Assessment Year (AY) & Previous Year. What is Evaluation Year (AY) and What is Previous Year (PY). Significance of ‘Assessment Year’ & ‘Previous Year’ under Income Tax. As a taxpayer, you require to understand the fundamental tax concepts. Why not start with Assessment Year (AY) and Previous Year (PY)? They are crucial time periods which will figure out the taxability of your transactions and income. Let’s begin with them.
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Assessment Year (AY) & Previous Year (PY)
What is PY (Previous Year)?
Previous Year is also referred to as Financial Year (FY). It is a period which starts with April 1 st and ends on 31 st March of the next year. It is the year in which the taxpayer makes income.
What is AY (Evaluation Year)?
Evaluation Year comes after PY or FY. It is the year in which income pertaining to PY is examined and taxed.
Example
If Mr. An earns income in PY or FY 2014-15(April 1 st2014 till March 31 st2015), then he will be accountable to be assessed for such earnings in AY 2015-16(April 1 st2015 till March 31 st2016). So, Mr. A will file his return of income in AY 2015-16(on or before 31 st July 2016) for his earnings relating to PY 2014-15
Exceptions to definition of Evaluation year
As discussed before, income made in FY is evaluated and taxed in AY. There are certain deals or occasions, 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 Company of Non Local (NR)
Where any NR owns any ship or charters any ship bring passengers, livestock or mail, etc., where such items are shipped to Indian Port, then amount equivalent to 7.5% towards total freight, demurrage charges etc. shall be deemed as earnings of NR. Master of the ship is accountable to pay tax and file return of earnings in the same year where he has actually made or deemed to earn the income.
Anyone leaving India who has no intent of going back to India
If the Assessing Officer believes that anyone will not go back to India then, he will buy that such person should file the return of income in the same year without awaiting the AY.
AOP (Association of Individuals) or BOI (Body of Individuals) formed for a particular occasion
Where an AOP or BOI is formed for a particular occasion, then the AO may order the exact same to pay the taxes and file the return of earnings, in the exact same year in which it gets dissolved.
Anybody likely to transfer property to prevent tax
Where any AO suspects that anybody is going to transfer any possession to prevent tax, then he might purchase that the stated person ought to pay the tax on such possession to be moved, in the very same year.
Terminated service
Where the business is discontinued in a year, then the owner of such company will be directed to file the return of earnings and pay taxes if appropriate.
CONCLUSION
Tax return is typically prepared in the AY, except the above circumstances mentioned as exceptions. So now you need not ask your monetary coordinator again and once again about AY and PY.
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