Change in fiscal year under consideration, says Arun Jaitley

The government is considering changing the April-March financial year to the calendar year. This follows a slew of far-reaching steps such as merging the railway budget with the Union Budget, advancing the date of presentation of the Union Budget, and introduction of the goods and services tax (GST).

The change will require the government to advance presentation of the Union Budget to November-December, which is unlikely this year.

“The matter of changing the financial year is under consideration of the government,” Finance Minister Arun Jaitley said in a written reply in the Lok Sabha. He was asked whether the government proposed to synchronise the financial year with the calendar year from January.

Jaitley said a committee constituted by the government under the chairmanship of former chief economic advisor Shankar Acharya had examined the issue. 

“The report of the committee has been received,” he added. Jaitley was also asked whether the government proposed to present the Union Budget during November-December. “It does not arise at this stage,” he replied.

Presenting the Union Budget in November-December will lead to another disruption after the July GST roll-out. Revised estimates of revenue and expenditure would have to be made for a Union Budget in November-December and it would be difficult this year, experts said.

Amit Maheshwari of Ashok Maheshwary & Associates said a change in the financial year would require amendments to various tax laws and the Companies Act. 

The Income Tax Act followed the April-March year and a change would mean dates for filing, scrutiny, tax payment and assessment would have to be modified, he said.

Besides, Section 2 (41) of Companies Act, 2013, which came into force on April 2014, made it mandatory for companies to follow the April-March financial year.  Companies following other periods were given two years to migrate. Those wishing to use periods other than the official financial year needed approval from the National Company Law Tribunal.

Most companies have migrated except a few subsidiaries of multinationals that align themselves with their foreign parents.  Also, companies will have to change their ERP systems and business processes.

These would be hiccups, but not as big a disruption as demonetisation, Maheshwari said. As such, the Union Budget might not be advanced this year, he said.

Most experts feel the proposal might take some time to become operational. There is likely to be intense discussions involving industry and the government before a final decision.

Around the time the Shankar Acharya committee was set up last year, industry chamber Assocham had released a note stating the change in the financial year would mean changes in book-keeping, HR practices, accounting software and the taxation system, involving costs running into the hundreds of crores of rupees for big and small industries.

Companies still adjusting to changes such as the Ind-AS and the GST regime could do without further uncertainty and costs, said lawyers and consultants.

From an accounting perspective, companies will be required to change the accounting year by finalising  nine months’ accounts and then moving to the calendar year. This will require cut-off procedures like goodwill impairment testing, transfer pricing study and reconciliation of books of accounts to be advanced. Earlier this year, Prime Minister Narendra Modi had said in the Niti Aayog's governing council meeting that there were suggestions to follow the January-December financial year. The prime minister had asked states to take the initiative in this regard.