What is Financial Year?

After graduation I started working in the year 2018. My salary credits every month on 25th. So whenever I receive the pop up message stating Rs XX has been credited into your account YY, I'll be in a transport of Joy. This continued for few months and one fine day there was a hustle amongst my colleagues and for the first time I heard a friend asking me "Have you filed your Income Tax  for the financial year ?" . I was in a clearly confused state and not sure what to answer. That evening I returned from my work and wanted to know what is Financial year and why everyone goes crazy on hearing the word.

Generally, the calendar year starts from January 1 and ends on December 31, where as the financial year starts on April 1 and ends on March 31. This year which spans two calendar year is called as financial year.

The financial year in which you earn the income is termed as Previous year where the following year on which your IT returns gets assessed is referred to as Assessment year. Consider that I file my IT returns for the financial year 2019-2020, this span of period is referred to as Previous year. Now the filing which I did will be assessed in the year 2020-2021. So on filing the Income Tax Return (ITR) form for the financial year 2019-2020, it will be mentioned as Assessment Year 2020-2021.