In Indian tax laws, the Assessment Year (AY) is the 12-month period starting from April 1 to March 31 of the following year in which the income earned in the previous year is assessed, taxed, and filed. For example, if income is earned between April 1, 2023, and March 31, 2024, then the Assessment Year would be 2024–25. During this year, taxpayers file their Income Tax Returns (ITR) and the Income Tax Department assesses the tax liability for the income earned in the preceding year.
Paragraph 2 – Legal Definition and Provisions
The term “Assessment Year” is legally defined under Section 2(9) of the Income Tax Act, 1961, which states:
“Assessment year” means the period of twelve months commencing on the 1st day of April every year immediately following the previous year.
Additionally, Section 3 of the Income Tax Act defines the “Previous Year”, which is the financial year in which the income is earned. The Income Tax is charged in the Assessment Year following the Previous Year, except in some special cases like income of non-residents, discontinued businesses, etc.
Paragraph 3 – Importance of Assessment Year
The concept of the Assessment Year is crucial because it serves as the reference point for all income tax proceedings. Returns, assessments, audits, penalties, and refunds are all tied to the Assessment Year. Filing returns for the correct AY ensures accurate reporting of income and timely processing. Errors in selecting the correct AY during ITR filing can lead to rejection of returns or delay in refunds.
Paragraph 4 – Mnemonic to Remember Assessment Year
Use the mnemonic “A.Y.R.S.” to easily remember key aspects of the Assessment Year:
- A – Assessment takes place
- Y – Year after income earned
- R – Returns are filed
- S – Section 2(9) defines it
