Previous year means the financial year immediately preceding the assessment year, i.e. the year in which income is actually earned.

Below mentioned example will help you gain more clarity on these terms:

• Mr. Z, a sole proprietor earned a profit of Rs. 20,000/- for the previous year 2009-10, His income for previous year 2009-10 will however be chargeable to tax at rates applicable for Assessment year 2010-11.

However there are certain exceptions to the above Rule, those being:

1. Income of a Non-resident from Shipping.

2. Income of persons leaving India either permanently or for a long period of time.

3. Income of Bodies formed for a short duration says for a particular event or purpose.

4. Income of a person trying to either Charge, Sell, Transfer or dispose of or otherwise part with any assets with a view to avoid any tax liability.

5. Income earned from a discontinued business.

PLEASE NOTE:

• Previous year and Assessment year will always be starting from 1^st April and ending on 31^st March, In no case it can be followed as a Calendar year i.e., 1^st January to 31^st December.