Assessment Year (AY)

What is an Assessment Year?

Assessment year: In simple words, it is the year that comes after the financial year. All taxpayers pay taxes in the assessment year because it is in this year that taxes are calculated on the income earned in the previous year.

Assessment year consists of the 12 months that come right after the financial year ends, and you file the income tax return for the previous year (FY).

Difference between Assessment Year and Financial Year

The difference between the assessment year (AY) and the financial year (FY) is given below:

• From the perspective of income tax, the Financial year is the current year or the year in which you earn income. The assessment is the year after the financial year; it is the year in which you evaluate the previous year's income and pay the taxes on it.
• For example, if the financial year is from 1 April 2024 to 31 March 2025, then it would be considered as the FY 24-25. The money earned in this time period will be evaluated in the following AY.
• For the above financial year, the assessment year starts from April 1, 2025, to March 31, 2026. In this case, the AY would be 2025-26.

Why does an ITR form have AY?

The income tax return is filed in the assessment year as the income earned in FY is evaluated and taxed in AY, so the ITR forms have AY mentioned on them. You cannot tax the income in a financial year because it is impossible to tax the income before it is earned, so taxing it in the following year is the best option.

Also, you cannot predict the income earned in the FY before it ends because there could be many scenarios, like a job change, new investments, etc. Hence, the assessment year always starts after the financial year ends.