Financial Year End
March is here and there is only one topic of conversation everywhere – Year End. Seems like doomsday is around the corner if one judges by the furtive looks and low voices. Let us try and understand the mystery of the “Year End”. The what and why and the significance.
A fiscal or financial year is a twelve-month period like the normal span of a year, only it starts on 1st April and ends 31st March of the following year. It is essentially the time period for recording financial transactions of companies and individuals, and reporting it at the end of that period. That is to say, the balance sheet and other such financial statements should be ready for the perusal of the Government, at the end of the fiscal year.
The assessment year follows the fiscal year, during which the compiled financial records are filed with the Tax Department. Hence the current financial year in India is from 1/4/23 to 31/3/24 and the corresponding assessment year is from 1/4/24 to 31/3/25. Each year is divided into 4 quarters of 3 months each. This helps in keeping track of expenses and for the purpose of comparing profits for each quarter.
Fiscal year vs assessment year in India
| Fiscal/Financial Year | Assessment Year |
|---|---|
| It is a 12-month time period adopted by organisations to analyse and report their performance. | It denotes the 12-month time frame to file income tax returns. |
| The fiscal year and financial year effectively mean the same thing. One can use these terms interchangeably. | The assessment year follows the fiscal year. It follows the logic of ‘earnings before taxes.’ |
| The 12-month period can vary depending on the organisation and the country of incorporation. | An assessment year in India starts and ends on the same dates (apart from the year) as the fiscal year followed by organisations, i.e. 1st April to 31st March. |
| A fiscal year is not necessarily based on a calendar year. | Similarly, an assessment year is not necessarily based on a calendar year. |
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1st April was taken as the start of the financial year based on the Gregorian calendar. This was introduced by the British during their rule over India. We still abide by the April to March calendar for recordings that are financial in nature for organisations and individuals. It works out well since according to the Hindu calendar, the New Year falls in March or April sometime.
What then are the advantages of having a regular fiscal year?
- Obviously, if there is a specific time period year on year for maintaining financial records there is a stability in terms of bookkeeping. Every year the same processes can be followed for best results.
- It is easy to compare records if everyone follows the same calendar year. That is, one is able to compare the financial performance of Company A to Company B if they have the same Fiscal year and have been through the same economic cycle.
- Similarly, it is possible for internal performance comparison from one year to another if there is a set period for assessments. It is helpful not only for the management but also to keep an eye on your competitors.
- If all organisations and individuals filing returns keep to a specific time period, it becomes convenient and stream lined for all Government agencies, such as Income Tax Dept and Securities & Exchange Board of India.
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