The Importance of the Financial year in India
As a part of British inheritance in India, we still follow the pattern of considering April – March as the fiscal year. It has been 150 years since India followed the same pattern, whereas other 156 countries considered January-December as the fiscal year.
Does India consider April-March as its fiscal year, an advantage over these countries? Or does it need to be changed to a standard calendar? Let’s look at why India still follows the inherited custom of the fiscal year from the British.
For many sectors like government, taxation, businesses, investors, taxpayers, the financial year in India begins from 1st April every year.
What is the brief history of the Indian financial year?
- The one-year period from April 1 to March 31 is widely accepted as the financial year in India.
- This was adopted by the British government in 1867 to align India’s financial system with the British Empire.
- Majority of companies and businesses in India follow the same financial cycle that syncs with the fiscal year of the government. While few of them have their own accounting year.
- For instance, RBI follows its own accounting year, as it likes to present an aggregate picture after all banks come out with their numbers. Its accounting year begins with a three-month lag and follows a July-June cycle.
- Considering that taxation is one of the major sources of revenue for the government, the tax year too runs from April to March.
- What is the importance of financial year in India?
- Income earned in one accounting year (called the previous year) is subject to tax in the following accounting year (called assessment year).
- The financial year is a period that the government uses to estimate its income and expenditure of the country.
- It is the period where the government sets out its financial and economic goals and lays down the means to raise funds for the same.
- The action plan also called as Budget for the upcoming year beginnings in April. It is usually presented by the government towards the end of the previous fiscal year.
- Most companies and other business entities too fall in line with the fiscal year of the government and tax department, as it ensures uniformity and aids easy comparison of data.
How Financial year impacts personal spending?
- If one makes a new financial resolution at the beginning of the year and invests in that month, but taxation on your investments will follow the April-March cycle.
- Tax returns are filed for every financial year from April to March. The deadline for making tax saving investments under Section 80C, such as PPF, ELSS, etc., falls on March 31.
- All tax related changes announced in the budgetary planning of any applicable income regulates from April 1st of the following year.
- But when it comes to Leave Travel Allowances (LTA), the cycle shifts to the calendar year, leave entitlements at work also predominantly follow a January-December calendar.
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