TIMES NEWS NETWORK [WEDNESDAY, AUGUST 27, 2003 12:05:54 AM]

One of the most confusing terms in Income Tax parlance is the difference between the previous year and the assessment year. This causes a lot of confusion, both at the time of filing returns by investors, as well as when refunds are received.

The main trouble arises because the term ‘assessment year’ is used frequently in most tax-related issues, resulting in a situation where understanding of the exact period to which the issue is related becomes a little difficult.

First let us understand the terms and then see their practical use. Assessment year means the period of twelve months starting from April 1 of each year and ending on March 31 of the next year. The assessment year refers to the year immediately after the financial year

for which the tax is calculated. If we consider a real life situation then currently most people will be filing their returns for the assessment year ‘03-04. This period commences on 1 April ‘03 and ends on 31 March ‘04.

The previous year is the year in which the income is earned. This income would be taxed in the next year, which is the assessment year. Again this period starts from the April 1 and ends on March 31 of the next year. The previous year is the term used commonly by people in their normal parlance.

Let us take a very common example to understand the situation. The financial year ‘02-03 is the period for which the taxpayers will be filing their return at the current juncture. For them the previous year is ‘02-03, which is the same as the financial year and is what most people would be comfortable with. However, when it comes to the tax part, on most occasions it is the assessment year (‘02-03), which is quoted. From an assessment year a person has to go back a year to come to the period for which the tax has been calculated.

One has to be careful about this point when looking at tax returns of previous periods. For example, if you get a refund for the year ‘01-02 check carefully as to whether this pertains to the assessment year or the previous year because these terms will imply different years and with a change in years everything from the tax rate to the different benefits available will change.