Will India Change the Dates of its Financial Year?
By Dezan Shira & Associates
The government-appointed Shankar Acharya committee has recommended that India shift from the current April to March financial year to a January to December financial year. If the government agrees to go ahead with the recommendation, it can confine this year’s fiscal year to nine months up to December 2017 or make the change in the 2018 fiscal year.
The government will discuss this plan further during the Union Budget on February 1. Many expect the government to make an announcement in the near term.
India’s agriculture cycle
A new financial year will align the fiscal year with the agriculture harvest period. As agriculture contributes to over 15 percent of India’s GDP, and accounts for approximately 58 percent of the rural population livelihood, most government officials support the proposal.
Currently, the June-September monsoon season begins within two months of the fiscal year, rendering some policy goals ineffective given the impact of the monsoon. A January to December fiscal year will provide the government enough time to assess the effects of the monsoon on the economy before the budget, which would likely move to a November release.
A new financial year will also align India with more than 156 countries, as well as several multinational corporations, which follow the calendar year as their accounting period. Countries such as China, Brazil, France, Germany, and Russia follow the calendar year as their financial year, as well as multilateral organizations such as the World Bank, International Monetary Fund, and Asian Development Bank. In fact, only 33 countries currently follow India’s April-March fiscal year period; the proposed change will align Indian firms to a global standard.
Impact of the reform
Economists believe that there will not be much disruption if the fiscal year is changed. Experts believe the government will likely implement the reform in the next fiscal year, rather than reducing this year’s fiscal period until December 2017, as it will require numerous changes in different aspects of the economy.
The date for the Union Budget would change to November if the fiscal year changes to January-December. The government would need to reform the Income Tax Act and the Companies Act to reflect the change, along with the government accounting systems, data collection, and working of state governments.
Companies and individuals would need to prepare for new tax filings deadlines. Companies will also have to change their bookkeeping processes, accounting systems, taxation systems, and human resource practices.
While the government has not yet given any strong indication of whether it will move forward with the committee’s recommendations, many business people in India see a strong upside to this reform.
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