What is Previous Year in Income Tax?

You may have come across terms like "in the previous financial year" while reading through various sections of the Indian Income Tax Act. But what is previous year in income tax? The income earned in the current year is subject to taxes in the next year, per the Income Tax Law. The year in which money is earned is called as previous year in tax.

What is the Definition of Previous Year in Income Tax?

In Indian taxation, the Previous Year (PY) refers to the 12‑month period during which a taxpayer earns income, which is then assessed for tax in the following year, known as the Assessment Year (AY).

1. As per Section 3(1) of the Income-tax Act, “previous year” means the financial year immediately preceding the assessment year. 

2. Practically speaking, the previous year starts on 1st April and ends on 31st March of the next calendar year.

3. For example, if you earned income between 1st April 2024 and 31st March 2025, that period is your Previous Year (FY 2024–25). The corresponding Assessment Year for this income is AY 2025–26, during which you file your ITR and pay applicable taxes.

Why is Defining the Previous Year Important? 

It is because only income earned within this defined timeframe is reported and taxed in the associated Assessment Year. It ensures clarity in the computation of taxable income, deductions, and deadlines.

Get Help in Tax Assessment and Payment by Experts at NoBroker. 

Wondering

What is Previous Year in Income Tax

? Let me help you with the same.

The previous year meaning in income tax is the financial year preceding the assessment year. The assessment year is the year immediately following the previous year, during which the income earned in the previous year is assessed and taxed.

What Do You Mean by Previous Year in Income Tax?

For instance, if the current assessment year is 2023-24, then the previous year would be 2022-23.

• The income earned during the previous year is assessed for tax purposes in the assessment year. This includes income from various sources such as salary, business or profession, capital gains, house property, and other sources like interest on savings, dividends, etc.

• Individuals and entities are required to file their income tax returns for the previous year during the assessment year.

• Understanding the previous year is crucial for taxpayers to compute their taxable income accurately. They need to maintain records of their financial transactions, receipts, and expenditures for the relevant previous year to ensure compliance with the income tax laws.

• Additionally, taxpayers need to be aware of any changes or amendments made to the income tax provisions applicable for the particular previous year.

• Furthermore, tax planning strategies often revolve around the previous year's income and deductions. Taxpayers may engage in various tax-saving investments and expenditures to minimize their tax liability for the previous year.

• These could include investing in tax-saving instruments like Public Provident Fund (PPF), Equity Linked Savings Schemes (ELSS), National Savings Certificate (NSC), or claiming deductions under Section 80C for expenses such as tuition fees, life insurance premiums, etc.

This is all about

what is Previous Year in Income Tax

.

 Read more