Financial Year and Assessment Year
Financial Year and Assessment Year
Do you ever wonder which year’s income you need to add while filing the ITR? Do you often get confused about the difference between a financial year and an assessment year? Here, we shall answer these important questions.
All individuals, businesses, and other entities are required to pay their taxes on time to avoid fines and penalties. However, to navigate through the complexity of taxes, you must understand the key difference between the assessment year and the financial year to file your taxes accurately.
Both the assessment year and financial year are the key aspects to lay the foundation for tax obligations. Let us look at the financial year vs assessment year details below.
What is a Financial Year?
A financial year is the year your income is credited. Every year, you earn income from your business, job, investments, and other sources. The money received within one year is accounted for in the same financial year. The format of a financial year is from 1st April of the current year to 31st March of the following year.
For example, the income you generate from 1st April 2021 to 31st March 2022 will be your earned income for the financial year 2021-22.
What is an Assessment Year?
The assessment year is the 12-month period that follows the financial year. That means all the income generated in a financial year is taxed in the assessment year, which falls after. The format of an assessment year is the same as the financial year, i.e. from 1st April of the current year to 31st March of the following year.
For example, the income you generated in the financial year 2021-22 will be taxed in the assessment year 2022-23. The role of the assessment year for ITR is significant as all income generated in the previous financial year is taxed, and returns are filed in the following assessment year.
What are the Differences Between the Assessment Year and the Financial Year?
| Components | Financial Year (FY) | Assessment Year (AY) |
|---|---|---|
| Period | 1st April of current year to 31st March of the following year | 1st April of current year to 31st March of the following year |
| Key Focus | Calculation of earned income | Tax application and filing for the previous financial year |
| Main Action | Income generation | Income taxation |
| Examples | FY 2018-19 (Calculated from 1st April 2018 to 31st March 2019) | AY 2019-20 (Taxable income generated in FY 2018-19) |
Understanding Financial Year vs Assessment Year - Tax Slab 2022-2023
The government announces tax slabs and rates for every financial year, and is applicable on the income generated within the same financial year.
For the assessment year tax slab, the tax slabs applicable to the previous financial year are taken into account. For instance, for calculating and filing taxes for AY 2023-24, the tax slabs of FY 2022-23 will be taken into account.
The tax slabs for FY 2022-23 and AY 2023-24 are as follows.
| Income Tax Slabs | Old Regime Income Tax Rate (FY 2022-23) | New Regime Income Tax Rate (FY 2022-23) | ||
|---|---|---|---|---|
| Age < 60 years | Age 60 - 80 years | Age > 80 years | ||
| Up to 2.5 Lakhs | - | - | - | - |
| 2.5 lakhs to 3 lakhs | 5% | - | - | 5% |
| 3 lakhs to 5 lakhs | 5% | '5% | - | 5% |
| 5 lakhs to 6 lakhs | 20% | '20% | 20% | 10% |
| 6 lakhs to 7.5 lakhs | 20% | 20% | 20% | 10% |
| 7.5 lakhs to 9 lakhs | 20% | 20% | 20% | 15% |
| 9 lakhs to 10 lakhs | 20% | 20% | 20% | 15% |
| 10 lakhs to 12.5 lakhs | 30% | 30% | 30% | 20% |
| 12.5 lakhs to 15 lakhs | 30% | 30% | 30% | 25% |
| Above 15 lakhs | '30% | 30% | 30% | 30% |
Why Invest in a Health Insurance Plan?
Other than understanding the key differences between the assessment year and the financial year, it is important to invest in the right tools for better tax planning. Making wise investments can help you take advantage of tax exemptions and deductions when filing the ITR in the assessment year.
One such investment tool is a medical insurance policy. All premiums paid against a health insurance plan are applicable for a tax deduction of up to ₹25,000 for individuals, spouses, children and dependent parents and up to ₹50,000 for parents who are senior citizens under section 80D of the Income Tax Act.
Tata AIG offers a wide range of medical insurance plans to cater to individuals' specific coverage needs and budget constraints. Moreover, we offer customisation flexibility and critical illness insurance coverage to ensure maximum financial support in times of need.
To find the best health insurance policy, go to our website and compare health insurance plans in a few steps and you are all set.
Disclaimer / TnC
Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.
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