While filing their returns on income, many individual taxpayers get confused between the financial year and the assessment year. The lack of clarity results in unnecessary mistakes while filling the income tax return forms, leading to several issues that are often faced by taxpayers. This can be completely avoided if taxpayers know the clear difference between the financial year and the assessment year. Income tax return forms have mentions of both financial year and assessment year. Assessment year is simply the time during which the income earned in the financial year is assessed. (Also Read: Deadline For Filing Income Tax Returns With Late Fee Is March 31: How To Do It Online)
This means that the assessment year is the year that comes right after the financial year. For example, taking this year's deadline, the last date for filing income tax returns (ITS) for the fiscal year 2019-20 without any late fee was January 10, 2021. However, all those taxpayers who have still not filed their returns on income can still do so by March 31, 2021. However, while taxpayers are filing their income tax returns for the financial year 2019-20, but the assessment year is 2020-21. From the basic income-tax filing perspective, the financial year is simply the one in which an employee or taxpayer earns an income.
Whereas, the assessment year is the one in which the previous year's income is evaluated and one has to pay taxes on it. The income tax return forms have an assessment year as the income that is earned in a financial year cannot be taxed unless it is earned. The income earned in a financial year is taxed in the assessment year, which is why the assessment year is important in the ITR form.
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