Assessment Year (AY) & Previous Year. What is Assessment Year (AY) and What is Previous Year (PY). Meaning of ‘Assessment Year’ & ‘Previous Year’ under Income Tax. As a taxpayer, you need to understand the basic tax concepts. Why not start with Assessment Year (AY) and Previous Year (PY)? They are key time periods which will determine the taxability of your transactions and income. So let’s start with them.
Assessment Year (AY) & Previous Year (PY)
What is PY (Previous Year)?
Previous Year is also known as Financial Year (FY). It is a period which starts with April 1st and ends on 31st March of the next year. It is the year in which the taxpayer earns income.
What is AY (Assessment Year)?
Assessment Year comes after PY or FY. This is the year where the income earned in PY is evaluated and tax is calculated on such income. It is the year in which income pertaining to PY is assessed and taxed.
If Mr. A earns income in PY or FY 2014-15 (April 1st 2014 till March 31st 2015), then he will be liable to be assessed for such income in AY 2015-16 (April 1st 2015 till March 31st 2016). So, Mr. A will file his return of income in AY 2015-16 (on or before 31st July 2016) for his income pertaining to PY 2014-15.
Exceptions to definition of Assessment year
As mentioned before, income earned in FY is assessed and taxed in AY. However, there are certain transactions or events, in respect of which such income earned in FY/PY is taxed in that year itself, instead of taxability in AY. Such exceptions are explained as below.
Shipping Business of Non Resident (NR)
Where any NR owns any ship or charters any ship carrying passengers, livestock or mail, etc., where such items are shipped to Indian Port, then amount equal to 7.5% towards total freight, demurrage charges etc. shall be deemed as income of NR. Master of the ship is responsible to pay tax and file return of income in the same year where he has earned or deemed to earn the income.
Any Person leaving India who has no intention of returning to India
If the Assessing Officer suspects that any person will not return to India then, he will order that such person should file the return of income in the same year without waiting for the AY.
AOP (Association of Persons) or BOI (Body of Individuals) formed for a particular event
Where an AOP or BOI is formed for a particular event, then the AO may order the same to pay the taxes and file the return of income, in the same year in which it gets dissolved.
Any Person likely to transfer property to avoid tax
Where any AO suspects that any person is going to transfer any asset to avoid tax, then he may order that the said person should pay the tax on such asset to be transferred, in the same year.
Where the business is discontinued in a year, then the owner of such business will be directed to file the return of income and pay taxes if applicable.
Income tax return is generally prepared in the AY, except the above situations mentioned as exceptions. So now you need not ask your financial planner again and again about AY and PY.