Income earned in a year is taxable in the next year.The year in which Income is earned is known as previous year.and the next year in which income is taxable is known as assessment year.
Income earned by a company in the Financial Year 2017-18 is taxable in the immediate following Financial year 2018-19.
In the above case, Financial Year 2017-18 is Previous Year and Financial Year 2018-19 is the Assessment Year.
- The Year In which Income earned is called Previous Year .
- The Year In which Income is taxable is called Assessment Year.
Previous In case of a newly setup Business/Profession.
Let’s discuss how to determine previous year of a newly started business or profession or new source of Income under Income tax act.
X Ltd started their business on 07-10-2018 .
The first previous year may or may not last for twelve months. The duration can be less than twelve months. But never be more than 12 months. In the above case the starting point is 07-10-2018 and end point is 31-03-2019, The immediately following March 31st. The duration is 5 Months and 24 days.
The subsequent previous year always 12 moths Financial Years.
For the purposes of this Act, “previous year” means the financial year immediately preceding the assessment year :
Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year.