In accordance with Article 265 of the Constitution of India, “No tax shall be levied or collected except by the authority of law.” This provision establishes that taxation can only be imposed under duly enacted legislation by the appropriate legislative authority—be it the central or state governments, or local governing bodies such as municipal corporations.
Financial Year (Fiscal Year)
A Financial Year (FY), also known as a Fiscal Year, refers to a twelve-month period used by governments, corporations, and other entities for accounting, financial reporting, and budgeting purposes. Unlike the calendar year (January 1 to December 31), the financial year in India begins on April 1 and concludes on March 31 of the following year.
This is the period during which an individual or entity earns income, which will later be assessed for taxation.
Previous Year
The term Previous Year denotes the financial year in which income is actually earned. It is the year immediately preceding the Assessment Year. For instance, income earned during the financial year 2024–25 will be assessed for tax purposes in the assessment year 2025–26.
Assessment Year (AY)
The Assessment Year is the twelve-month period immediately following the financial year, spanning from April 1 to March 31. During this period, income earned in the Previous Year is evaluated, returns are filed, and tax is levied and collected. For example, if income is earned in the financial year 2024–25, it will be assessed and taxed in the assessment year 2025–26.
Key Differences Between Financial Year and Assessment Year
| Aspect | Financial Year | Assessment Year |
| Definition | The 12-month period during which income is earned. | The 12-month period during which income earned in the financial year is assessed and taxed. |
| Time Frame | Begins on April 1 of the current year and ends on March 31 of the following year. | Begins on April 1 of the following year and ends on March 31 of the next year. |
| Purpose | Income generation, accounting, and financial planning. | Income tax assessment, return filing, and tax payment. |
Conclusion
The Financial Year is the period in which income is earned by individuals, businesses, and other entities, while the Assessment Year follows and is designated for evaluating and taxing the income earned in the previous year.
Disclaimer
The content provided above is intended solely for informational and explanatory purposes. It should not be considered financial advice or solicitation material. The information is based on publicly available sources and subject to change. Readers are advised to consult with a qualified financial advisor or tax professional before making any financial or tax-related decisions.
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