As per the Income Tax law, the income accumulatedin the present year is taxable in the next year. The year in which income is earned is known as the previous year.
In layman's language, the current financial year is known as the previous year. The financial year starts on 1st April and ends on 31st March of the next year.
For Instance, for the salary income earned from 1 April 2017 - 31st March 2018. The previous year would be 2017-18.
All the assessees are required to follow the financial year( April 1 to March 31) as the previous year for all types of incomes. In case, of a newly set-up business/profession or first job then your first previous year will be less than 12 months. Though from subsequent years your previous year will always be your financial year.
Remember, your previous year can never exceed 12 months.
Exception of Previous Year in Income Tax
In income tax, the general rule is that the income earned during a previous year is taxed in the assessment year that follows. However, there are certain exceptions where income is taxed in the same year it is earned. Here are some key exceptions:
Association of Persons (AOP)/Body of Individuals (BOI)/Artificial Juridical Person formed for a particular event or purpose.
Persons likely to transfer property to avoid tax.
Discontinued Business: If a business is halted during the previous year, the income earned up to the date of discontinuation is assessed in the same year.
Shipping Business Income earned by a non-resident in India (Section 172): Tax is levied in the previous year itself.
Income earned by individuals leaving India permanently or for a long period of time (Section 174): The probable income until the individual’s departure is taxable in the previous year.
Income earned by bodies formed for a short period (Section 174A): Tax is collected in the previous year itself.
These exceptions ensure that the tax can be collected efficiently, especially in cases where it might be difficult to recover the tax later.
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