Previous Year vs. Assessment Year under Income Act 1961 & Key Exceptions

Summary: In direct taxation, the Previous Year (PY) and Assessment Year (AY) are fundamental concepts. These exceptions include cases of income escaping assessment (Section 147), deemed accrual of income for non-residents, and income from a discontinued business. As per Section 3 of the Income Tax Act, 1961:The Previous Year means the financial year immediately preceding the Assessment Year in which the income is assessable. Definition:The Assessment Year (AY) is the year immediately following the Previous Year, in which the income earned in the PY is assessed by the Income Tax Department. Key Exceptions to the PY → Immediate AY RuleException 1: Income Escaping Assessment – Section 147Income not disclosed in the original return, detected later by the Income Tax Department.