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All You Wanted to Know About the New Financial Year

IndianMoney.com Research Team | Posted On Monday, January 27,2020, 11:58 AM

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All You Wanted to Know About the New Financial Year

 

 

The New Year marks the beginning of several things in personal and professional life. It is the day we all look forward to make new resolutions, to bring changes, set goals, and much more. We all feel energetic and fresh during the beginning of a New Year. It feels like a much needed detoxification therapy to bring in great changes.

The same applies to the financial New Year. The government, businesses, investors and taxpayers are keen to focus on the Financial New Year. In India, the new fiscal year falls on April 1st. Here April 1st to March 31st marks the financial year in India. It is known by different names like accounting year, financial year or fiscal year.

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All You Wanted to Know About the New Financial Year

Why April 1st?

The fiscal year in India was from May 1st to April 30th. During the period of colonial rule, the British Government adopted April 1st as the beginning of the fiscal year in 1867, to align the financial years of India and the British Empire. Other British colonies like Canada and Hong Kong also follow the same custom.

See Also: Personal Finance Tips to Rock the New Financial Year

A majority of the companies follow this April 1st to March 31st accounting cycle, to work in synchronization with the Government. It helps to maintain uniformity and facilitates easy comparison of data. But a few of them follow a different cycle.

  • Nestle India: January to December
  • Gillette India: July to June.

Many other companies like MRF and Bosch also follow a different cycle. With the introduction of the new companies act, it is the law to follow a uniform financial year. However, Nestle and Gillette sought exemptions to continue with their existing cycle.

Another important institution that follows a different financial year is the Reserve Bank of India. RBI follows the financial year from July to June. This is because it prefers to represent the aggregate picture of the performance of all banks, once the bank reports are out in March. A three month lag in a financial year will help achieve this.

See Also: Top 5 Financial Resolutions for New Year 2020

Why is This Significant?

It is during the accounting year that the government engages in the following activities:

  • Estimate the income and expenditure for the country as well as each individual state.
  • Set financial and economic goals and find ways to raise funds for the same.
  • The budget for the new fiscal year is set at the end of the previous fiscal year.

As we all know, tax is the main source of revenue for the government. The tax year also follows an April to March cycle.

There have been suggestions from the government during the last few years to change this fiscal year cycle to the normal calendar year (Jan-Dec), as the existing accounting cycle does not consider the effects of the monsoons. Monsoon has an impact on agriculture. Agriculture is one of the main occupations of the country. It was considered beneficial to include monsoon forecasts in the budget for agriculture. The plan was then dropped.

See Also: What Is Financial Year?

Things to Do in a Business Before the New Financial Year Begins:

  • Calculate Advance Tax Payable: Advance tax is a method of paying tax in installments rather than lump-sum payments. It is also widely mentioned as “pay as you earn”. The income tax department schedules due dates, before which payments must be made. If a taxpayer does not pay at least 90% of his tax before March 31st, interest starts accumulating on the same from April 1st till the month of payment.
  • Tax Saving Via Investing: There are several investment plans that enjoy tax benefits. This is the right time to invest in schemes that are eligible for a tax deduction.
  • Manage Physical Inventory: It is the process of physically counting the inventory of an entire business. This includes raw materials, work in progress, finished goods, consumables and so on. The market value of the inventory is calculated.
  • Purchase of Fixed Assets: If fixed assets are purchased during the previous financial year, and put to use for 180 days or more, then depreciation is allowed. If it is used for less than 180 days, then depreciation is limited to 50%. So, if you are planning to buy an asset, purchase it before 31st March, so you can enjoy depreciation up to 50%.
  • Clear loan Accounts: If you have availed or given a loan, try to pay off or recover dues, before 31st March. This helps improve the balance sheet position of the ratio of assets and liabilities, debt-equity ratio and so on.
  • File Income Tax Returns: Income tax returns must be filed before the due date.

Conclusion

April 1st plays a significant role by marking the beginning of the new financial year. Each organization that follows the financial year will be in a position to assess their current financial health. Depending on the budget announced by the government, various sectors and firms can plan and organize goals for the new financial year.

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