1. HR Glossary
2. Assessment Year (AY)

Assessment Year (AY): Meaning & Definition

Assessment year is the time when businesses, small or big, pay attention to their financial goals and investments because it is the time when they have to file their income tax returns. For this reason, the assessment year is a big deal for all employers. It is not just about paying the dues but also a time when employers can evaluate their financial performance and plans they had made in the prior fiscal year.

What is an Assessment Year?

Assessment year in income tax means the period from April 1 to March 31. This is the period around which the annual revenue from the fiscal year is subject to taxation. In layperson's terms, tax returns are filed during this time. The assessment year is the year that comes after the financial year. In accountancy language, it means figuring out the rate or amount of tax, charge, or, in some cases, fine.

What is a Financial Year?

A financial year or fiscal year is a specified 12-month period that an organization, including businesses and the government, uses for accounting and reporting other economic purposes. This period is crucial for tracking various financial tasks such as income, expenses, and tax obligations. The financial year (FY) does not necessarily begin with the calendar year (January 1 - December 31), and it is quite flexible.

Difference Between Assessment Year (AY) and Financial Year (FY)

The Financial Year (FY) is from April 1st of one year to March 31st of the following year. All financial transactions and business activities are recorded and tracked during this time. This is one of the most crucial periods for people in accounting. For example, the financial year 2022-2023 starts on April 1st, 2022, and ends on March 31st, 2023. The earnings accumulated during this time are taxable in the coming year.

The “coming year” here denotes Assessment Year (AY). To explain it simply, it is the year that immediately follows the Financial Year in which total income is calculated, and a company or an individual knows how much tax is payable. It starts from April 1st, 2023, to March 31st of the next year. You can follow this guide to learn more about calculating income tax for the year 2024-25.

Important Dates and Deadlines Related to the Assessment Year

A few crucial dates exist in the AY that taxpayers cannot let slip by and must keep track of, notably if they file their taxes. It helps them to guarantee compliance with the law and avoid penalties. Below are the key dates and deadlines that ought to be confirmed:

Start of the Assessment Year

The AY begins on April 1st, following the end of the FY. For example, for income earned in FY 2022-2023 (April 1, 2022, to March 31, 2023), the AY would be 2023-2024. The assortment below shows the recent AY and FY for recent years.

1. Period: April 1, 2023 – March 31, 2024
• Financial Year: 2023 – 2024
• Assessment Year: 2024 – 2025
2. Period: April 1, 2022 – March 31, 2023
• Financial Year: 2022 – 2023
• Assessment Year: 2023 – 2024
3. Period: April 1, 2021 – March 31, 2022
• Financial Year: 2021 – 2022
• Assessment Year: 2022 – 2023

Due Date for Filing Income Tax Returns (ITR)

The standard deadline for filing ITR for individuals and non-audit cases is July 31st of the AY. For AY 2023-2024, this means the return must be filed by July 31, 2024.

Extended Due Dates

If a taxpayer is required to get their accounts audited, the due date for filing returns is extended to October 31st of the AY. For AY 2023-2024, this would be October 31, 2024.

Quarterly Tax Payment Deadlines

Taxpayers who are required to pay advance tax must do so in four installments:

First Installment: By June 15th of the FY

Second Installment: By September 15th of the FY

Third Installment: By December 15th of the FY

Fourth Installment: By March 15th of the FY

Tax Audit Report Submission

For those who are subject to a tax audit, the audit report must be submitted by September 30th of the AY.

Deadline for Revised Returns

If taxpayers need to revise their ITR, they can do so up until three months before the end of the relevant AY. For example, for AY 2023-2024, revised returns can be filed until December 31, 2024.

Deadline for Belated Returns

Taxpayers who miss the original due date can file a belated return before December 31st of the AY. However, they may face penalties and interest on any taxes owed.

Awareness of these important dates will help taxpayers manage their financial responsibilities effectively and ensure they meet all necessary requirements during the AY. Keeping track of these deadlines can prevent last-minute rushes and potential fines.

Common Mistakes to Avoid during the Assessment Year

Some individuals find filing a tax return during the assessment year intimidating. During this process, they make many common mistakes that might result in fines and proceedings. Below are some commonly made errors.

1. Selecting the Wrong Assessment Year

It creates confusion when compared to the financial year. It comes after the financial year. The assessment can only happen after earning, which is natural; it cannot happen before revenue is made. One should avoid such absurd errors. Still, if you choose an incorrect year, the tax calculation will be wrong, and the payment will be misallocated.

2. Missing Filing Deadlines

If you fail to file your Income Tax Return (ITR) before the due date, which is July 31st for individual taxpayers, then be prepared for penalties and interest charges. Make sure this does not happen so that you can avoid the consequences of late filing.

3. Using Incorrect ITR Forms

Selecting an inappropriate ITR form can lead to complications in the filing process. Each form is tailored for specific types of taxpayers and income sources; using the wrong one may result in a defective return or rejection.

4. Failing to Report All Income Sources

Taxpayers must reveal all the earning sources, including exemptions from taxation, commonly known as non-taxable allowances. There are implications if the source of income generation is not reported, including income from previous jobs, freelancing, rental properties, and many more.

5. Incorrect Personal Information

Incorrect input of information like Permanent Account Number (PAN), Aadhaar number, or contact leads to conflicts in tax returns. Maintaining proper records of all personal data for future reference is advised.

6. Not Reconciling Form 26as

Form 26AS expresses a consolidated view of tax deducted at source (TDS) and collected at source (TCS). Unsuccessful attempts to correctly match this form with personal records may result in inconsistencies that might get questioned by tax authorities.

7. Forgetting to Verify the ITR

After filing, it’s crucial to verify your ITR within 30 days; otherwise, it will be considered invalid. This step is sometimes overlooked but necessary for processing the return.

8. Ignoring Advance Tax Payments

Sometimes, when calculating the final tax liability, the taxpayers forget the advance tax payments made in the current year, leading to overpayment or underpayment.

9. Lack of Documentation for Deductions

It is essential to maintain proper documentation wherein certain deductions can be claimed under sections like 80C and 80D. If adequate proofs are not represented, claims can be disallowed during the process.

10. Not Prevalidating Bank Accounts

When taxpayers are expecting tax refunds, they must validate their bank accounts. If the taxpayers fail to do that, it can lead to delays in reimbursements and cause unnecessary frustration.

By being aware of these common mistakes and taking proactive measures to avoid them, taxpayers can ensure a smoother and more compliant income tax filing experience during the AY.

How to Prepare for the Assessment Year

Preparing for the Assessment Year (AY) is essential for ensuring a smooth and compliant tax filing process. Here are vital steps to help you get ready.

1. Organize Financial Documents

It is necessary to gather and organize all the financial documents and data like income statements (like form 16 from the employers), investments made in the financial year (like insurance premiums, public provident fund - PPF, National Pension System - NPS), and many more. Other sources of income should also be tracked, like income generated from rent, side business, or any capital gains from assets.

2. Understand Deductions and Exemptions

Learn about the tax deductions and the sections under which they fall under. For example, section 80C is for investments in specified instruments, and section 80D is for health insurance premiums. Learn about the exemptions available for certain types of income like agricultural incomes, long-term capital gains, etc.

3. Choose the Right ITR Form

One of the essential criteria to determine is under which category the business falls under, like individual, Hindu Undivided Family (HUF), or ITR form.

4. Verify TDS and Advance Tax Payments

Review Form 26AS (Annual Information Statement) for a detailed overview of the year's financial activities and verify that all the TDS deductions by employers or clients are accurate. If any advance payments in tax are made, make sure it is calculated in the current AY for final tax calculations.

5. Seek Professional Help if Needed

Remember the important filing dates, and if needed, seek professional help by consulting a tax professional like a chartered accountant (CA) or tax advisor.

By following these steps, taxpayers can prepare effectively for the AY, minimizing errors and ensuring compliance with tax regulations. Proper preparation eases the filing process and helps optimize tax liabilities through legitimate deductions and exemptions.

Conclusion

An Assessment Year is a crucial part of our tax framework. It highlights the calendar time when income earned in the previous financial year is treated for tax purposes. It allows taxpayers to file returns and pay any tax debts. Employers and HR managers must also reckon with the nuances of the same since they are in charge of both their tax liabilities and the payroll taxes of their staff members.

Frequently Asked Questions

How is the Assessment Year Determined?

The assessment year is determined based on the financial year in which income is earned. For example, income earned from 2023-2024 will be assessed in 2024-2025.

What Documents are Required to File Income Tax Returns?

The documents required for filing income tax returns may vary depending on the individual's income sources and deductions. However, standard documents include salary slips, investment proofs, rent receipts, and bank statements.

How Can I Reduce My Tax Liability?

You can reduce your tax liability by effectively claiming eligible deductions and exemptions, investing in tax-saving instruments, and structuring your income and expenses.

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