Difference Between Assessment Year (AY) and Financial Year (FY)

Financial Year (FY) and Assessment Year (AY) are two important terms used in Income Tax, often confused among tax payers. Assessment year comes immediately after the financial year. It is the year in which tax is calculated and paid by the taxpayer. 

This article explains in detail, the meaning of financial year and assessment year and key differences between them.

What is a Financial Year?

A Financial Year (FY) is the 12-month period between 1 April and 31 March – the accounting year in which you earn an income.

What is the Assessment Year?

• The assessment year (AY) is the year that comes after the FY. 
• Only in the assessment year, the taxes are calculated and income tax returns are filed. 
• Both FY and AY start on 1 April and end on 31 March. For instance, for FY 2024-25, the assessment year is AY 2025-26.

AY and FY for Recent Years

What is the Difference Between AY and FY?

• From an income tax perspective, FY is the year in which you earn an income. AY is the year following the financial year in which you have to evaluate the previous year’s income and pay taxes on it.
• For instance, if your financial year is from 1 April 2024 to 31 March 2025, then it is known as FY 2024-25. 
• The assessment year for the money earned during this period would begin after the financial year ends – that is, from 1 April 2025 to 31 March 2026. Hence, the assessment year would be AY 2025-26.

Why Does an ITR Form have AY?

Since income for any particular financial year is evaluated and taxed in the assessment year, income tax return forms have an assessment year (AY). As the income earned in a financial year cannot be taxed before it is earned, so it is taxed in the following year.

Scenarios like loss of job, job change, new investments etc., can come up in the middle or end of the FY. Also, the income earned in a financial year cannot be exactly known before the end of the financial year. This is why the assessment can start only after the financial year ends. Hence, taxpayers have to select AY while filing their income tax returns.

What is the Financial Year and Assessment Year called in Hindi?

The financial year (FY) in Hindi is called वित्तीय वर्ष and assessment year (AY) in Hindi is called निर्धारण वर्ष.