The Income year is the time between 1 April and 31 March in which you earn an income. Assessment year is the following year in which this income is assessed and taxed. The assessment year is the year following the Income Year in which the income is evaluated.
Determination of Income year has the following importance.
Computation of Total Income: Tax is charged in the total income of the income year, what is chargeable to tax are, therefore, the income, profits, and gains of the income year.
Determination of Tax burden: The tax liability of an assessment is determined at the rate or rates prescribed in the Finance Act in force for – the assessment year. The income year of an assessee will determine its corresponding assessment year.
Filing of Tax Return: The date for filing of return of are assessed a fixed on the basis of his income year. Thus the determination of income year is important.
Determination of Assessment year has the following Importance –
Exemptions: The provisions for exemptions and rebates of assessment year are applied to the computation of total income and tax credit income.
Tax Burden: Assessment year also has an important bearing on the tax liability of the assessee because the tax rates of assessment year are applied to calculate the tax burden of an assessee.
Different Tax Rates: Different income years and consequently different Assessment years may be determined for different sources of income of an assessee if the accounting years of these sources of income are different.