If you’ve ever tried filing your income tax return, one of the first things that confuses most people is the difference between financial year and assessment year. They sound similar, they follow the same April–March cycle, and yet, the government treats them as two separate concepts. This confusion is so common that even salaried individuals who have been filing returns for years often mix the two up.
To remove this confusion, the Income Tax Act defines these terms very precisely. And the definition of the “assessment year” comes from Section 2(9) of the Income-tax Act, 1961. Although it looks like a short definition, it forms the foundation on which the entire tax system works. Once you understand this one section clearly, everything else — from filing returns to choosing the right ITR form — becomes much more logical.
What Exactly Does Section 2(9) Say?
Section 2(9) of the Income-tax Act, 1961 defines the term “assessment year.”
According to the section, the assessment year means the period of twelve months commencing on the 1st day of April every year.
That’s it — simple, direct, & extremely important.
So the assessment year always runs from 1 April to 31 March of the following year.
But here’s the part most people miss:
The assessment year is the year in which income earned during the previous year is assessed & taxed.
So:
- Income you earn in FY 2024–25
is taxed in Assessment Year 2025–26.
This time gap allows both taxpayers & the government to calculate, review, and file taxes properly.
Why the Assessment Year Exists — The Real Reason
Imagine if the government tried to tax your income in the same month you earned it.
It would chaos. Companies wouldn’t have time to finalize books. Individuals wouldn’t know their annual income yet. Banks, employers, and deductors wouldn't have complete statements ready.
So the tax system follows a clear two-step process:
Step 1 – Earn income in the financial year (April to March)
Step 2 – File & assess that income in the assessment year
Section 2(9) provides the formal definition that locks this structure into law. Without this definition, the entire tax filing framework would collapse.
Also Read: Assessment Year (AY) – The Year Your Income is Taxed and Assessed
Understanding Assessment Year in the Income Tax Act, 1961 — Explained Like a Real Expert
The “assessment year” is mentioned everywhere — audit reports, deduction sections, Form 26AS, ITR forms, AIS, TIS, and even tax notices. But it makes sense only once you see how it’s actually used.
During the assessment year:
- you file your ITR
- you calculate your final tax liability
- the department reviews your income"
- the Assessing Officer can send notices, seek clarifications, or finalize assessments
So the assessment year is essentially the “review year” where the tax department examines the income earned during the previous year.
It is not the year of earning money — it’s the year of verifying & taxing that money.
Financial Year vs Assessment Year — The Confusion Ends Here
Even though both run from April 1 to March 31, they are used for different purposes.
Financial Year (FY)
The year in which the income is earned.
Assessment Year (AY)
The year in which the income is taxed.
A quick example:
|
Income Earned From |
Financial Year |
Assessment Year |
|
1 Apr 2024 – 31 Mar 2025 |
FY 2024–25 |
AY 2025–26 |
It’s really this simple — but extremely critical for correct filing.
Practical, Real-Life Examples That Make Section 2(9) Easy to Understand
Example 1: Salary Earner
You work from April 2024 to March 2025 & receive salary every month.
This income belongs to FY 2024–25.
The tax return for this salary is filed in AY 2025–26.
Example 2: Business Income
A proprietor earns profit during FY 2024–25.
The assessment of that profit — including books, turnover, deductions — happens in AY 2025–26.
Example 3: Selling Property
You sell a flat in October 2024.
Capital gains belong to FY 2024–25.
You pay tax on it in AY 2025–26.
Across all examples, Section 2(9) silently sits in the background, defining the assessment year.
How Section 2(9) Impacts ITR Filing
Every form you choose — ITR-1, ITR-2, ITR-3, ITR-4 — is tied to the assessment year.
You will always file your return for an assessment year, never for a financial year.
So if you earned income in FY 2024–25, you must file for AY 2025–26.
Choosing the wrong assessment year creates several problems:
- income mismatch
- return marked defective
- refund delay
- portal errors
- challan mismatch
- tax credit mismatch
Most filing mistakes actually happen because taxpayers confuse the assessment year.
Also Read: Understanding Scrutiny and Assessment Notices
Section 2(9) and Tax Notices
When the income tax department issues:
- Section 143(1) intimations
- Section 143(2) scrutiny notices
- Section 148 reassessment queries
- Section 245 adjustment notices
… all of them refer to the assessment year, not the financial year.
Understanding Section 2(9) helps taxpayers read notices correctly & avoid panic.
Why Professionals Always Refer to AY, Not FY
When CAs, lawyers, financial planners, or tax consultants speak about income tax, they always say:
- “For AY 2024–25…”
- “In AY 2025–26, slab rates changed…”
- “Your ITR for AY 2023–24 is pending…”
This is because the law formally recognizes the assessment year (defined in Section 2(9)) as the period for compliance. Even audit reports mention AY, not FY.
Why Section 2(9) Is More Important Than It Looks
Even though it’s just a definition section, it is actually one of the pillars of the Income Tax Act.
It influences:
- how returns are filed
- how penalties apply
- how assessments are done
- when deductions are claimed
- how interest under Sections 234A, 234B, 234C is calculated
- how the Finance Act updates apply
Tax laws change every year. But the tax changes always apply based on the assessment year.
Common Mistakes People Make Because They Don’t Understand Section 2(9)
Here are the mistakes we see every day:
Mistake 1 — Filing ITR under the wrong AY
Leads to “defective return” status or portal rejection."
Mistake 2 — Paying advance tax for wrong AY
Leads to mismatched challans & refund delays.
Mistake 3 — Confusion in deduction eligibility
People apply new rules to the wrong year.
Mistake 4 — Misreading tax notices
Notices refer to AY, so misunderstanding leads to mistakes in responses.
Just knowing Section 2(9) prevents all of this.
Also Read: Interest on Default in Advance Tax Instalments
Final Thoughts — Why Section 2(9) Deserves More Attention
Section 2(9) of the Income-tax Act, 1961 may look like a simple definition, but the meaning of “assessment year” affects every single taxpayer in India. From filing returns & paying taxes to responding to notices and planning deductions, everything revolves around the assessment year.
And Section 2(9) makes sure the concept is clear, consistent, and legally defined. Once you understand this section, the entire tax system becomes much easier to navigate.
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