The Union Government is planning to change the financial year accounting from January to December, from 2018. If implemented, this would be another major change after the Budget presentation on February 2017.
Mr Narendra Modi, while advising and supporting a switch over in the financial year, said that there is a need to develop vigorous arrangements that could function amidst diversity. “Because of poor time management, many good initiatives and schemes had failed to deliver the anticipated results,” the prime minister had said. Therefore, the financial year change has been hailed as a sensible move but is open to questions.
Impact on the Budget Process
Another important benefit of this change is to improve the efficiency of the budget process. It should offer the government to make a more knowledgeable judgement of budgetary allocations needed. However, if the government implements this, it will have to amend a number of other laws such as Income Tax Act and the Companies Act and cut the financial year to three-quarters.
Impact on Income Tax Act
If the proposal to shift the financial year to “January to December” is implemented it will need vast changes under Income Tax Act, 1961 as the timelines for all procedures right from payment of tax, filing of income tax returns till the scrutiny of such returns are linked to the financial year being “1st April to 31st March”. Further, the transition in first year of implementation will be a challenging exercise.
Implementing this idea could make India join the global league of developed countries that follow this cycle. According to experts, the proposed change is likely to be welcomed by MNCs that are currently following two types of financial years – April to March in India and January to December in their parent country. It will be easier for the Indian MNCs to consolidate the financial statements and compare the macro data. This uniform structure will make Indian economy align with the global economy.