Difference Between Financial Year and Assessment Year

Understanding the Difference Between Financial Year and Assessment Year is essential for anyone who files income tax in India. The two terms are closely connected, yet they refer to different stages of the tax process. Because they sound similar and cover back-to-back time periods, many taxpayers accidentally mix them up while choosing the year for their ITR, reviewing Form 16, or reconciling TDS details. A clear understanding of FY and AY helps eliminate these errors and ensures smooth tax compliance.

What is a Financial Year (FY)?

The Financial Year is the 12-month period during which you actually earn your income. Whether your earnings come from employment, self-employment, interest, rent, or investments, they all fall within this timeframe.

In India, every Financial Year begins on 1 April and ends on 31 March of the next year.

Example: Income earned from 1 April 2024 to 31 March 2025 belongs to FY 2024–25.

Why Financial Year matters:

• Your total income for tax purposes is calculated for this period.
• All tax-saving investments and eligible expenses apply to this same year.
• Form 16, salary slips, and TDS details reflect income for the Financial Year.

What is an Assessment Year (AY)?

The Assessment Year is the year that comes immediately after the Financial Year. It is the period during which the government reviews, evaluates, and taxes the income you earned in the previous Financial Year.

Like the FY, the AY also runs from 1 April to 31 March, but it applies to the year following your earning period.

Example: If your income belongs to FY 2024–25, it will be assessed during AY 2025–26.

Why Assessment Year matters:

• You file your Income Tax Return (ITR) during this period.
• All income from the previous FY is examined and taxed.
• Refunds, tax adjustments, and assessments are processed in the AY.

Financial Year vs Assessment Year: How the Two Differ

Although both cover 12-month cycles, their roles in the tax system are different:

• FY is the earning year — income is generated here.
• AY is the filing and evaluation year — income from the FY is taxed here.

Difference Between Financial Year and Assessment Year

The Financial Year (FY) and Assessment Year (AY) serve different purposes even though both follow the same 12-month cycle. Here’s a clear comparison to understand how they differ:

Criteria	Financial Year (FY)	Assessment Year (AY)
Meaning	The actual year in which you earn your income	The year in which your income is assessed and taxed
Timeline	1 April – 31 March	The 12-month period immediately after the FY
Used For	Salary, business income, and investment period	Filing ITR, tax calculation, audits, and refunds

Financial Year and Assessment Year Example:

Suppose you begin working on 1 April 2024. Throughout the year, you receive your salary, earn interest on savings, and make investment-related payments. All of this activity falls within FY 2024–25.

Once that year ends on 31 March 2025, the next 12 months starting 1 April 2025 are dedicated to assessing that income and filing your return. That period becomes AY 2025–26.

In simpler words:

FY = When you earn
AY = When you file and get assessed

Why People Get Confused Between FY and AY

Many taxpayers mix them up because both years follow the same April–March cycle but serve different purposes. Common issues include:

• Selecting the Financial Year instead of the Assessment Year on the ITR portal.
• Assuming FY and AY are the same because they are adjacent years.
• Noticing that salary documents refer to FY, while the portal asks for AY, which leads to mismatches.

A clear understanding helps avoid unnecessary filing errors.

Tips to Remember the Difference between Financial and Assessment Year

Here are simple ways to differentiate the two:

FY = Income Generation Phase
AY = Income Review Phase

Another way to think of it:

When money is being earned, think Financial Year.
When you sit down to file, calculate, or claim a refund, think Assessment Year.

Why Knowing Financial Year and Assessment Year is Important for ITR Filing

Both years appear in different parts of the tax process. Using the wrong one can cause discrepancies or delays.

Where FY is used:

• Form 16 shows the Financial Year because it reflects the period of earning.
• TDS deductions and salary slip records refer to FY.
• Investment proofs for tax deductions apply to the FY in which the expenditure was made.

Where AY is used:

• While filing your ITR, the portal always requires the Assessment Year.
• Refunds, verifications, and assessments are linked to the AY, not FY.

Example

Income from FY 2024–25 must be reported under AY 2025–26 when filing your return.

Frequently Asked Questions about Financial Year and Assessment Year

1. Does the Assessment Year always follow the Financial Year?

Ans: Yes. AY always comes immediately after the FY.

Why isn’t the return filed in the Financial Year itself?

Ans: Because income for the FY must be fully earned before it can be reviewed and taxed, the filing naturally takes place in the following year.

Can FY and AY ever refer to the same period?

Ans: No. They are always consecutive years.

Why do salary slips and Form 16 mention the Financial Year?

Ans: These documents represent earnings, which are tied to the FY.

Which year should I select on the income-tax portal?

Ans: Always choose the Assessment Year, since that’s the year in which returns are filed.

What if the wrong AY is selected?

Ans: It may result in an incorrect filing, rejection, or processing delays.

Conclusion

The Financial Year marks the period during which you earn your income, while the Assessment Year is when that income is evaluated and taxed. Understanding how these two years work—and where each one applies—helps ensure accurate ITR filing, prevents mismatches with documents, and makes the overall tax process smoother.