NISM-Series-X-B: Investment Adviser (Level 2) · Concepts in Taxation

Assessee, Person, Previous Year and Assessment Year: Important Income Tax Definitions

Updated 11 October 2026 · Fact-checked

An assessee is a person who is liable to pay tax or who has to file a return. A person includes individuals, HUFs, companies, firms and other bodies. The previous year is the year in which income is earned. The assessment year is the next year, in which that income is assessed.

Understand Important Definitions: Assessee, Person, Previous Year, Assessment Year

Income tax law uses a few basic terms again and again. If you know them well, many questions become easy marks.

Start with person. The Act defines it broadly. It includes an individual, a Hindu undivided family (HUF), a company, a firm, an association of persons (AOP) or body of individuals (BOI), a local authority, and every other artificial juridical person. So a company is a person for tax, even though it is not a human being.

An assessee is a person by whom tax or any other sum is payable under the Act. It also covers a person who has to file a return, or against whom proceedings are going on, or who is deemed an assessee. The key idea: every assessee is a person, but not every person is an assessee. A person with no tax liability and no duty to file a return is not an assessee.

Now the time concept. Income is earned in one year and taxed in a later year. The year in which income is earned is the previous year (PY). It is the financial year from 1 April to 31 March. The year that follows, in which that income is assessed and the return is filed, is the assessment year (AY). Income earned in the previous year 1 April 2024 to 31 March 2025 is assessed in the assessment year 2025-26.

The Income-tax Act, 2025 replaces these two terms with a single tax year. The tax year is the 12-month period from 1 April to 31 March in which income is earned, and tax is charged for that same year. It applies from 1 April 2026. Read your question carefully: if it uses PY and AY, answer in that frame. If it says tax year, there is only one year to think about.

Also know income. It is a wide term. It covers profits, dividends, interest, salary and capital gains, and includes more than regular receipts. The Act's definition of income is inclusive, not a closed list.

Key formulas to remember

Previous year: PY = 1 April to 31 March (the year in which income is earned); Normally the 12 months ending on 31 March. For a business newly set up, it runs from the date of setting up to the following 31 March.
Assessment year: AY = the 12 months starting 1 April right after the PY; Income of PY 2024-25 is assessed in AY 2025-26.
Assessee vs person: Every assessee is a person; not every person is an assessee; An assessee has a tax liability, a return duty, or proceedings against them.
Tax year: Tax year = 12 months, 1 April to 31 March; one year replaces PY and AY; Under the Income-tax Act, 2025, effective 1 April 2026.
Persons covered: Individual, HUF, company, firm, AOP/BOI, local authority, other artificial juridical person; Learn this list; options often add a wrong entity or drop a valid one.

How to solve Important Definitions: Assessee, Person, Previous Year, Assessment Year questions

Most questions on this topic are definition or date questions. Use this order to avoid traps.

1Read the question and mark the term asked: person, assessee, income, previous year, assessment year or tax year.
2If it asks for a definition, recall the core idea first: person is a broad list of entities; assessee is a person with liability, duty to file, or proceedings.
3If it gives a date or a year, find the year in which income was earned. That is the previous year.
4Add one year to get the assessment year. Write it as AY 2025-26 for PY 2024-25.
5Check whether the question refers to the old PY/AY frame or to the tax year concept under the Income-tax Act, 2025.
6Check for exceptions, such as a newly set up business or a new source of income, where the previous year starts later than 1 April.
7Eliminate options that make a wrong claim, such as saying every person is an assessee.

Quickest way: Two-line shortcut

When to use it: Use it when you have under a minute and the question is a straight definition or year-matching item.

For years: PY ends 31 March; AY is the year after. Income earned in FY 2024-25 means AY 2025-26.
For terms: person is the wide group; assessee is the narrower group with liability or a return duty.
If an option says all persons are assessees, reject it.
If an option says income is taxed in the same year it is earned under the old frame, reject it. The tax year idea is the only exception.

Common mistakes in Important Definitions: Assessee, Person, Previous Year, Assessment Year

Treating every person as an assessee
The two words sound the same in daily use.
Fix: Remember assessee is narrower. It needs tax liability, a return duty, or proceedings.
Mixing up previous year and assessment year
Students see 2025-26 and think it is the earning year.
Fix: Income is earned first (PY), assessed later (AY). The AY is always one year after the PY.
Thinking a company is not a person
Person sounds like a human being.
Fix: The Act includes companies, firms, HUFs, AOPs/BODs and other artificial juridical persons as persons.
Ignoring the tax year concept
Older notes only use PY and AY.
Fix: Know that the Income-tax Act, 2025 uses one tax year from 1 April 2026. Check which frame the question uses.
Assuming the previous year always starts on 1 April
Most cases do, so the exception is forgotten.
Fix: For a business or profession newly set up, or a source of income newly coming into existence, the previous year starts from that date and ends on the next 31 March.

Worked examples

Example 1

Mr Rao earned a salary and interest income between 1 April 2024 and 31 March 2025. In which assessment year will this income be assessed?

Show the solution

Identify the period: 1 April 2024 to 31 March 2025 is the financial year in which income was earned.
So this is the previous year.
The assessment year is the year that follows the previous year.
That is 1 April 2025 to 31 March 2026, i.e. AY 2025-26.

Answer: AY 2025-26

Example 2

Which statement is correct? (a) Every person is an assessee (b) Every assessee is a person (c) A company is not a person (d) Assessment year comes before the previous year

Show the solution

Test (a): a person with no tax liability and no return duty is not an assessee. So (a) is wrong.
Test (b): an assessee must be a person as defined in the Act. This holds.
Test (c): the definition of person includes a company. So (c) is wrong.
Test (d): income is earned in the previous year and assessed in the assessment year after it. So (d) is wrong.

Answer: (b) Every assessee is a person

Exam tips

Questions often test the link 'every assessee is a person, but not every person is an assessee'. Learn it word for word.
When given a financial year, convert it to AY by adding one year. Do it before reading the options.
Watch for options that wrongly say income is assessed in the year it is earned, and check whether the question uses the older frame or the tax year concept.
Learn the list of persons. A trap option may drop a valid entity such as an HUF or an AOP.
Negative marking applies in X-B, so skip only if you cannot rule out at least two options.

Practice questions from Concepts in Taxation

Important Definitions: Assessee, Person, Previous Year, Assessment Year in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Important Definitions: Assessee, Person, Previous Year, Assessment Year: frequently asked questions

What is the difference between previous year and assessment year?

The previous year is the year in which you earn income. The assessment year is the next year, in which that income is assessed and the return is filed. For example, income earned in 2024-25 is assessed in AY 2025-26.

Who is an assessee under the Income Tax Act?

An assessee is a person who owes tax or any other sum under the Act, or who must file a return, or against whom proceedings are on. It also covers a person deemed to be an assessee.

What is included in the definition of person?

It includes an individual, an HUF, a company, a firm, an association of persons or body of individuals, a local authority and any other artificial juridical person.

What is the tax year in income tax?

Under the Income-tax Act, 2025, the tax year is the 12-month period from 1 April to 31 March. It replaces the separate previous year and assessment year, and applies from 1 April 2026.