Definition of Assessment Year
In accordance with the definition given in section 2(9) of the Income-tax Act, 1961, the assessment year for an assessee is for a period of 12 months commencing from 1st April of every year.
Taxation
Income of previous year of an assessee is taxed in the following assessment year at the rates prescribed under the relevant Finance Act.
Assessment Year for a Company
A company also becomes an assessee if it is liable to pay tax or any other sum of sum under the said Act.
Why Assessment Year is one year ahead?
Assessment year simply means the year in which the assessment of the income of an assessee for the previous year is carried out in order to determine the tax.
For example:
• ABC Limited's previous/financial year 2019-20 is from 1st April, 2019 to 31st March, 2020.
• Then the company's income for that financial year 2019-20 can only be assessed in the next year, after it ends and not before it neither in between the year.
• Hence, assessment year becomes 2020-21 (1st April, 2020 to 31st March, 2021) during which the assessment is carried out by the income tax department.
Difference between Assessment Year and Previous Year
Difference between Assessment Year and Financial Year
Financial year is the year for which an assessee's income for the previous year is assessed under the IT Act for taxation. Assessment year is the immediately succeeding year of the financial year.
You will understand the difference clearly through the following example.
Example
• Previous year: Staring from 1st April 2020 and ending with 31st March, 2021.
• Financial year: It is the same as the previous year.
• Hence, financial year is 2020-2021 or, in short, FY 2020-21.
• Assessment year is one year ahead of the financial year.
• Hence, assessment year is 2021-2022 or, in short, AY 2021-22.
• Assessment year: Staring from 1st April 2021 and ending with 31st March, 2022.
• Assessment year: Staring from 1st April 2021 and ending with 31st March, 2022.
Applicable Rates (Finance Act)
If the financial year is 2020-21 (assessment year 2021-22), the income of the assessee will be liable to be taxed as per the rates notified in the Finance Act, 2020.
Ministry of Law and Justice (Legislative Department) notifies the Finance Acts in the Gazette of India.
thanks for explaining the meaning of assessment year
ReplyDeleteIt's really helpful to me for understanding the meaning of assessment year and financial year. Thanks a lot for making this kind of content for us.
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