Definition of Previous year :

Previous year [Section 3] :– It means the financial year immediately preceding the assessment year. The income earned during the previous year is taxed in the assessment year.

Business or profession newly set up during the financial year – In such a case, the previous year shall be the period beginning on the date of setting up of the business or profession and ending with 31st March of the said financial year.

If a source of income comes into existence in the said financial year, then the previous year will commence from the date on which the source of income newly comes into existence and will end with 31st March of the financial year.

Illustration:
1. A is running a business from 1993 onwards. Determine the previous year for the assessment year 2016-17.
Ans. The previous year will be 1.4.2015 to 31.3.2016.

2. A chartered accountant sets up his profession on 1st July, 2015. Determine the previous year for the assessment year 2016-17.
Ans. The previous year will be from 1.7.2015 to 31.3.2016.