Tax :- A compulsory extraction by central govt. from the general public. It is a financial
charge.
Income Tax :- It is a charge imposed by the government on the income earned by
individuals or businesses during a financial year.
The three terms :-
• Financial Year (FY) / Previous Year (PY) : Financial year, which is also known as the
Previous year in income tax law, is the 12-month period during which an individual
or business earns an income.
Duration – It starts on April 1 of one calendar year and ends on March 31 of the
following year.
Purpose – This is the year for accounting, maintaining financial records, and
generating income.
Example – For the financial year 2024-2025, the period runs from April 1,2024 to
March 31,2025.
• Assessment year (AY) : The Assessment year is the 12-month period immediately
following the Financial Year. This is the year in which the income is earned in the
Previous year is assessed, taxed, and the Income Tax Return (ITR) is filed.
Duration – It also starts on April 1 and ends on March 31 of the following year.
Purpose – This is the year when the government or tax authorities evaluate the
income earned and tax liability from the previous year.
Example – For the income earned in the Financial year 2024-2025, the
corresponding Assessment year is 2025-2026.
• Relationship Between the Years : The key thing to remember is that the years follow
each other in a fixed sequence;
Previous Year (PY) / Financial Year (FY)
Income is always assessed and taxed in the year after it is earned.
Financial Year (FY) [Earning Period] Assessment Year (AY) [ Taxing Period]
April 1,2024 – March 31, 2025 April 1, 2025 – March 31, 2026
April 1,2024 – March 31, 2026 April 1, 2026 – March 31, 2027
Gross Total Income :- It is the sum of income from all 5 heads of income before claiming
any deductions.
5 Heads of Income :
1. Income from Head “Salaries”.
charge.
Income Tax :- It is a charge imposed by the government on the income earned by
individuals or businesses during a financial year.
The three terms :-
• Financial Year (FY) / Previous Year (PY) : Financial year, which is also known as the
Previous year in income tax law, is the 12-month period during which an individual
or business earns an income.
Duration – It starts on April 1 of one calendar year and ends on March 31 of the
following year.
Purpose – This is the year for accounting, maintaining financial records, and
generating income.
Example – For the financial year 2024-2025, the period runs from April 1,2024 to
March 31,2025.
• Assessment year (AY) : The Assessment year is the 12-month period immediately
following the Financial Year. This is the year in which the income is earned in the
Previous year is assessed, taxed, and the Income Tax Return (ITR) is filed.
Duration – It also starts on April 1 and ends on March 31 of the following year.
Purpose – This is the year when the government or tax authorities evaluate the
income earned and tax liability from the previous year.
Example – For the income earned in the Financial year 2024-2025, the
corresponding Assessment year is 2025-2026.
• Relationship Between the Years : The key thing to remember is that the years follow
each other in a fixed sequence;
Previous Year (PY) / Financial Year (FY)
Income is always assessed and taxed in the year after it is earned.
Financial Year (FY) [Earning Period] Assessment Year (AY) [ Taxing Period]
April 1,2024 – March 31, 2025 April 1, 2025 – March 31, 2026
April 1,2024 – March 31, 2026 April 1, 2026 – March 31, 2027
Gross Total Income :- It is the sum of income from all 5 heads of income before claiming
any deductions.
5 Heads of Income :
1. Income from Head “Salaries”.
