Why financial year & calendar year differ in India?

Almost all income earners by now might have already filed their returns for the year ended Mar. 31, 2008. The allotted last date for filing the return is July 31, however, for the individual assesses, the same has been revised to Sep.30.

At the time of filing returns most often tax-payers run helter-skelter collating the desired forms other documents required for the same. As the cycle continues, it leaves them in utter distress.

As the exercise concludes, all heave a sigh of relief that atleast for the time being the burden called ‘tax’ is offloaded from the list of priorities. But it’s not that 9 out of 10 but 1 out 10 who stop in their tracks to revisit the basics of the exercise, asking questions after question to solve their thirst of knowledge.

It is well known that income gained in the previous financial year is taxed in the current financial year. This fundamental knowledge forms the basis of having two years, the previous year and the assessment year while paying the tax.

Again questions will be asked like, what comprises heads of income and what are the other deductions and rebate available to save tax. But few might have ever wondered why the calendar year and fiscal year don’t match.

However, the mystery remains unsolved, like that of evolution of mankind, for which financial researchers have put forth some theories.

Inheritance from British Rule:

India was ruled by British for around 150 years, who followed the accounting period of April to March after the adoption of Gregorian calendar system of accounting.

The East India Company which first came to rule India is observed to have well done their groundwork before entering the host country, India.

April 1 ,coincided with the Hindi festival of Vaisakha that is the Hindi new year, hence the company tactfully decided to match it`s financial year with the Hindi calendar to ease out financial transactions

People generally mutter common Hindi parlance, “Angrez Gaye, Angrezi chod gaye”.

Like their very dear spoken language, the country left back its accounting reporting language as well.

2. Revenue cycle in Agriculture:

Again the observance and the effort of the British Government in tandem with religious cultures can be seen through this point. Since most of their taxes were from the crops, the ruling government prepared its annual budget keeping these crop patterns in mind.

3. Festivals:

In many countries, it has been observed that it retailers who use the non-calendar year as their fiscal year.

Also, end of the year is the period of high activity for retailers in many countries considering the festive season, levels of inventory, recievables and payables will be higher than at other month ends and consequently more complex and time-consuming to measure accurately.

For instance in India itself, festivals like Navratri and Diwali fall in the month of October and November, followed by Christmas in December. These account for heavy sales for the retailers and value buying’s for the shoppers making accounting complex and time consuming.

To avoid the collision of both so as each of the activity gets efficient time and attention, December is not preferred as the month of closure of the financial year.

Filing returns is one of the areas where the fiscal and calendar year differ to concur; other areas include finalization of accounts. The government also presents its budget for April to March.

India is not the only country who follows this trend. Countries like Canada, United Kingdom (UK), New Zealand, Hong Kong and Japan also follow a similar trend.

While the exact reason remains unknown like the mystery of evolution of mankind, there is no denying the fact that most countries` financial year differ from the calendar year.


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