The Balance Sheet and Income statement of companies across the Globe are usually prepared for a period of 1 year. However, the date from which this period starts varies from country to country.
In India, this 1 year period starts from 1st April and ends on 31st March. This period in which the income is earned is known as the Financial Year or Fiscal Year. The income tax returns are filed and taxes for a company are usually paid in the next year after the end of the Financial Year. This next year in which the income is assessed to tax is called as the Assessment Year.
So in case the accounts are being prepared for the year starting 1st April 2013 and ending on 31st March 2014, this period would be called Financial Year 2013-14. And this income would be assessed to tax in the next year and this period would be called as Assessment Year 2014-15.
The due date for filing income tax returns for a financial year is 31st July/30th Sept of the Assessment Year. Therefore if the income tax returns are being filed for the financial year 2013-14, the due date for filing the income tax returns would be 31st July 2014/30th Sept 2014 as the case may be.
- Recommended Read: Procedure for filing your Income Tax Returns
In simple terms, Financial Year is the year in which the income is earned and assessment year is the year in which the income is assessed to tax and all taxes are paid & tax returns filed. The income tax rules and slab rates which are applied for the assessment year 2014-15 would be the same as the rules for the financial year 2013-14 and so on.
- Recommended Read: Income Tax Slab Rate
The financial year is usually denoted as F/Y and assessment year is denoted as A/Y. As the financial year is the year which is previous to the assessment year, the financial year is sometimes also called Previous Year for Income Tax purposes.
Examples of Assessment Year
This concept of Financial Year and Assessment Year can be explained with the help of the following examples:-
|Year starts from||Year ends on||Financial Year/ Fiscal Year/ Previous Year||Assessment Year|
|1st April 2012||31st March 2013||2012-13||2013-14|
|1st April 2013||31st March 2014||2013-14||2014-15|
|1st April 2014||31st March 2015||2014-15||2015-16|
|1st April 2015||31st March 2016||2015-16||2016-17|
|1st April 2016||31st March 2017||2016-17||2017-18|
To remove the confusion created by the Financial Year and Assessment Year, the new direct tax code has proposed to remove the concept of assessment year which would help simplify the understanding of taxes for the common man. However, the direct tax code is still a proposal and has not been implemented.
Financial Year being followed across the Globe
In India, the 12 month financial year period starts from 1st April and ends on 31st March. However, this is not the case with all the countries and many countries consider a different period of 12 months for the purpose of computation of financial year.
It is not only in the India that the financial year does not start on 1st Jan. Different countries start their F/Y during different parts of the year.
Why does financial year in India start from 1st April and not 1st Jan
Although the exact reason for why the Financial Year starts from 1st April and not 1st Jan is unknown, the following are popularly expected to be the reasons for starting the year from 1st April:-
- India was ruled by the Britishers for more than 150 years. And in the UK, the financial year starts from 1st April and not 1st Jan. And therefore, the same concept may have been applied to India as well by the Britishers and after Independence; the Indian Govt didn’t change this.
- In the many regional calenders like the Hindu calendar etc, the New Year starts in the month of April and this may be a reason why the govt also thought of starting the financial year in the month of April itself. Moreover, the crop season in India also starts in April and ends in March.
- Another reason may be that the months of November and December are considered as Festival Season due to the presence of many festivals like Diwali, Christmas etc. The Inventory is very fast moving during this period and it would have been difficult to close the books of accounts during this period. Moreover, employees of many organisations are also on a vacation during this period and it gets difficult to close the books during this period.
The above are reasons are just speculations for the reason why Financial Year starts from 1st April. There is no formal and confirmed reason for the same till date.