What is the difference between Previous Year and Assessment Year?

Difference Between Previous Year and Assessment Year

There is always a confusion among taxpayers about the Previous Year and Assessment Year. Most people usually take them in a similar way and commit mistakes while filing income tax returns.

The time period plays an important part while filing the income tax returns – the time period decides within which particular time period data should be collected. The financial period/year for the accounting is 1st April of the year to 31st March of the next year.

The financial year time period gave birth to two more terms – Previous Year and Assessment Year. Both terms have different meanings, and you should have a proper understanding of them.

Income tax is paid as a percentage of income sources in the financial year, from 1st of April to 31st of March of next year. The year in which income is generated is known as the ‘Previous Year’ according to the income tax act. The time duration of it can be less than or equal to twelve months. It depends on how long the income sources were active.

The tax shall be paid every year over income earned in the previous year. Every taxpayer does not pay taxes at the same time, so income tax calculation requires the time of assessment.

The years in which steps are taken to pay the tax is known as Assessment Year. The assessment year is exactly twelve months, and if anyone pays taxes in the current year, the current year itself will be the – Assessment Year.

Difference Between Previous Year and Assessment Year

• The previous year can be understood as the year in which data and income activities are collected, while the assessment year can be defined as the year in which income tax is calculated and paid.
• The previous year can be twelve months or less than twelve months, while the assessment year is always exactly twelve months.

The previous year becomes the year that provides the source of income activities, and data is collected. The assessment year is simply the year in which the previous year’s output is paid as an income tax.