In India, the financial year is the period which begins in April of each calendar year and ends in March of the next calendar year. In simple words, it is the accounting year in which you earn an income. But have you ever tried to know why the financial year starts from 1st April and ends on 31st March? Here are few reasons for starting the fiscal year from April:
India was ruled by the British government for more than 15 years, who followed the accounting period of April to March. And after Independence the same concept has been applied by the Indian government. Prior to that, the fiscal year in India was from 1 May to 30 April in alignment with the harvest season.
This system is also connected with the Hindu festival of Vaisakha or the Hindu New Year. The first month of the Hindu calendar will start from March-April. Hence, this may be one of the reasons why the Indian government also thought of starting the financial year from April to March in India.
Apart from this, the financial year also follows the crop cycle. India is mainly an agricultural country as two-thirds of its population primarily depends on agriculture. The income is calculated based on an estimate of the yields harvested in February and March.
The government was able to define loss and profit at the end of March as a result of this, and a fresh process for new crops was initiated in April. Thus, a two-month period gives the government an indication of whether revenue will increase or decrease. As a result, it is one of the primary reasons why the fiscal year runs from April to March.
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In India, the major festivals of Navratri and Diwali take place in October and November, followed by Christmas in December. The value of sales for retailers and value purchases for shoppers are higher at these times. In the midst of these enormous demands, they may find it difficult to conduct end-of-year accounting.
To prevent a collision, March was chosen as the month to end the financial year rather than December. As a result, the Indian financial year starts in April and ends on March 31.
However it must be noted that the Constitution, on the other hand, makes no provision for the fiscal year to begin in April. Rather, the General Provisions Act of 1897 keeps this practice alive. This is why private businesses and organisations are not required to keep their books according to the fiscal year of the government.
The financial year in India runs from April to March, but it is not the only country that does so. Other countries, such as Canada, the United Kingdom, New Zealand, Hong Kong, and Japan, follow a similar pattern.