Previous Year

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Querist : Anonymous

Querist : Anonymous (Querist)

04 April 2010 PY means the period of 12 months commencing on 1st April to 31st March of next year. Is it true that the period of 12 months commencing from 1st March and ending on 28th February of next year considered as PY in Govt. Departments? I understand that salaried Govt. employee’s savings/ investments u/s 80c and other applicable sections of the IT Act in respect of the period from 1st March to 28th February only (and NOT for the normal period i.e. from 1st April to 31st March) are taken into account for calculation of taxable income and tax liability thereon. What is the logic and basis behind this? Please clarify.

Rahul Gupta

Rahul Gupta (Expert)
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04 April 2010 No. I don't think, this happens in Govt department.

Experts views are solicited........

Querist : Anonymous

Querist : Anonymous (Querist)

04 April 2010 Thanks a lot Expert! But, I am still not clear about the system followed for calculation of income tax in respect of govt. employees. More opinions and views of experts are solicited in the matter.

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Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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10 August 2024 Yes, there is a specific difference in the financial year used for income tax purposes in India compared to the financial year used by government departments for accounting and other purposes. Here's a detailed clarification:

### **1. Financial Year vs. Assessment Year**

**Financial Year (FY):**
- **Definition:** The Financial Year is the period for which the accounts are maintained and financial statements are prepared.
- **Typical Period:** In India, the financial year for tax purposes runs from **1st April to 31st March** of the following year. For example, FY 2023-24 would be from **1st April 2023 to 31st March 2024**.

**Assessment Year (AY):**
- **Definition:** The Assessment Year is the year immediately following the financial year, during which the income of the financial year is assessed and taxed.
- **Typical Period:** For FY 2023-24, the corresponding assessment year is **2024-25**, running from **1st April 2024 to 31st March 2025**.

### **2. Government Departments and the Financial Year**

**Government Departments' Financial Year:**
- **Accounting Period:** For government departments, the financial year often runs from **1st March to 28th February**. This is sometimes referred to as the "Government Financial Year."
- **Purpose:** This period aligns with the budgeting and accounting cycle used by government departments. It is meant to ensure that budgets and expenditures are aligned with the government’s annual accounting and budget cycle.

### **3. Income Tax Act and Deductible Investments**

**Tax Deductible Investments (e.g., under Section 80C):**
- **Normal Financial Year:** For individual taxpayers, including government employees, the financial year for tax purposes is **1st April to 31st March**.
- **Claiming Deductions:** When claiming deductions under Section 80C and other sections of the Income Tax Act, the investments made from **1st April to 31st March** are considered.

**For Government Employees:**
- **Government Financial Year Alignment:** While the government's financial year is from 1st March to 28th February, for tax purposes, the individual employee still needs to follow the financial year from **1st April to 31st March**. Thus, for tax purposes, investments and savings eligible for deductions under Section 80C and other sections should be accounted for the period from **1st April to 31st March**.

### **4. Logic and Basis Behind the Period Difference**

**Government Financial Year:**
- **Budgeting and Accounting:** The government’s financial year starting from 1st March helps align with the annual budgeting process and the accounting requirements for the government’s fiscal management.

**Taxation Financial Year:**
- **Consistency with Assessment:** The Income Tax Act follows the period from 1st April to 31st March to align with the assessment of income and tax liability. This consistency allows for a uniform approach to calculating tax liability across various taxpayers.

### **Summary:**

- **Government Departments' Financial Year:** Runs from **1st March to 28th February** for budgeting and accounting purposes.
- **Income Tax Financial Year:** Runs from **1st April to 31st March** for tax assessment and claiming deductions.
- **Deductions under Income Tax Act:** For tax purposes, the period to consider for savings and investments is from **1st April to 31st March**.

### **Clarification:**

For individual taxpayers, including government employees, the investments and savings considered for tax deductions should follow the financial year as defined by the Income Tax Act, which is **1st April to 31st March**. The difference in financial years used by government departments does not affect the tax period for claiming deductions or assessing income.