Difference Between Calender Year (CY) Financial Year (FY) & Assessment Year (AY)

Many taxpayers confuse between the Calender Year (CY), Financial Year (FY) and Assessment Year (AY). They often tend to treat them as the same, which leads to making mistakes when they file their income tax returns.

What is Calender Year?

Calendar year (CY) begins on the first of January and ends on 31st December every year.

What is Financial Year?

A Financial Year (FY) is the period between 1 April and 31 March – the accounting year in which you earn an Income.

What is Assessment Year?

The assessment year (AY) is the year that comes after the FY. This is the time in which the income earned during FY is assessed and taxed. Both FY and AY start on 1 April and end on 31 March. For instance, for FY 2021-22, the assessment year is AY 2022-23.

What is the difference between AY and FY?

From an income tax perspective, FY is the year in which you earn an income. AY is the year following the financial year in which you have to evaluate the previous year’s income and pay taxes on it. For instance, if your financial year is from 1 April 2021 to 31 March 2022, then it is known as FY 2021-22. The assessment year for the money earned during this period would begin after the financial year ends – that is from 1 April 2022 to 31 March 2023. Hence, the assessment year would be AY 2022-23.

Why does an ITR form have AY?

Since income for any particular financial year is evaluated and taxed in the assessment year, income tax return forms have assessment year (AY). As the income earned in a financial year cannot be taxed before it is earned, so it is taxed in the following year.

Scenarios like loss of job, job change, new investments etc. can come up in the middle or end of the FY. Also, the income earned in a financial year cannot be exactly known before the end of the financial year. This is why the assessment can start only after the financial year ends. Hence, taxpayers have to select AY while filing their income tax returns.

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CHETNAA GOYAL

Chetnaa Goyal one of the co-founder of TaxSmooth. An Qualified Chartered Accountant. More than 12 years of Experience in Direct Taxation. having own Taxation Practice in Delhi. Expertise in Income Tax Cases, Return filing, Tax Planning, Tax Advisory etc.

Difference Between CY, FY And AY