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What is Assessment Year (AY) in Income-tax? Notes & Example

Definition

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 assessed/determined.

For example:

• ABC Limited's previous/financial year 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 during which assessment is carried out by 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 the immediately succeeding year of the financial year.

You will understand the differences 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.


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.

Comments

  1. Biswanath Parhi19 August, 2018

    thanks for explaining the meaning of assessment year

    ReplyDelete

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