BAJAJ BROKING
March 25, 2025
7 mins read
When it comes to taxation and financial planning, two important terms that often create confusion are Assessment Year (AY) and Financial Year (FY). Understanding their differences is crucial for effective tax filing, investment planning, and overall financial management. Both these terms are integral to income tax filings, as the Financial Year (FY) is when income is earned, and the Assessment Year (AY) is when that income is assessed and taxed.
Annual Income Tax Slabs (FY 2025-26) | Income Tax Rates |
Up to Rs. 4,00,000 | NIL |
Rs. 4,00,001 - Rs. 8,00,000 | 5% |
Rs. 8,00,001 - Rs. 12,00,000 | 10% |
Rs. 12,00,001 - Rs. 16,00,000 | 15% |
Rs. 16,00,001 - Rs. 20,00,000 | 20% |
Rs. 20,00,001 - Rs. 24,00,000 | 25% |
Above Rs. 24,00,000 | 30% |
With the revised tax structure in Budget 2025, individuals earning up to Rs.12,00,000 will have zero tax liability due to the increased rebate of Rs.60,000 under the new tax regime.
For salaried individuals, tax liability will be nil for incomes up to Rs.12,75,000, considering the Rs.75,000 standard deduction.
The Financial Year (FY) refers to the twelve month period in which income is earned. It runs from April 1st to March 31st of the following year. The FY is the time when businesses and individuals generate income, make investments, and track expenses. Key points to note:
The Assessment Year (AY) is the year following the Financial Year, during which income earned in the previous FY is evaluated and taxed. The AY is when individuals file their ITR, declare earnings, claim deductions, and pay pending taxes. Important aspects include:
In India, the Financial Year follows a uniform cycle of April 1st to March 31st. Unlike some countries that use the calendar year (January to December), India follows this period to standardize corporate taxation, investment planning, and stock market regulations.
Financial Year | Assessment Year | Period |
2024-25 | 2025-26 | April 1, 2024 - March 31, 2025 |
2023-24 | 2024-25 | April 1, 2023 - March 31, 2024 |
2022-23 | 2023-24 | April 1, 2022 - March 31, 2023 |
2021-22 | 2022-23 | April 1, 2021 - March 31, 2022 |
Factor | Financial Year (FY) | Assessment Year (AY) |
Definition | The year in which income is earned | The year in which income is assessed and taxed |
Duration | April 1st - March 31st | April 1st - March 31st (following year) |
Purpose | Tracking income, investments, and deductions | Filing ITR, assessing taxes, and paying liabilities |
ITR Filing | Income earned during FY is filed in AY | Tax is calculated and paid in AY |
It's essential to know the distinction between the Financial Year (FY) and the Assessment Year (AY) for tax filling. Assume a person named Rahul makes money from intraday trading, futures, or options from April 1, 2024, to March 31, 2025. This time frame is referred to as Financial Year 2024-25 (FY 2024-25) since it is the year of earning the income.
Now, Rahul must submit his income tax return for such earnings. The return will be submitted in 2025 and will come under the Assessment Year 2025-26 (AY 2025-26). The Assessment Year is the year when income received in the last Financial Year is assessed, reported, and charged by the government.
For instance, if Rahul earned ₹10 lakhs of profit from trading in FY 2024-25, he will have to report this income and pay the relevant taxes in AY 2025-26 while submitting his tax return. In short, the Financial Year is when one earns income, and the Assessment Year is when one pays tax on that income and reports it.
Financial Year | Assessment Year | Period |
2024-25 | 2025-26 | April 1, 2024 - March 31, 2025 |
2023-24 | 2024-25 | April 1, 2023 - March 31, 2024 |
2022-23 | 2023-24 | April 1, 2022 - March 31, 2023 |
2021-22 | 2022-23 | April 1, 2021 - March 31, 2022 |
When filing an Income Tax Return (ITR), individuals must select the Assessment Year, not the Financial Year. This is because the government evaluates and processes tax liabilities, deductions, and refunds based on income earned in the previous Financial Year. Selecting the incorrect Assessment Year can result in errors, delays in processing, and even rejection of tax returns.
Taking the previous example forward, if Rahul is filing his ITR in 2025 for income earned in FY 2024-25, he must choose AY 2025-26 in the tax return form. If he mistakenly selects AY 2024-25, the system will not recognize his income for the correct period, leading to discrepancies in tax calculations. This could result in delayed refunds or notices from the tax department requesting corrections.
To avoid such errors, taxpayers should always verify the correct Assessment Year before submitting their ITR. Consulting a tax professional or using trusted online tax filing platforms can help ensure accuracy and a smooth filing process.
Filing your Income Tax Return (ITR) within the Financial Year (FY) needs careful observance to prevent errors, penalties, or tax processing delay. Ensuring accuracy of all financial information and correct reporting aids in seamless tax compliance as well as benefit maximization. Following are some major points to consider:
The Assessment Year is crucial as it determines the final taxable income, deductions, and refunds. Tax authorities evaluate ITRs, verify financial details, and process refunds or additional tax claims based on AY declarations. Traders and investors engaged in margin trading facility (MTF) or stock market basics transactions must report income accurately in the corresponding AY.
Effective tax planning is a strategy that helps in tax compliance while seeking to achieve maximum savings. Whether you are an employee, entrepreneur, or active trader, smart planning of your financial activities during the Financial Year (FY) can significantly lower your tax outgo in the Assessment Year (AY). Following are some of the key tax planning strategies:
The Assessment Year determines how income is taxed and ensures compliance with financial regulations. Filing errors can lead to penalties, delayed refunds, and legal scrutiny. Understanding the AY helps taxpayers optimize deductions, manage liabilities, and comply with tax laws efficiently.
Understanding the differences between Financial Year and Assessment Year is essential for effective tax planning. Whether managing investments, equity trades made through trading account online, or filing tax returns, keeping track of the relevant FY and AY ensures smooth compliance and accurate financial reporting. Planning ahead helps investors and taxpayers avoid last-minute complications and maximize tax benefits.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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The Financial Year (FY) in India is a twelve month accounting period used for tax assessment, budgeting, and financial planning. It runs from April 1st to March 31st of the following year, during which individuals and businesses earn income and track financial transactions.
The Fiscal Year (FY) is the same as the Financial Year in India. It refers to the period from April 1st to March 31st, used for government budget planning, taxation, and financial reporting. Businesses and financial institutions follow this cycle for annual accounting and regulatory compliance.
In India, Financial Year and Fiscal Year mean the same thing and run from April 1st to March 31st. However, in some countries like the USA, the Fiscal Year differs and can begin in any quarter. In India, both terms are used interchangeably for taxation and financial reporting purposes.
The Assessment Year (AY) is the 12-month period following the Financial Year in which the income earned in the FY is evaluated and taxed. For instance, income generated in FY 2024-25 is evaluated in AY 2025-26, when taxpayers are required to submit their Income Tax Returns (ITR).
The Financial Year (FY) is when income is earned, while the Assessment Year (AY) is when income is assessed and taxed. For instance, income earned between April 1, 2024 – March 31, 2025 (FY 2024-25) will be taxed in AY 2025-26, during which ITRs are filed.
In India, the Financial Year (FY) starts on April 1st and ends on March 31st of the following year. This timeline is followed for taxation, government budgeting, and financial reporting purposes by businesses, individuals, and financial institutions.
A Financial Year (FY) is divided into four quarters, each lasting three months:
Each quarter is used for corporate earnings, tax payment deadlines, and financial reporting.
No, the Previous Year (PY) refers to the Financial Year (FY) in which income is earned, while the Assessment Year (AY) follows the FY and is used for tax assessments. For instance, FY 2024-25 is the Previous Year for AY 2025-26, during which taxes are assessed.
When filing an Income Tax Return (ITR), the tax department assesses income for the previous Financial Year in the current Assessment Year. Selecting the correct AY ensures accurate tax filings, prevents errors, and helps determine the tax payable or refund due.
The current Financial Year in India is FY 2024-25, running from April 1, 2024, to March 31, 2025. This is the period in which income is earned and investments are made before tax filings in the following Assessment Year.
The current Assessment Year (AY) is AY 2025-26, during which taxpayers file their ITR for income earned in FY 2024-25. The AY determines tax calculations, deductions, and any refunds applicable for the previous FY.
The Assessment Year for Financial Year 2024-25 is AY 2025-26. This means that income earned between April 1, 2024, and March 31, 2025 will be assessed and taxed in AY 2025-26. Taxpayers must file their ITRs accordingly.
The Assessment Year for Financial Year 2025-26 is AY 2026-27. Income earned during April 1, 2025 – March 31, 2026 (FY 2025-26) will be taxed in AY 2026-27, and taxpayers must file their ITRs for this period accordingly.
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