The Government of India follows a hundred and fifty years old method for calculating the Financial Year in India, which is a period of 12 months used to estimate and analyze the government’s financial accounts. Currently, the financial year runs from the 1st April to the 31st March of the subsequent year. It was adopted in 1867 by the Britishers to align it with their countries’ practices.
What is a Financial Year in India?
The financial year or fiscal year represents the year in which you have earned the income. In India, this period starts from 1st April of the calendar year and ends on 31st March of the next year. The term “Financial Year” is also commonly known as FY.
An individual is required to calculate and plan taxes for the financial year, but the income tax return is to be filled in the subsequent year. For example,
- The income an individual earns in the period of 1st April 2020 to 31st March 2021 comes under the current Financial Year (FY) 2020-21.
- Also, any income earned by an individual from 1st April 2020 to 31st March 2021 can be easily termed as income earned in Financial Year (FY) 2020-21.
What is an assessment year?
Assessment year signifies the year (from 1st April to 31st March) in which income earned by you in a specific financial year is taxed. It is required by all citizens to file their income tax returns in the relevant assessment year. The assessment year is the year just next to the Financial Year in India. For instance,
- Income earned in the current Financial Year 2021-22 (i.e. from 1st April 2021 to 31st March 2021) will be taxable in Assessment Year 2022-23 (i.e. from 1st April 2022 to 31st March 2023).
- The income generated in the Financial Year 2020-21 (i.e. from 1st April 2020 to 31st March 2021) will be included in the Assessment year 2021-22 (i.e. from 1st April 2021 to 31st March 2022).
Examples of Financial and Assessment Year
The difference between Financial Year and Assessment Year can be easily understood with the help of the following table:
|Year starts from||Year ends on||Financial Year/ Fiscal Year/ Previous Year||Assessment Year|
|1st April 2017||31st March 2018||2017-18||2018-19|
|1st April 2018||31st March 2019||2018-19||2019-20|
|1st April 2019||31st March 2020||2019-20||2020-21|
|1st April 2020||31st March 2021||2020-21||2021-22|
|1st April 2021||31st March 2012||2021-22||2022-23
Based on the tax perspective, the Financial year is the year in which a person generates his income. Assessment year is the subsequent year in which calculation of the previous year’s income is done, tax is levied on the same and ITR is filed.
For example, if we consider the financial year from 1 April 2012 to 31 March 2013, it will be called Financial Year 2012-13. The assessment year starts after the ending of the financial year, so the assessment year of F.Y 2012-13 would be 2013-14.
Why does the Indian Financial Year begin from 1st April and not 1st January?
The reason why the Financial Year starts from 1st April and not 1st Jan is a mystery. However, these are some of the expected reasons for such an occurrence:
- The Britishers ruled India for more than 150 years. And in Britain, the financial year begins from 1st April and not 1st Jan. This could be the reason that the same concept has been applied to India as well. After gaining Independence, the Indian Govt didn’t bother about changing this.
- According to the Hindu calendar, the New Year starts in April, and this also could be a reason why the government also considered starting the financial year from April itself.
- Prior to Independence, India was struggling to keep its population well-fed and healthy. After Independence, India focused a lot on agriculture, which is evident from various schemes launched by the government like the Green revolution. Moreover, the crop season in India also starts in April and ends in March. This could also be a factor that the Indian Financial Year begins from 1st April and not 1st January.
- Another significant reason may be that the months of November and December are considered as Festive Season in India due to the festivities like Diwali, Chhath, Christmas etc. The financial transactions between this period are very high, and bookkeeping becomes hard to organize. In addition, employees of many organizations are on vacation during this period, due to which it becomes challenging to close the books during this period.
Why does an ITR form have AY?
The Income Tax Return form consists of an assessment year because the income generated in any specific financial year is evaluated and taxed in the assessment year.
What about the Financial Year followed globally?
In India, the 12 months financial period begins from 1st April and ends on 31st March. However, such a thing is not followed in all the countries, and most have their own defined period of 12 months for the purpose of counting the financial year.
ITR filing for the financial year 2021-22
The Income Tax Return (ITR) is a yearly ritual for Indian citizens and other taxpayers residing in the country. The tax return is required to be filled for the assessment year of 2022-23 or the financial year 2021-22.
Income Tax Slab
|Income Tax Rate|
|Up to ₹ 2,50,000||Nil|
|₹ 2,50,001 – ₹ 5,00,000||5% above ₹ 2,50,000|
|₹ 5,00,001 – ₹ 7,50,000||₹ 12,500 + 10% above ₹ 5,00,000|
|₹ 7,50,001 – ₹ 10,00,000||₹ 37,500 + 15% above ₹ 7,50,000|
|₹ 10,00,001 – ₹ 12,50,000||₹ 75,000 + 20% above ₹ 10,00,000|
|₹ 12,50,001 – ₹ 15,00,000||₹ 1,25,000 + 25% above ₹ 12,50,000|
|Above ₹ 15,00,000||₹ 1,87,500 + 30% above ₹ 15,00,000|