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Last updated on: July 29, 2025
The financial year and assessment year are two key terms in taxation and accounting. The financial year (FY) refers to the 12-month period during which income is earned, commonly from April 1st to March 31st of the next year in India. For example, income earned between April 1, 2023, and March 31, 2024, falls under the financial year 2023–24. The assessment year (AY) follows immediately after the financial year and is when the income earned is evaluated and taxed by authorities. Using the same example, the assessment year for FY 2023–24 is 2024–25. Essentially, you earn income in the financial year and pay taxes on it in the corresponding assessment year.
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Read BioManaging your business or personal finances in India means dealing with regular terms like “financial year” and “assessment year”. Many people, especially beginners, find these concepts confusing. Understanding the difference and the synergy between them is crucial for compliant income tax filing, business planning, and investment decisions in 2025.
This detailed article explains what financial year and assessment year mean, how they impact your tax obligations, reporting timelines, and what you need to know to stay on track and penalty-free. We will help you distinguish these periods with plenty of practical examples, tables, and expert tips for better clarity.
A financial year (often shortened as FY) is the specific twelve-month period when your income and expenses are recorded for tax purposes by government authorities. In India, the financial year starts from 1st April and ends on 31st March of the following year. This means FY 2024 to 2025 runs from 1 April 2024 to 31 March 2025.
Expert Insight:
The choice of April to March aligns with major business cycles and agricultural patterns that govern India’s economy. This helps businesses plan accounting and inventory cycles, plus match reporting with government expectations.
The assessment year (AY) is the immediate next year after the financial year, in which you actually file your income tax return for the income earned in the previous financial year. For example, if your income was earned between 1 April 2024, and 31 March 2025 (FY 2024 to 25), you will file your tax return during Assessment Year 2025 to 26.
The assessment year is a critical period when the Income Tax Department evaluates or “assesses” your tax returns. Tax authorities review, verify, and process your claims for the previous year’s income.
Q: Why does India use April to March as its financial year?
A: This follows a practice dating back to the British era, syncing with the agricultural cycle and colonial trade practices, still considered logical for Indian revenue collection.
All salaried individuals, freelancers, businesses, and companies must account for their total income, investments, and taxes within a clearly defined financial year. For example, the salary you receive between April 2024 and March 2025 falls under the FY 2024 to 25.
Any deductions under Section 80C (e.g. for EPF, PPF, life insurance premiums) will also be recognized only for payments made during the financial year.
You should keep:
Many financial products provide tax-saving benefits if bought or renewed before March 31 each year. Missing this date could mean the deduction is only available in the next financial cycle.
Q: Can I declare income in a different year than I earned it?
A: No. Income must always be declared in the financial year in which it was earned.
The assessment year 2025 to 26 is when you disclose and get assessed for all your earnings, investments, and TDS made during FY 2024 to 25. For individual taxpayers, the last date to file the ITR (income tax return) is typically July 31, 2025, unless the government extends it.
Online e-filing sites and tax return apps in India specifically mention assessment year, so you must double-check to avoid mistakes. Filing for the wrong year is a common error for beginners and may require correction or refiling.
| Feature | Financial Year 2024-25 | Assessment Year 2025-26 |
|---|---|---|
| Period | 1 April 2024 - 31 March 2025 | 1 April 2025 - 31 March 2026 |
| Purpose | Period of earning income and making investments | Period for assessment of last year’s income and tax return |
| Relevance | TDS calculation, salary slips, investment planning | Filing ITR, claiming refunds, scrutiny and assessment |
| Reporting on ITR | Mentioned as FY 2024-25 on all supporting docs | Mention as AY 2025-26 when filling on portal |
| Tax Saving Actions | Can be done till 31 March 2025 | No more tax-saving allowed for previous year |
If you fail to file your return before the due date, you may:
Did You Know?
Filing your ITR for the correct assessment year also impacts your eligibility for quick bank loans or business registrations, as most portals fetch automated verifications for AYs.
Q: How many years after the financial year can I file my tax return?
A: You can file a belated return until 31 December of the assessment year, but with penalties.
When I started freelancing in 2024, tracking whether an invoice belonged to FY 2023-24 or 2024-25 was challenging. My trick was to label every bill, receipt, and bank credit with the “FY” year at the time of earning. When tax season arrived in AY 2025-26, I could instantly match each document to my total declared income.
Another useful step:
I created a calendar reminder two weeks before March 31 to survey all possible tax saving investments (PPF, ELSS, NPS), so I never missed a deduction window in my financial year. Most online platforms let you compare products in one place for fastest decisions.
By clearly separating expenses and receipts as per financial year, and remembering that my declaration always belongs to the next assessment year, even my CA found my records easy to check and submit.
Expert Insight:
Chartered Accountants prefer electronic statements sorted by FY. This reduces errors and shortens your tax assessment process for AY.
Q: Do salaried employees need to know both FY and AY?
A: Yes, because salary is credited as per the financial year, but return is filed in assessment year. Even Form 16 specifies FY, while ITR mentions AY.
A regular issue is forgetting which year to select on tax portals or at the bank while submitting fixed deposit interest forms. By staying careful with your documents and using technology or reminders, these mistakes can be easily avoided.
Did You Know?
Refunds and notices from the Income Tax Department are processed strictly based on the correct assessment year, so accuracy is necessary for faster clearances.
Q: Will AY and FY ever be the same calendar year?
A: No, assessment year always comes after the financial year.
Previous year is simply another term for financial year. Income is earned in the previous/financial year and assessed in the following assessment year.
Your investment up to 31 March 2025 is counted in FY 2024 to 25, and benefits will be available in the income tax return filed in AY 2025 to 26.
Form 16 displays the financial year of income (when you earned the salary), whereas the ITR portal uses the assessment year (when you are being assessed for that income.)
This can lead to rejection or incorrect assessment. Corrections can be made by filing a revised return, but delays may result in penalties.
You may file a belated or revised return for FY 2023-24 or AY 2024-25, but only till the deadline specified (usually December of assessment year).
For more guidance, always visit the income tax department portal or consult online tax advisory marketplaces to compare your options and get expert help in one place.
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Written by Prem Anand, a content writer with over 10+ years of experience in the Banking, Financial Services, and Insurance sectors.
Prem Anand is a seasoned content writer with over 10+ years of experience in the Banking, Financial Services, and Insurance sectors. He has a strong command of industry-specific language and compliance regulations. He specializes in writing insightful blog posts, detailed articles, and content that educates and engages the Indian audience.
The content is prepared by thoroughly researching multiple trustworthy sources such as official websites, financial portals, customer reviews, policy documents and IRDAI guidelines. The goal is to bring accurate and reader-friendly insights.
This content is created to help readers make informed decisions. It aims to simplify complex insurance and finance topics so that you can understand your options clearly and take the right steps with confidence. Every article is written keeping transparency, clarity, and trust in mind.
Based on Google's Helpful Content System, this article emphasizes user value, transparency, and accuracy. It incorporates principles of E-E-A-T (Experience, Expertise, Authoritativeness, Trustworthiness).
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