What is the Difference between Assessment Year and Financial Year?

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What is the Difference between Assessment Year and Financial Year?

If you are an income taxpayer in India, you might have encountered the terms assessment year (AY) and financial year (FY) while filing your tax returns. But do you know what they mean and how they differ from each other?

In this article we shall discuss the concepts and significance of assessment year and financial year and highlight the key distinctions between them. We will also share some useful tips on how to file your taxes during the assessment and financial years.

What is the Financial Year (FY)?

The financial year is the period in which you earn your income and pay your taxes in advance. The duration of the financial year is 12 months, starting from April 1 and ending on March 31. The start and end dates of the financial year are fixed and do not change.

For example, if you say an income is earned in the financial year FY 2023-24, it means the income is earned between 01st April 2023 to 31st March 2024.

Hence, the financial year is crucial because it determines the income and tax slab of the taxpayer. During this year, you must estimate your income, calculate your tax liability, pay your tax in advance, and claim tax benefits.

The Income Tax Department will collect your tax and issue tax certificates during the financial year.

Things to Know When Filing Tax During the Financial Year

Keep the following pointers in mind when filing returns during the financial year.

Using the provisional tax return option, you can file taxes during the financial year. This option allows you to estimate your income and tax liability for the current financial year and file your tax return accordingly.

You can use this option anytime during the financial year, but it is recommended to do it before the end of the third quarter (December 31).

You may opt for an advance tax option to pay your tax liability ahead of the due date. This option allows you to pay your tax liability in four instalments during the financial year, based on your estimated income and tax slab. The details of this option are outlined below.

Due Date Advance Tax Percentage 
45458 0.15
45550 0.45
45641 0.75
45366 1

You can claim tax benefits during the financial year using the tax deduction and tax exemption options. These options allow you to reduce your taxable income and tax liability by investing in certain schemes or spending on certain expenses. Some of the common tax deductions and exemptions are as follows:

Section  Deduction/Exemption Limit
80C Investment in provident fund, life insurance, national savings certificate, equity-linked savings schemes, etc. ₹1,50,000
80D Health insurance policy premium for self, spouse, children, and parents ₹25,000 to ₹1,00,000
80E Interest on education loan No limit
80G Donations to charitable organisations 50% - 100% of donation 
80TTA Interest on savings account ₹10,000
10(10D) Maturity or death benefit from life insurance No limit 
10(13A) House rent allowance 50% of salary or actual rent

[Note: Please note that some tax deductions and exemptions are only available under the old tax regime, Eg., Section 80D and 80C deductions and will not be applicable if you have opted for the new tax regime (the default tax regime).] Also Read: Tax Saving Options Other Than 80C

What is the Assessment Year (AY)?

The assessment year is the period in which your income tax is assessed and processed by the Income Tax Department. It is the year following the financial year in which you earned the income.

For example, if you earned income in the financial year 2023-24, your assessment year will be 2024-25. The duration of the assessment year is also 12 months, starting on April 1 and ending on March 31. The deadline for filing your tax return for the assessment year is July 31 unless extended by the government.

Here are some examples of income earned in different financial years and their corresponding assessment years:

Financial Year Income Earned  Assessment Year Tax To Be Paid
2022-23 Rs 10,00,000 2023-24 By March 31, 2023
2023-24 Rs 12,00,000 2024-25 By March 31, 2024
2024-25 Rs 15,00,000 2025-26 By March 31, 2025

Things to Know When Filing Tax During Income Tax Assessment Year

Keep the following pointers in mind when filing returns during the assessment year.

You can choose between the old and new tax regimes, depending on your income level and deductions. The old tax regime allows you to claim various deductions and exemptions from multiple sections but has higher tax rates.

The default or new tax regime has reduced tax rates but does not allow for most deductions and exemptions. You can compare the tax liability under both regimes and choose the one that suits you best.

You need to report your income from foreign assets and income, if any, and pay tax on them per the Double Taxation Avoidance Agreement (DTAA) with the respective country.

Report your income from virtual digital assets (VDA) or crypto-currencies, if any, under the capital gains head.

Disclose your bank account details, except dormant ones, and the interest income earned from them.

Choose the appropriate form for filing your tax return during the assessment year based on your income source and tax status.

Form Category Income Source
ITR-1 Resident Individuals  Salary, pension, interest, etc.
ITR-2 Resident and non-resident individuals Capital gains, foreign income, etc.
ITR-3 Individuals and HUFs with business or professional income Business or professional income, partnership  Business or professional income, partnership income, etc.
ITR-4 Individuals, HUFs, and firms with presumptive income Presumptive income from business or profession
ITR-5 Firms, LLPs, AOPs, BOIs, etc. Income from any source
ITR-6 Companies  Income from any source
ITR-7 Trusts, political parties, institutions, etc. Income from charitable or religious activities

Also Read: Tax Deductions And Exemptions Under The New Tax Regime

Financial Year Vs. Assessment Year: Key Distinctions

Although you now have a clear idea of the distinctions between the two years, here is a quick summary of the difference between assessment year and financial year.

Parameters Financial Year  Assessment Year 
Cashflow  It refers to the year when you actually earn the income. It is the year when you have to pay the tax on the income earned in the previous financial year.
Uses The company uses this year to declare annual reports, dividends, stock reports, financial condition analyses, and a few more. It focuses on tax analysis.
Deductions If you want to reduce your taxable income by making investments, you can do this only in the financial year.  The proof of your investment in the financial year needs to be furnished in the assessment year.
Duration  1st April to 31st March 1st April to 31st March
Penalty  NA Penalty is levied for late filing 
Refund  NA You can get a refund of the excess tax paid

Penalty for Late ITR Filing Under the Income Tax Assessment Year

When understanding assessment year vs. financial year, another crucial thing you need to be aware of is the penalty associated with ITR filing.

Section 234F imposes a late fee on taxpayers who file their ITRs after the due date. The late fee is ₹5,000 for taxpayers with a total income exceeding ₹5,00,00 and ₹1,000 for taxpayers with a total income up to ₹5,00,000. The late fee is applicable if the ITR is filed by 31st December 2023.

If the ITR is filed after 31st December 2023 but before 31st March 2024, the late fee is increased to ₹10,000. However, the maximum late fee can be at most ₹1,000 for taxpayers with a total income up to ₹5,00,000.

Section 234A levies interest on the unpaid tax amount at the rate of 1% per month or a portion of a month from the due date of filing till the date of actual filing.

The interest is computed on the net tax liability, i.e., the tax payable after deducting the tax deducted at source (TDS), tax collected at source (TCS), self-assessment tax, and advance tax. The interest is applicable even if there is no tax liability, but the ITR is filed after the due date.

Section 271F empowers the income tax officer to impose a penalty of ₹5,000 for failure to file the ITR within the due date. However, this section has been repealed from AY 2018-19 onwards and replaced by section 234F.

Section 276CC provides for the prosecution and imprisonment of taxpayers who fail to file their ITRs within the due date despite receiving notices from the income tax department.

The imprisonment can range from three months to two years, along with a fine. If the tax liability exceeds ₹25,00,000, the imprisonment can extend up to seven years, along with a fine.

Apart from the penalties and interest, there are other implications of late filing of ITR, such as:

Loss of Carry Forward of Losses: Taxpayers who incur losses under the head capital gains or business and profession can carry forward these losses to the next eight years and set them off against the income of those years.

However, this benefit is available only if the ITR is filed within the due date. Late filing of ITR can result in the forfeiture of the carry forward of losses, except for the loss from house property.

Delay in Refunds: Taxpayers who have paid excess tax, either through TDS, TCS, advance tax, or self-assessment tax, are entitled to receive a refund from the income tax department.

However, the refund is processed after the ITR is filed and verified. Late filing of ITR can delay the receipt of the refund and the interest on the refund amount.

Disallowance of Deductions: Taxpayers who claim deductions under various sections, such as sections 80C, 80D and 80G, have to file their ITR within the due date to avail of the benefits of these deductions.

Late filing of ITR can lead to the disallowance of these deductions and increase the tax liability.


he taxation process involves two different but related periods: the financial year and the assessment year. The financial year is the period from April 1 to March 31, when people earn income and pay taxes on it.

The assessment year comes after, and it is the period when the tax authorities evaluate and process the taxes. It is important to know these periods for proper tax planning and compliance. You can claim deductions under various sections when filing your taxes in the assessment year.

For example, you can buy health insurance online from Tata AIG and complement it with critical illness insurance to get a maximum deduction of ₹1,00,000. Moreover, our cashless mediclaim plans cover treatment available at any hospital of your choice for insured diseases and events.

Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

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What is the difference between the assessment year and the financial year?

What is the difference between the assessment year and the financial year?


The IT assessment year is the year in which your income is assessed for tax purposes, while the financial year is the year in which you actually earn income or, say, the year in which the company calculates its financial performance and prepares its financial statements.

What is the financial year of 2023?


The financial year of 2023 runs from April 1, 2023, to March 31, 2024.

What is the financial year 2024?


The financial year of 2024 spans from April 1, 2024, to March 31, 2025.

What is the meaning of the financial year?


A financial year is a 12-month period used for accounting and reporting financial performance and results.