Quick Summary
Previous Year is another term for Financial Year - the year in which income is earned, which becomes the subject of assessment in the following Assessment Year.
In Income Tax terminology, "Previous Year" refers to the financial year in which income is earned. It is called "previous" because it precedes the Assessment Year. For example, for Assessment Year 2025-26, the Previous Year is 2024-25 (April 1, 2024 to March 31, 2025).
Previous Year vs Assessment Year
| Aspect | Previous Year | Assessment Year |
|---|---|---|
| Period | April 1 to March 31 | April 1 to March 31 (next year) |
| Activity | Income is earned | Income is assessed and taxed |
| Example | 2024-25 | 2025-26 |
Exceptions to Standard Previous Year
- New Business: Previous Year begins from the date of setting up business
- New Source of Income: Previous Year begins when new income source arises
- Leaving India: Special provisions apply if assessee leaves India permanently
- AOP/BOI: Association of Persons may have different previous year rules
Key Points
- Previous Year = Financial Year
- Income is earned during Previous Year
- Same as Financial Year (April 1 to March 31)
- Assessment Year follows the Previous Year
- Special rules for new businesses and sources
- Term used interchangeably with Financial Year