When you are young, your years have only two names calendar year and academic year. As you grow up and become a part of society as a taxpayer, the definition of years changes again. New terms such as assessment year and financial year are introduced. But are these two the same?
No, they’re not. The assessment year and financial year may seem similar, but they are not the same. If you don’t want to pay fines and penalties for late or improper tax return filing, you have to learn the difference between these two terms. So, let’s explore what a tax assessment year is and the various things you should know about it.
- An assessment year starts from the same date as the financial year only a year after the start of the particular financial year.
- Tax assessment is a process to ensure taxpayers are paying their taxes honestly, without any malpractice in place.
- Tax assessments are of various types the easiest of which is self-assessment.
- One thing you should remember while filing taxes during the assessment year is to ensure your Aadhar and PAN card are linked.
What is an Assessment Year?
The financial year (FY), which starts from 1st April to 31st March of the following year, is the time in which you earn your yearly income. Once the period is over, on 1st April of the next year, the assessment year (AY) for the previous financial year begins. It lasts till 31st March of the following year, just like the financial year. During this period, the taxes and the liabilities of the income earned in the previous financial year are calculated.
Here is a simple example to aid your understanding of the concept better.
Financial Year 2022-23 starts from 1st April 2022. Assessment Year 2022-23 starts from 1st April 2023. It’s crucial to get this difference right because otherwise, your tax filing will be totally wrong. If you file your taxes in the wrong assessment year, it will relate to the earnings being associated with the wrong financial year and the whole filing being wrong.
What is Tax Assessment?
In any financial year, if an individual earns more than the basic exemption limits of income tax in that financial year, they must submit an Income Tax Return. What is an income tax return? It is a statement detailing all your earnings in a financial year along with any deductions and other relevant information. Once submitted, the income tax returns are processed by the income tax department of India.
In some instances, due to various guidelines and parameters put in place by the Central Board of Direct Taxes (CBDT), the returns you submit may be picked for government assessment. This process is called tax assessment. But, what exactly happens in tax assessment?
The government goes through the statements you have submitted to figure out if you have disclosed all your income adequately and have been taxed appropriately or not. It is also checked if you have paid all your taxes or not. In case if your tax assessment shows you have unpaid taxes or hidden income, you will most probably face penalties and other fines levied by the income tax department. It may also include seizing and selling property, goods, and other valuables by the department.
Difference Between Assessment Year and Financial Year
A lot of people use these terms interchangeably. However, we’ll like to break the bubble and tell you that the financial year and assessment year are different.
A financial year is a period in which you received your money. It commences on 1st April and ends on 31st March of the next calendar year. On the other hand, an assessment year is a period during which you are taxed on the money received in a given financial year. The year immediately after the financial year is an assessment year.
For example, in the Assessment Year 2021-2022, income gained in the financial year 2020-2021 will be taxable.
Did You Know?
You may get/receive a notice from the income tax department if there are any discrepancies, errors, or mistakes in your income tax return filing.
Types of Tax Assessments
There are mainly seven types of tax assessments that you can go through. Let’s take a detailed look at each of these tax assessment types and how they work.
In self assessment tax return, you are solely responsible for figuring out the amount of income tax payable to the government for that financial year. The process begins with you finding out your income for the financial year by consolidating the income information from various sources. Once you have it, any deductions or losses can be deducted from the amount. This equates to your total income for that financial year. Once you have your total annual income, you have to deduct any advance tax paid and TDS returns from the amount. If any amount remains, that is taxable, and the income tax for the remaining amount must be paid before filing the ITR. This entire process of assessing your income and figuring out your taxes is known as gov self-assessment and the tax that comes from it is called pay self asses Learn all the things you need to know about tax assessment, its various types, and what you should keep in mind while filing your ITR assesment tax.
The regular assessment is conducted by the income tax department. The department authorizes an assessing officer no lower than the rank of an income tax officer to conduct this type of assessment. This type of assessment is serious and is only called for when the CBDT finds various parameters ticked off, calling for this scrutiny assessment. This assessment aims to determine whether the taxpayer has truthfully disclosed and submitted their ITRs or not. Specific aspects that are scrutinized in this type of assessment are proper income disclosing, overstating expenditure or loss, and, lastly, underpaying taxes intentionally or unintentionally.
If you are chosen for this assessment, the department will serve you an official notice well in advance. After you receive a notice, you have to show accounts and books proving your income in the tax return. You may also be asked/required to produce additional evidence to support your tax return, which will be verified by the assessing officer. Once the assessing officer has gone through all the books and evidence, they will either confirm the tax returns as correct or make additions to them. This process raises an income tax demand, which you must address accordingly.
Contrary to regular assessment that uses an income tax officer to verify the records, summary assessment is a process that does not require any human intervention. The income tax department verifies the tax returns you submit using data in this assessment process. The cross-checking is done to ascertain the standard of correction of the filed returns as well as the reasonableness of the filed returns. This process is completely online and is capable of calculating and adjusting for arithmetic mistakes and figuring out incorrect claims.
For example, if you have filed for credit for TDS claimed, the software would cross-check the data you submitted with your PAN card’s data. This is done to see if the credit you are claiming matches or not with the department records. If the records don’t match up, the software will make necessary adjustments. The adjustments can increase your tax liability. If that happens, you will be served an intimation from the income tax department. The intimation is sent under Section 143 (1) and must be responded to accordingly.
Income Escape Assessment
In the case of income escape assessment, the assessing officer, with reasonable doubt to believe that any income has escaped taxation, calls for the assessing or reassessing of your income. The call for reassessment must be done within four years of the respective assessment year. Below are some scenarios in which an assessing officer may call for a reassessment of your income tax returns.
- You have not disclosed taxable income in your returns
- You have either understated your income or overstated your expenditure or deductions in your income tax returns
- You have failed to provide proper documentation for international payments
In the case of income escape assessment, the period required for your case to be solved can significantly differ based on your case. You can get professional assistance from a chartered accountant if you are undergoing an income escape assessment.
Best Judgement Assessment
Best judgement assessment is called upon only when you have not complied with any of the orders or notices from the income tax department. Some of the scenarios in which this type of assessment can be called upon are
- If you have not responded or produced the necessary documents asked for in notices from the income tax department in the stipulated time.
- If you have not managed to file your ITR within its due date or within the allowed extended timeline as permitted by the CBDT.
- You have failed to comply with the special audit ordered by the income tax department.
- You have failed to comply with the terms mentioned in the notice to your summary assessment.
In the case of best judgement assessment, the assessing officer listens to your argument, reviews your evidence, and then passes the best judgement based on the information and evidence available to them. This process is known as best judgement assessment.
Word to Remember
TDS, which stands for Tax Deducted at Source, is a type of income tax levied on any income generated from employment, asset sales, or dividends. In this tax, your employer or the buyer of your assets deducts the owed tax value from your income before paying it.
Things to Remember While Filing Tax During Assessment Year
Filing your income tax returns can be a challenging process, especially if it is your first few times. Here is an overview of things you must remember while filing your income tax returns.
Link Aadhar & PAN Card
If you don’t link your Aadhar and PAN card, your income tax return will not be processed. Your PAN card will also be deactivated if it is not linked to your Aadhar card. Linking your PAN and Aadhar card is relatively easy and can be done through SMS or the income tax e-portal.
Fill Out The Appropriate Income Tax Return Forms
If you are new to tax filing, you must be careful with this step. The forms you need to fill up for filing your tax returns are based on various aspects. Your income and whether you are an individual or business owner or a resident or non-resident are some aspects that define your appropriate ITR forms.
Verify All Pre-filled Details On The Forms
To make it easier for you to fill out the ITR forms, the finance department has made provisions so that the ITR forms come with pre-filled details for certain fields. Some fields that come pre-filled include salary details, TDS, and tax payments. To ensure that your ITR is correct and does not get called for assessment, you must verify and cross-check the pre-filled details on your ITR forms. You can verify the pre-filled details using the relevant evidence documents for the respective fields to ensure the pre-filled details are accurate.
Old or New Tax Regime
This is one of the aspects that was launched quite recently and is an option that you can choose based on your tax liabilities and income. Going for the new or old tax regime has its respective benefits and disadvantages. However, what you should try to be careful about is declaring them clearly at the start of a financial year to your employer. This will ensure that your ITR is filed and processed without any hassle.
Tax assessment is not something you should be scared of if you have not committed any malpractice in your ITR filing. In case of any human errors committed during the filing of your ITR, they can be scrutinized and adjusted accordingly by summary assessment. All you need to do is stay aware of any notice you receive from the income tax department and do the needful from each notice in the stipulated timeline.
No, the assessment year and financial year are not the same things. The financial year in India starts on 1st April of any calendar year. The assessment year for that particular financial year starts on 1st April of the subsequent calendar year.
In India, the fiscal year is the same as the financial year and begins on the 1st April and ends on 31st March of the following year. The assessment year is the next fiscal year, where a taxpayer’s income is assessed.
The income from any particular financial year can not be assessed before or during that period. So, to evaluate the earnings of a taxpayer, ITR is processed during the assessment year.