While creating databases for various reasons or specifically for Income Tax records, the period is a must. The period plays a vital role in setting limits to data and having the desired data.
With this requirement comes to us the terms in consideration are “Previous Year” and “Assessment Year”. Both have very different meanings and should be distinguished thoroughly before using them.
- Tax context: Previous year is the financial year in which income is earned, while the assessment year is the subsequent year when that income is assessed and taxed.
- Time frame: Previous year precedes the assessment year by one year, with a 12-month gap between the two periods.
- Filing deadlines: Taxpayers must file their income tax returns during the assessment year for income earned in the previous year.
Previous Year vs Assessment Year
The previous year is the financial year immediately preceding the assessment year, the year in which income tax is assessed. The assessment year is the year in which the income tax department assesses the taxpayer’s income and verifies whether they have paid the correct amount of tax.
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 analysis and tax collection process takes place).
|Parameter of Comparison
|The Previous year is the year for which the data and sources of Income are collected and organized.
|Assessment Year is one in which the previous year’s data is assessed and Income tax calculated.
|It can be less than or equal to 12 months. 12 months if the activity continues the whole year, and less if either the movement started late or ended up early.
|It has to be equal to 12 months. The activity is assessed during the entire period.
|It is the financial year preceding the current financial year.
|It is the current financial year.
|The year is vital to collect data.
|The year is essential for analyzing data and calculating Income Tax
|The real activities take place this year.
|Taxes are paid 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 the 1st of April of one year to the 31st of March of the succeeding year.
It may be less than or equal to 12 months. It is similar to 12 months if the sources of income were active throughout the year and less than 12 months if the authorities were set up late or ended up before the financial year ended.
When we talk about paying or collecting taxes in the current year, the year preceding the current year is the Previous Year.
What is Assessment Year?
Every year we pay taxes over the Income earned in the Previous Year (the transactions that took place in the preceding year of the current year).
Calculation of taxes requires time for assessment, analysis 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 precisely 12 month period because the calculation, collection and assessment processes are spread over different periods of the year.
When we talk about paying or collecting taxes in the current year, it is the Assessment Year. The year is essential for managing actual Tax Revenue for the government.
Main Differences Between Previous Year and Assessment Year
- The previous year is essential for collecting data regarding the sources of Income and their activity. In contrast, the Assessment year is necessary for the assessment of Income Tax revenue by the Government.
- The actual transactions and data collection takes place in the previous year, while the Government’s calculation and collection of taxes happen in the Assessment Year.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.