The meaning of Assessment Year (AY) and Previous Year (PY) are essential for determining the tax liability of a person for a given financial year. Therefore, let us take a brief look into these key concepts.
What is Assessment Year in Income Tax ?
“Assessment Year“ in Income Tax Act, 1961 (hereinafter referred to as the “Act”), has been defined in Section 2(9). It is a period of twelve months starting from April 1 of every year. And such period shall end on March 31 of next year. The Statute determines the Period of Assessment Year of income tax.
NOTE : –
The year in which any income is earned is Previous Year and such income is taxable in the Assessment Year.
Income earned in the Previous Year 2023-24 is taxable in the Assessment Year 2024-25.
What is Previous Year in Income Tax ?
Previous Year in income tax has been defined in Section 3 of the Act. It is the period commencing from April 1 and ending on subsequent March 31, immediately preceding the Assessment Year. The Previous Year determined, however, shall also depend on whether the business is existing business or new business. Let us understand how to ascertain the Previous Year in such cases, : –
a) Continuing business / Existing source of income – In this case, Previous Year, would mean 12 months immediately preceding the Assessment Year.
b) New business – In this case Previous Year, shall begin on the date of setting-up of business or profession and ending with 31st March of the said financial year.
c) New source of income – In this case, Previous Year shall begin from the date new source of income comes into existence and end with 31st March of said financial year.
Furthermore, take an in – depth look into the various tax implications of a Non Resident.
