Previous Year vs Assessment Year
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Previous Year and Assessment Year: These are two important terms that every tax payers should understand as both the terms are very important from Income Tax point of view.
As you might heard the term financial year, which begins on 1st April of a particular year and ends of 31st March, and In Income-Tax, Income earned during the financial year will be taxed in subsequent financial year (exception TDS-Tax deduction at source, where income tax is paid during the year itself).
From above, you may observe that income earned in one financial year is taxed in another financial year, therefore two terms were defined in Income Tax Act, i.e. Previous Year and Assessment Year.
Both Previous Year and Assessment Year are Financial year meaning, both will begin from 1st April and ends on 31st March. Now lets see, what both the terms in detail:
- Assessment Year: The assessment year term has been defined under Section 2(9) of Income Tax Act, where assessment year means period of 12 months which begins from 1st April and ends on 31st March. The year in which income is earned would be taxable in immediately subsequent year and such year would be called as Assessment Year. For example, Income earned in year 2021-22 (1st April 2021-31st March 2022), would be taxable in next year 2022-23.
- Previous Year: The previous year is defined in Section 3 of Income Tax Act, where previous year means Financial year which is immediately preceding the assessment year.
From above you may understand that income earned during the previous year would be taxable in assessment year. However, there are certain exception to this rule, as stated below:
- Shipping Business of Non-Residents
- Person Leaving India.
- AOP/BOI/Artificial Juridical Person formed for a particular event or purpose.
- Person likely to transfer property to avoid tax.
- Discontinued Business
The basic purpose of taxing above businesses in the same year in which income is earned i.e., in previous year itself, that these persons as involved in above cases, might not be available in assessment year i.e., in subsequent next year.
I hope you like reading our above article and we hope it might give you some insight about the very basic terms but yet very important to understand.
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