Understanding Financial Year (FY) and Assessment Year (AY) in India: A Taxpayer’s Guide

The financial year in India starts from April 1st and ends on March 31st of the following year. This periods plays a crucial role in income tax planning and compliance. The assessment year follows immediately after the financial year, during which income earned in the preceding financial year is evaluated, and tax returns are filed. Understanding these terms is essential for taxpayers to make sure timely tax filing and compliance.

What is the Current Financial Year (FY) and Assessment Year (AY)?

For the year 2025, the current financial year (FY) is 2024-25, which started on April 1, 2024, and will end on March 31, 2025. The corresponding assessment year (AY) is 2025-26, during which taxpayers will file their income tax returns for the income earned in FY 2024-25.

Key Tax Changes in the 2025 Union Budget

The 2025 Union Budget introduced several changes to income tax laws, benefiting taxpayers across various income brackets. Some of the most important updates include:

Increase in Section 87A Rebate

The rebate limit under Section 87A has been increased from Rs 7 lakh to Rs 12 lakh, providing significant tax relief to middle-class taxpayers.

Standard Deduction Increase

Salaried individuals can claim a standard deduction of Rs 75,000, making incomes up to Rs 12.75 lakh effectively tax-free.

New Income Tax Slabs under the New Regime

Extended Time for Filing Updated Returns (ITR-U)

Taxpayers now have up to 4 years (instead of 2) to update their Income Tax Returns, allowing them to correct mistakes and declare any previously unreported income.

Why is the Assessment Year Important?

The assessment year is crucial because it is the period during which taxpayers file their returns and pay taxes on the income earned in the previous financial year. The assessment year helps make sure:

Proper Income Tax Calculation

The income earned in the financial year is evaluated, and applicable tax rates are applied.

Filing of Income Tax Returns (ITR)

Taxpayers must submit their ITR during the assessment year to avoid penalties and late fees.

Claiming Deductions & Exemptions

All eligible deductions, exemptions, and rebates are claimed when filing the tax return in the assessment year.

Important Things to Remember While Filing ITR

For a smooth tax filing process during the assessment year, keep the following points in mind:

1. Maintain Accurate Financial Records: Keep track of all income sources, expenses, and investment proofs from the financial year.
2. Stay Updated on Tax Laws: Tax regulations can change each year, so staying informed about the latest amendments helps optimize tax savings.
3. Select the Correct ITR Form: Choose the appropriate ITR form based on your income sources and taxpayer category.
4. Meet Filing Deadlines: The due date for filing ITR for individuals is typically July 31st of the assessment year.
5. Verify Pre-Filled Information: The Income Tax Department may provide pre-filled details—always review and correct any discrepancies before submitting.
6. Complete E-Verification: Once you submit your return, e-verify it within 120 days to ensure smooth processing and refund issuance.

Filing income tax returns can be complex, but with TaxSpanner, you can simplify the process and get maximum tax savings. Our tax experts assist you in filing your ITR accurately and efficiently while optimizing your tax planning strategies. Whether you need help understanding the financial year in India, assessment year details, or navigating the new tax regime, our professionals are here to guide you. Don’t let tax worries stress you out! Book a consultation with TaxSpanner today and make your tax filing seamless and stress-free.