Assessment and Previous year
Assessment year [section 2(9)]
Assessment year means the period of twelve months commencing on the 1st April every year and ending on 31st March of next year. An assessee is liable to pay tax on the income earned during the previous year during the following assessment year at the rates prescribed by the relevant Finance Act.
Previous year [section 3]
The year in which income is earned is known as previous year and it is taxed on the next financial year (assessment year).it is also a period covering 12 months commencing from 1st April and ending on 31st march of succeeding year.
Explanation: In the case of newly set up business or profession or any new source of income, the previous year will be the period commencing from the date of setting up of business or profession or from the date on which the new source of income comes into existence and will end on the immediately following 31st march.
Q: Singh set up a new business on 22nd November 2012
A: previous year will be the period commencing on 22nd November 2012 and ending on 31st march 2013
Q: Sultan get employed on 1st august 2012
A: previous year 1st august 2012 – 31st march 2013