't be taxed before it's earned (and earnings can occur at any point in the financial year), the assessment year is used on tax forms. This ensures that income is reported and taxed in the year after it was earned.

Things to Note While Filing ITR During the Assessment Year

• Maintain Accurate Records: Compile all your financial paperwork from the past year, such as income statements, receipts, and investment records. This will make it easier to create reports and file your taxes quickly.
• Stay Informed on Tax Laws: Tax laws are subject to yearly revisions. Stay informed about the most recent changes to ensure you're following the rules and maximizing any new tax breaks or advantages you might be eligible for.
• Select the Appropriate ITR Form: There are different tax return forms for different types of income and taxpayers. It's crucial to select the right one to avoid errors. For example, salaried individuals earning up to ₹50 lakh usually use ITR-1 (Sahaj), whereas those with other income like capital gains need to use ITR-2.
• Adhere to Filing Deadlines: Filing your income tax return (ITR) on time is essential to avoid penalties. The usual deadline for individuals is July 31st of the following financial year. However, it's important to double-check the exact deadline each year, as it can sometimes change.
• Verify Pre-Filled Information: If you file online, the tax department might pre-populate some fields with data from past returns and other sources. It's important to check that this information is correct and make any necessary changes to reflect your current financial situation.
• E-Verify Your Return: Once you've filed your tax return, you must e-verify it within 120 days. This is a required step to finalize your filing and receive any refunds you're due.