What is the Financial Year, Fiscal Year and Assessment Year in India?

October8

What is the Financial Year, Fiscal Year and Assessment Year in India?

Do you know there are several tax related terms that don't seem to be simply understood by lay taxpayers like you and me. While filing your income tax return (ITR) when you come across such confusing terms, it will place you in a fix and you might find yourself creating an error that can cost you dearly. 

Every public and private company manages their accounts and balance sheets and within case of public companies, they need to report their profit and loss details when each quarter-end.

So, all public and private companies ought to follow the Financial Year or Fiscal Year to maintain their accounting and balance sheets. 

What is the Financial Year? 

A Financial Year or Fiscal Year is an annual period in which a company opens new accounts at the beginning and closes at the tip. The Financial year is different from the calendar year in India, the financial year is from 1st April to 31st March. It contains twelve consecutive months which is divided into four Quarters; Quarter first April to June, Quarter second July to September, Quarter third October to December Quarter fourth January to March and it is also called as Financial Year or Fiscal Year. Financial Year represented by “FY”.

For all Taxpayer, Bank, Professional and Companies 31st March plays a significant role as the Financial year comes to an end. The budget, government policies, and tax regime are framed according to the fiscal year.

What is Assessment Year? 

The year falling next to a financial year is understood as Assessment Year whereby the income of the Financial Year is assessed. Assessment year & Financial both begin on 1st April and end on 31st March. 

However, for the Financial Year 2019-20, the Assessment Year would be 2020-21.

What is the distinction between the Financial Year and Assessment Year? 

Financial Year is understood to be the year in which income is attained and the Assessment year is understood to be the year that comes after the financial year wherein the income of the Financial year is a taxable income.

Example is the chart given below of Financial Year and Assessment Year is:

ITR and Other form have Financial Year and Assessment Year 

• Form 26AS have both Financial Year and Assessment Year
• Form 16A have both Financial Year and Assessment Year
• ITR solely has an Assessment Year

In case of filing Income Tax returns, taxpayers ought to bear in mind that Financial Year is the previous year and Assessment Year is the year in which you file your Income Tax Returns, AY and FY are two different years.

What is the exact reason behind starting the Financial Year from 1st April?

The exact reason why the Financial Year starts from 1st April is not known but there are few reasons that answer the question. It varies between country to country

• India was under the rule of the Britishers and their Financial Year starts from 1st April.

• Since,The Income-Tax Act in India was enacted in 1961 came into force from April 1, 1962, therefore, our financial year begins on April 1 every year.
• November and December are considered festival season, in this period the value of sales for the retailers and value buying’s for the shoppers are heavy, it would have been difficult for closing the books of accounts during this period. Therefore, the Financial Year starts from 1st April.
• In the many calendars, the New Year starts in the month of April.

Financial Year across the Countries 

India’s financial year starts from 1st April. This doesn’t mean every country follows the same financial year. There are some countries which follow different fiscal years.

Some of the example for the countries which follow different financial years,