Difference Between Assessment Year & Financial Year
A financial year is different from an assessment year. However, many believe that financial and assessment years are the same. An assessment year and a financial year are distinct from one another. Many taxpayers file their income tax returns, deposit TDS, and pay self-assessment and advance tax incorrectly because of this misperception.
Such an error results in needless difficulty, holdups, interest, and penalties. To accurately submit your ITR, pay taxes on time, and stay hassle-free, you must always be familiar with the fundamental words connected to income tax. This post discusses the idea of an assessment year (AY), a financial year (FY), and the distinction between an AY and an FY.
What is a Financial Year (FY)?
A financial year (FY) is the period from April 1 to March 31. A financial year is a year the taxpayer receives their income. The assessment year, which is the following year, is the one in which this income is taxed. “FY” stands for “financial year.”
A financial year is a period in which a salaried individual receives their salary, a businessperson or professional makes expenses, and profits, a capital gain or loss results from the sale of a capital asset, a taxpayer receives other income, and a house owner receives rental revenue.
What is an Assessment Year (AY)?
An assessment year begins immediately following the financial year. You assess a taxpayer’s income and his tax liability arises in an AY. Therefore, your income from many sources during the financial year is subject to tax and assessment during the AY.
Both financial year and assessment year begin on April 1 and end on March 31.
Example: The AY for the Financial Year (FY) from April 1, 2021, to March 31, 2022, is April 1, 2022, to March 31, 2023.
Now let us look at why using the right AY is so crucial. This is so that you do not accidentally quote an incorrect AY or financial year. A wrong financial year means that you have received your income in a different year, you have filed your IT return incorrectly, and paid taxes for a financial year when you have not earned that income.
Difference Between Assessment Year and Financial Year
|In a financial year, a taxpayer generates income under different heads.||The assessment year is when the income from the financial year is taxed.|
|You do not assess the income earned in the financial year during the financial year since you are still earning it.||In the assessment year, the income from the previous year is subject to tax and assessment.|
|A taxpayer has the option to pay ‘advance tax’ for income that they are generating or will generate during the financial year.||A taxpayer has the option to pay a ‘self-assessment tax’ on the income they earned during the financial year.|
|A taxpayer must plan for taxes either before or during the financial year.||Investments made during the assessment year are not eligible for any type of tax deduction. even if the person had financial yearlong investment intentions. Any investment that an investor makes after March 31 will be recognized for the following financial year.|
Things to Remember about an Assessment Year
- Only after the financial year has ended, an assessment year can start.
- If you enter the wrong AY while filing your income tax return, then you have entered an incorrect FY as well. There is a connection between the AY and FY. For instance, let’s say you wish to choose the AY for FY 2020–21. The proper AY is 2021–2022. However, if you select AY 2020–21, you have indeed chosen the FY as 2019–20. And you are moving forward with a determination of income earned in the wrong financial year. Consequently, it would help if you always choose the appropriate AY.
- If you choose the wrong AY while filing your income tax return, you will miss filing your ITR for the correct AY. If you do not file your income tax return on time because of this reason, the income tax department will charge a penalty.
- There are repercussions if you choose the incorrect AY while paying the self-assessment and advance tax. To begin with, you must pay the relevant AY’s self-assessment tax again, giving yourself double the burden.
- Additionally, you must request a refund of the tax you paid on a false AY. Additionally, you must pay interest on delayed payment for the late payment of tax. The interest charge will keep rising daily if you do not correct your error.
Tax on Returns You Earn Through P2P Lending
In P2P lending, investors earn income in the form of interest on the amount they lend. P2P lending is one of the rapidly growing investment opportunities in India. The FMPP® investment plan from LenDenClub offers good returns on your investment. The non-market linked high returns and compounding effect are some of the best features that the investment opportunity provides. Similar to the interest earned on any other instrument, such as a fixed deposit, the interest income in P2P lending is also taxable. Lenders’ interest income from peer-to-peer lending comes under “income from other sources” and is added to their taxable income.