In India, it is essential to be aware of the terms ‘tax year’, ‘financial year’ and ‘fiscal year’. These time references assist in organising your financial records, filing returns and making investment choices.
The main goal of this article is to define each term and its relevance for people living in India and companies that operate here.
What is a tax year in India?
Tax year in India is also called assessment year (AY) for Indian citizens. The payment for tax on income earned in the preceding financial year is made at this time. This schedule runs from 1st April to the end of next March.
When someone earns in the financial year 2023-24, they must pay taxes in the next year, 2024-25. It is important to remember these years so that one will not file income tax returns late and keep up with tax legislation accurately.
What is a financial year?
Beginning on April 1 and running until March 31, a fiscal year is one year. Organisations and the government use this time frame for accounting reasons. In this period, individuals generate income that will be reported as taxable income.
For instance, a fiscal year of 2023–24 would commence on the 1st of April 2023 and end on the 31st of March 2024. Normally, companies prepare other financial statements such as balance sheets, income statements, and statements of cash flows.
What is a fiscal year?
A fiscal year can often be seen to mean a financial year. This is because these terms are used interchangeably in India. However, this may not always be the case in other countries. It starts on April 1st of the present month and ends on March 31st of next year.
This span is what governments and entities use for budgeting, reporting financially, and auditing. When preparing their accounting reports, companies that operate worldwide also need to consider other nations’ fiscal years.
Also read: Fiscal year – Meaning, concept, relevance and benefits
Difference between financial year and assessment year
AY is the duration when revenue is taxed and appraised. FY denotes the time within which earnings are made. In other words, revenue of FY 2023–24 will be taxed during AY 2024–25.
This difference is significant for tax purposes. In AY 2024-25, you have to complete tax returns for earnings received within FY 2023-24; therefore, understanding this discrepancy between the two periods allows me to file them promptly and avoid penalties.
Must read: Mastering the tax tango: Financial year and assessment year
Importance of the financial year and tax year
In order to make sound financial decisions and avoid legal issues, one must be able to distinguish between a tax year and a fiscal year. This enables people to create investment strategies, request for deductibles or rebates and quickly file tax returns with the concerned bodies.
It helps businesses make budgets, make financial statements, and do audits. Aligning financial activities with the financial year makes sure that reports are correct and that rules are followed, which protects the company’s finances and reputation.
Key dates and deadlines
The following are important dates for the financial year, the tax year, and the assessment year:
- April 1: Start of the financial year.
- March 31: Financial year end.
- July 31: Deadline for the submission of individual tax returns (subject to extensions).
- October 31: Deadline for filing company tax returns.
In case of disobeying them, one may incur a charge or interest. To prevent extra charges, people must follow the rules within the given deadlines precisely.
You may also like: What is ITR? How to file ITR Declaration?
Bottomline
To ensure financial planning and compliance with the law, it is necessary to know what distinguishes a financial year from an assessment year. It enables individuals to develop investment plans, seek allowances and meet tax return deadlines.
In order not only to optimise their financial activities but also to conform to regulatory requirements, both individuals and businesses ought to stay updated on changes that occur within this field and get help from professionals.
FAQs
- Which year to select for ITR?
Select the fiscal or assessment year when you turn in your ITR. A fiscal year, which lasts for 12 months, commences on April 1st and ends on March 31st. This is when income is earned, while assessment years come after them. Tax is levied only after income has been assessed. Only once income has been determined as taxable income is when the tax levied on it. As a result, anyone earning money in FY 2023-24 will be required to submit their ITR for AY 2024-25.
- What are the 4 quarters of the financial year?
A year of accounts goes on for 12 months and four quarters. A quarter, which is 1/4 part of a year, lasts three months. For instance, Q1 starts from April 1st to June 30th that also marks the beginning of another financial cycle; next follows Q2 which runs from July 1st through September 30th; then comes Q3 starting October 1st until December 31st; finally, Q4 covers January 1st up to March 31st – the day by which another fiscal period gets completed.
- What is the last date for TDS?
The deadline for depositing TDS depends on the type of payment and the individuals involved. TDS is typically due to be deposited by the seventh day of the following month, at the latest. For instance, the TDS for April is May 7th. However, in the case of TDS deducted in March, the last date is April 30th. The due date may differ for TDS on rent and certain other payments.
- Which state in India is tax-free?
In Sikkim, the majority of its residents are not required to pay taxes according to the law, which is a unique feature of the region in India. This unique feature comes from the Sikkim Income Tax Manual, 1948, which prohibits people from paying income tax in certain situations. Furthermore, this Indian region offers many more exemptions on central and state taxes, thus making it an attractive place for those looking for a tax haven. This special tax status results from historical agreements and the state’s integration into India.
- Does TDS expire?
Nevertheless, Tax Deducted at Source (TDS) is a perpetual method of tax collection without an expiry date, in which the payer withholds and remits taxes on specific payments like salaries, interest, and rent to the government. Using credit, the receiver can apply this TDS towards their total tax amount for the fiscal year. However, the deductor may face penalties/interest if they fail to deposit TDS by the specified dates.
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