The government is mulling the idea of changing the April-March fiscal year. Here are a few insights into the progress of this big regime shift which will help India streamline its accounting standards with international standards.
Is it compulsory for all companies to follow April-March FY?
As per Section 2 (41) of Companies Act, 2013, which became enforceable on April 2014, has mandated companies to follow the April-March fiscal year.
All companies were given a time frame of 2 years to migrate to the new FY. However, if any company didn’t wish to follow April-March Fiscal Year, they could take approval from National Company Law Tribunal (NCLT) for the same.
Why is the swap unlikely to happen?
If the calendar year is shifted from April to March, the government will have to present the Union budget from November to December. This is most unlikely to happen this year.
If the fiscal year overlaps with the calendar year, there will be huge variations in taxation timelines, scrutiny, income report filing, bookkeeping, HR practices, accounting software and the taxation system, etc.
On being asked about his intent to merge Calender year with fiscal year, Finance Minister Arun Jaitley said in a written reply to the Lok Sabha, “The matter of changing the fiscal year is under consideration of the government.”
Jaitley also said that a committee chaired by the former chief economic advisor Shankar Acharya has been formulated by the government for examining this proposal.
MNC’s following January-December FY regime
Many multinationals find it difficult to adhere to the April-March fiscal year as their parent companies are adhering to the January-December FY. So these multinationals are exempted from complying with the Indian fiscal year.
If Fiscal Year changes to December-January
If the fiscal year is shifted to December-January, then the companies will have to compile their operations for the last nine months (April to December) ahead of shifting to the new regime.
Companies will have to use cut-off procedures like goodwill impairment testing, transfer pricing study and reconciliation of books of accounts for closing books.
However, companies which are still tailoring their book-keeping and recording to GST regime and Indian Accounting Standards (IAS) will not endure major hiccups in case the change is implemented.