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Assessment Year (AY) in Income Tax: Definition Taxation Example

Definition: In accordance with the Section 2(9) of the Income Tax Act, 1961, the assessment year, for all Assessees (which also includes companies as defined in Sec 2(17) of the IT Act) is for a period of twelve(12) months commencing from 1st April of every year and ending on the 31st march of next year.

Taxation: Income of previous year of an assessee (i.e. the company) is taxed in the following assessment year at the rates prescribed under the relevant Finance Act.

Example: The Previous Year of a company is starting from 01/04/2012 to 31/03/2013, in short it is called as Finance Year 2012-2013 or FY 2012-13, hence the assessment year will be 2013-14. So the income of the company which is liable to be taxed for the period from 01/04/2012 to 31/03/2013 will be taxed as per the rates prescribed under the Finance Act, 2012.

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

Financial year is the year for which an assessee's income is assessed under IT Act for taxation. Assessment year the immediately succeeding year of the financial year.

Example: If financial year 2012-13, then the assessment year will be 2013-14.

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