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The financial year is determined by the calendar year in which you received your money. It begins on April 1 and finishes on March 31 of the next calendar year.

Once you complete your education and start earning, there comes a time when you are required to file income tax return. However, as a first-time taxpayer, you may get confused between the financial year (FY) and assessment year (AY).

For some, AY is similar to the annual year, and for others, AY tends to be as same as FY. These misunderstandings can lead you to make mistakes when the time of filing your income tax returns.

What is FY?

The financial year is determined by the year in which you received your money. It begins on April 1 and finishes on March 31 of the next calendar year. Occasionally, the term “financial year” is abbreviated as “F.Y.” While an assessee must prepare and plan for taxes for the financial year, the income tax return is due the following year, or assessment year.

For example, the current financial year (FY) 2021-22 is defined as the period from April 1, 2021, to March 31, 2022. From April 1, 2021, to March 31, 2022, any money you earn is referred to as income earned in financial year (FY) 2021-22.

What is AY?

The assessment year is the time (from April 1 to March 31) during which your income earned during a given financial year is assessed. You must file your income tax return in the assessment year. The AY is the year immediately following the financial year.

Income earned during the current financial year 2021-22 (i.e., from April 1, 2021, to March 31, 2022) will be assessed in 2022-23. (i.e., from 1 April 2022 to 31 March 2023).

The income tax department has further extended the filing of income tax returns (ITR) from  September 30, 2021, to December 31, 2021, for the income earned in FY 2020-21.

Points to note

-Due to the fact that revenue for any financial year is calculated and assessed the next year, income tax returns (ITR) forms include an assessment year column. Income cannot be taxed until it is received. As a result, while completing income tax returns, the assessment year must be specified clearly.

-A tax return should be filed in the assessment year, which is the year after the end of a financial year.

-The AY is used to evaluate income earned during the financial year.