AY vs FY in finance world

 

#finance basics

This is written on December 31,2024. Use in that context.
Thanks to  chatGPT.

The terms Assessment Year (AY) and Financial Year (FY) are often confused, but they refer to two different periods in the context of income tax in India.

1. Financial Year (FY):

• Definition: The Financial Year is the period during which a person or organization earns income.

• Duration: It runs from April 1 to March 31 of the next year.

• Purpose: It is the year in which the income is earned or received.

  For example:

  • If you earn income between April 1, 2023, and March 31, 2024, the Financial Year is 2023-24.

2. Assessment Year (AY):

• Definition: The Assessment Year is the period during which the income earned in the Financial Year is assessed by the Income Tax Department.

• Duration: It starts immediately after the Financial Year ends. So, it runs from April 1 to March 31 of the next year.

• Purpose: It is the year in which the tax on the income earned during the Financial Year is calculated and paid.

  For example:

  • If the income was earned during the Financial Year 2023-24, the tax will be assessed and paid in the Assessment Year 2024-25.

Key Difference:

• Financial Year (FY) refers to the year in which the income is earned.
• Assessment Year (AY) refers to the year in which the income is assessed and taxed.

Example to Clarify:

• Financial Year (FY): April 1, 2023, to March 31, 2024.
• Assessment Year (AY): April 1, 2024, to March 31, 2025.

In simple terms, the FY is the year when you earn income, and the AY is the year when you pay taxes on that income.