The Prime Minister of India, Narendra Modi, wants India to dump a 150 year old financial habit dating back to the colonial days. Narendra Modi would like to shift the fiscal year from the current April to March period, to the January to December period. This could be a brilliant move in what would be a major shift from a 150 year old colonial practice implemented in 1867 by our British rulers, done to align the Indian accounting system, with that of England.
Perhaps, Prime Minister Narendra Modi, may bring up this proposal in his August 15th Independence Day Speech. So what's special about shifting the fiscal year from the April to March period, to the January to December period? Why should the Prime Minister bother at all?
Changing the fiscal year is no small deal. It plays a very important role in fixing India's Budget and yes, your financial planning. If PM Narendra Modi dumps the 150 year old colonial habit, one of the first changes you are likely to see, is the change in the date of the presentation of the Union Budget, from the current month of February to November.
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Let's take a look at some of the benefits of shifting the fiscal year from the current April to March period, to the January to December period.
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1. MNC Companies will be better able to manage accounts
Shifting the fiscal year from April to March period, to the January to December period will align India with the prevailing practice of developed countries.
MNC firms currently deal with two types of financial years. The financial year in India and the financial year in their parent country. If the fiscal year is shifted there would be a uniform structure, which would help MNC Companies better manage their accounts.
2. Agricultural sector would get a boost
The Government presents the Union Budget in the month of February. Unfortunately, the Government does not get any solid data on the monsoon forecast for the new financial year. It's too early to predict the monsoons in the month of February.
Agriculture contributes more than 15% of India's GDP. A lot of rural households in India, still depend on agriculture for their income. If the fiscal year is changed from the current April to March period to the January to December period, then the financial year will be aligned with the crucial monsoon cycle and also with India's crop harvests for the Rabi and Kharif season.
The Government finds it very difficult to draft the income-expense chart without solid monsoon forecast data. Drought's are very common in the months between June to September. Changing the fiscal year will help in better farm allocation.
Changing the fiscal year will have one big benefit. It helps you in better tax planning. You might be one of the several citizens who love to do tax planning at the last minute. Most of the citizens of India do their tax planning in the last 3 months of the financial year, mainly January, February and March.
You and other citizens pay your life insurance and health insurance premiums and also make ELSS investments in the last 3 months of the financial year. These investments are a popular way to save tax. Most of the premium income for insurers comes in the last 3 months of the financial year. A lot of money also flows into ELSS during this time. If the fiscal year is changed, then you would have to make a lot of tax saving investments by December 31st.
This could be quite difficult if you have made a lot of tax saving investments between January and March this year. But, it could inculcate tax discipline, forcing you to indulge in better tax planning and not wait for the last minute to do so.
If you are the kind who doesn't like change, here's a breather. The Prime Minister might not change the fiscal year from April to March period, to the January to December period this year. GST has just taken off and it would be too hectic for the Government to present the Union Budget in the month of November. So you just might have the month of March as the end of this fiscal year. Be Wise, Get Rich.
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