In Income-tax Act, 1961 is “Assessment Year” defined in Section 2(9) as: “Assessment Year” means the period of twelve months commencing on the 1st day of April every year.
“Previous Year” is defined in Section 3 of the Income-tax Act, 1961 to mean “for the purpose of this Act, “previous year” means the financial year immediately preceeding the assessment year.
There is no difference in the period of Assessment Year & Previous Year since both are financial year/Income Year for accounting purpose.
A normal income tax assessee does not understand the difference of wordings of Assessment Year (AY) & Previous Year/ Accounting Year (AY) and gets confused in presenting his details, while paying Advance Income tax, TDS or filing the return of income Tax. Everybody considers Assessment Year (AY), previous year (PY) and Accounting Year (AY) as same.
To avoid misunderstanding or confusion among Income Tax payers (Assessees) and for keeping the records, the concept of “previous year” and “assessment year” may be replaced with the “financial year” of “previous year”. Even though, the said suggestion has been considered while framing the Direct Taxes Code, to simplify the law, it would be appropriate to bring the change in the Income-tax Act itself.
In line with the provision of section 320(92) read with section 2 of the Direct Taxes Code, 2013 the concept of “previous year” and “assessment year” may be replaced with the “financial year” to mean as below: “financial year” as per Direct Taxes Code,2013 means—
(a) the period beginning with the date of setting up of a business and ending with the closure of the business or the 31st day of March following the date of setting up of such business, whichever is earlier;
(b) the period beginning with the date on which a source of income newly comes into existence and ending with the closure of the business or the 31st day of March following the date on which such new source comes into existence, whichever is earlier;
(c) the period beginning with the 1st day of the financial year and ending with the date of discontinuance of the business or dissolution of the unincorporated body or liquidation of the company, as the case may be;or
(d) the period of twelve months commencing from the 1st day of April of the relevant year in any other case;