Definition of the term Previous Year as per Income Tax Act, 1961

An year under the Income tax law can be defined as an assessment year or a previous year.

An Assessment year is defined as the year in which income is being assessed i.e., the year in which income is being charged to tax is known as the assessment year.

Previous year means the year in which the income is earned.

As per the provisions of Section 3 of the Income Tax Act 1961, the term ‘Previous year’ means the financial year preceding the assessment year.

Provided that in case where the business or profession is a newly set up business or profession or there is a new source of income coming into existence, the previous shall be the date of setting up such new business or profession or as the case may be the date on which the source of income newly comes into existence.