Updated on July 18, 2023
The financial year in India is a specific period of twelve months used for accounting, taxation, and financial reporting purposes. It starts on April 1st of a calendar year and ends on March 31st of the following calendar year. It is denoted as FY (Financial Year) and is commonly used to determine income, calculate taxes, and file income tax returns.
Importance of Financial year
During the financial year, individuals and businesses earn income from various sources such as salaries, investments, businesses, or other sources. The income earned during this period is considered as the income of that financial year. For example, if someone earns income from April 1st, 2022, to March 31st, 2023, it will be considered as income earned in the financial year 2022-23.
It is important to note that although income is earned during the financial year, the income tax return needs to be filed in the subsequent year, known as the Assessment Year. For example, if someone earns income in the financial year 2022-23, they will file their income tax return for the Assessment Year 2023-24.
Understanding the financial year is crucial for individuals and businesses to plan their finances, calculate their taxable income, and fulfill their tax obligations. It provides a standardized period for financial reporting and allows for consistent taxation practices across different entities and individuals.