Person; Assessee; Assessment Year vs Previous Year — Law of Taxation Notes

Person; Assessee; Assessment Year vs Previous Year

You earn your salary in one year, but you file your return and pay tax in the next year. Why the one-year gap? Because the Act deliberately separates the year the income is earned (the previous year) from the year it is taxed (the assessment year) — and a handful of exceptions collapse the gap when the taxman fears the money will vanish.

The four building blocks

A. Person — s.2(31). The unit that the Act taxes. “Person” includes seven categories:

an Individual;
a Hindu Undivided Family (HUF);
a Company;
a Firm;
an Association of Persons (AOP) or Body of Individuals (BOI);
a Local authority;
every artificial juridical person not falling in the above (e.g. a deity, a university).

Section 2(31): “‘person’ includes— (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses.”

B. Assessee — s.2(7). The person by whom tax (or any other sum) is payable, or in respect of whom any proceeding under the Act is taken. It covers:

the ordinary assessee (liable for his own income);
a deemed assessee (a representative made liable for another’s income — e.g. an agent of a non-resident, the legal representative of a deceased, the guardian of a minor);
an assessee-in-default (one who fails to deduct/pay TDS, or to pay tax).

C. Previous Year (PY) — s.3. The financial year (1 April – 31 March) in which the income is earned. It is uniform for all assessees now (1 April to 31 March). For a newly set-up business, the PY begins on the date of setting up and ends on the following 31 March.

D. Assessment Year (AY) — s.2(9). The financial year following the previous year, in which the income of the PY is assessed and taxed. So income earned in PY 2023-24 is taxed in AY 2024-25.

⚠️ DON’T CONFUSE — Assessment year vs Previous year

The Previous Year is when you earn the income (e.g. 2023-24). The Assessment Year is the next year, when that income is assessed and taxed (2024-25). Rule of thumb: AY = PY + 1. Income is of the previous year but taxed in the assessment year. Mix them up and every date in a problem goes wrong.

Exceptions — where PY income is taxed in the SAME year (s.172–176). Normally income is taxed in the next year. But where the person or income might slip away, the Act taxes it immediately, in the year of earning:

Shipping business of non-residents (s.172) — tax collected before the ship leaves the port.
Persons leaving India (s.174) — with no intention of returning; taxed in the year of departure.
AOP/BOI/artificial juridical person formed for a short/particular purpose (s.174A) — likely to be dissolved.
Persons likely to transfer property to avoid tax (s.175).
Discontinued business (s.176) — income up to discontinuance may be taxed in the same year.

In Simple Terms: The Act taxes a “person” (seven kinds — individual, HUF, company, firm, AOP/BOI, local authority, artificial juridical person). The one liable is the “assessee”. You earn in the previous year and pay in the next assessment year — except in a few cases (leaving India, non-resident shipping, dissolving bodies) where the tax is grabbed in the same year.

flowchart TD
    ROOT["Charging framework"]:::root
    ROOT --> P["PERSON s.2(31)<br/>7 kinds"]:::leaf
    ROOT --> A["ASSESSEE s.2(7)<br/>who pays / is proceeded against"]:::leaf
    ROOT --> Y["PY s.3 (earn) then AY s.2(9) (tax)<br/>AY = PY + 1"]:::leaf
    Y --> E["EXCEPTIONS ss.172-176<br/>taxed in same year"]:::sub
    classDef root fill:#FFF8DC,stroke:#000,stroke-width:1px,color:#000;
    classDef leaf fill:#E6F3FF,stroke:#1E3A8A,color:#000;
    classDef sub fill:#F2F2F2,stroke:#555,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

Case Laws

CIT v A. Gajapathy Naidu (1964) — income of a previous year is assessed in the assessment year; the source and year of accrual fix the charge.

📄 Full notes + Question Bank (₹199) — every topic in depth, model answers to all past KSLU questions, in one printable PDF. Get the bundle · 10 Solved Problems · All Law of Taxation topics