Difference Between Previous Year and Assessment Year

While creating databases for various reasons or specifically for Income Tax records, the time period is a must. The time period plays an important role in setting limits to data and to have the desired data.

With this requirement comes to us, the terms in consideration “Previous Year” and “Assessment Year”. Both have very different meanings and should be distinguished thoroughly before using any one of them.

Previous Year vs Assessment Year

The main difference between Previous Year and Assessment Year is that while Previous Year is the year when the actual transactions happened or the period to which our data of Income sources belong, Assessment Year is the following (for tax revenue collection) or any other year in which the data is processed.

Previous year vs Assessment

For instance, if we have to process and evaluate the tax records of 2019, the previous year would be 2019 (the year for which data is collected), while 2020 would be the assessment year (when the actual process of analysis and tax collection takes place).


 

Comparison Table Between Previous Year and Assessment Year (in Tabular Form)

Parameter of ComparisonPrevious YearAssessment Year
MeaningThe Previous year is the year for which the data and sources of Income are collected and organized.Assessment Year is one in which the data of the previous year is assessed and Income tax calculated.
Time durationIt can be less than or equal to 12 months. 12 months if the activity continues the whole year and less if either the activity started late or ended up early.It has to be equal to 12 months. The activity is assessed in entire period.
Financial YearIt is usually the financial year preceding the current financial year.It is usually the current financial year.
NeedThe year is important to collect data.The year is important to analyze data and calculate Income Tax
ProcessesThe real activities take place in this year.Taxes are paid in this year.

 

What is Previous Year?

We pay Income Tax as a percentage of all the sources of income in the financial year which starts from 1st April of one year to 31st March of the succeeding year.

It may be less than or equal to 12 months. It is equal to 12 months if the sources of income were active throughout the year and less than 12 months if the sources were set up late or ended up before the financial year ended.

When we talk about paying taxes or collecting taxes in the current year, the year preceding the current year is the Previous Year.

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What is Assessment Year?

Every year we pay taxes over the Income earned in the Previous Year (that is, the transactions that took place in the preceding year of the current year).

Calculation of taxes requires time for assessment, calculation and payment of taxes. All these processes are undertaken in the year, succeeding the year for which the taxes are collected.

It is a full financial year (that is, 12 months). It is exactly 12 month period because the processes of calculation, collection and assessment are spread over different periods of the year.

When we talk about paying or collecting taxes in the current year, the current year itself is the Assessment Year. The year is important for collection of actual Tax Revenue for the government.

assessment year

Main Differences Between Previous Year and Assessment Year

  1. Previous Year is important to collect data regarding the sources of Income and their activity while the Assessment year is important for the assessment of Income Tax revenue by the Government.
  2. The actual transactions and data collection take place in the previous year while the calculation and collection of taxes by the Government happens in the Assessment Year.

 

Conclusion

The previous year is the year which becomes the source of Income activities and the year for which data is collected whereas Assessment year is the year in which the outputs of the previous year are subjected to taxes levied by the government.

The differentiation between the previous year and the assessment year becomes very important to understand the basic concepts and principles of tax collection and to assess the data more efficiently.


References

  1. https://help.myitreturn.com/hc/en-us/articles/219720747-What-is-an-Assessment-Year-
  2. https://tax2win.in/tax-glossary/previous-year
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