Assessment Year & Previous year
Meaning of Assessment Year [ Section 2 ( 9 ) ] Assessment Year means the period of 12 months commencing on the first day of April every year . It is , therefore, the period from 1st of April to 31st of March , for example , the assessment year 2015-16 will commence on 1-4-2015 and end on 31-3-2016 . The tax is levied , in each assessment year , with respect to or on the total income earned by the assessee in the previous year .
Meaning of Previous year [ Sections 2 ( 34 ) & 3 ] As per section 2 ( 34 ) previous year means the previous year as defined in section 3. According to section 3 , previous year means the financial year immediately preceding the assessment year .
• Income - tax is payable on the income earned during the previous year and it is assessed in the immediately succeeding financial year which is called an assessment year. Therefore, the income earned during the previous year 1-4-2014 to 31-3-2015 will be assessed or charged to tax in the assessment year 2015-16 . .
Assessment year is the year just succeeding the Financial Year. For e.g. Income earned in the current Financial Year 2020-21 (i.e. from 1st April 2020 to 31st March 2021) will become taxable in Assessment Year 2021-22 (i.e. from 1st April 2021 to 31st March 2022).
All assessees are required to follow a uniform previous year i.e. the financial year ( 1st April to 31st March ) as their previous year . Previous year , for Income Tax purposes , will be financial year which ends on 31st of March although the assessee can close his books of account on any other date e.g. an assessee may maintain books of account on calendar year basis but his previous year , for Income Tax purpose , will be financial year and not the calendar year .
First previous year for a business / profession newly set - up during the financial year or for a new source of income In case a business or profession is newly set up or a new source of income comes into existence during the financial year , the period beginning . from the date of setting up of the business or from the date the new source came into existence , and ending on the last day of that financial year i.e. 31st of March shall be the first previous year for that business or source of income .
For example , if a new business is set up on 21-10-2021 then u first previous year for that business will be the period starting from 21-10 2021 to 31-3-2022 . Therefore , the first previous year of a newly setup business profession or a new source of income will be either 12 months or less than 12 months . It can never exceed a period of 12 months .
