In News (financial year reform)
Madhya Pradesh on 2 May 2017 became the first state to change the format of the financial year from April-March to Jan-Dec.
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- The decision came after Prime Minister Narendra Modi made a pitch for shifting the fiscal year to January-December period during NITI Aayog’s governing council meeting in Delhi recently.
- Since India has primarily been an agriculture-based economy, the revenue cycle in the agriculture sector is typically April to March. The April-March cycle, as per experts, was mainly to match the agriculture revenue cycle and ease out financial transactions. Experts see the move to shift financial year to January –December in sync with the calendar year and aligning with other developed countries, who also work in the same format.
- Referring to the change in the budget dates, PM Modi said that in a country where agricultural income is exceedingly important, budgets should be prepared immediately after the receipt of agricultural incomes for the year.
- The government last year had set up a four-member committee to examine the desirability and feasibility of having a new financial or fiscal year.
- It was headed by former Chief Economic Adviser Shankar Acharya.
- This decision by the MP state cabinet means that the budget session of the next financial year will now be held in Dec-Jan.
- Changing the financial year format to January-December would mean shifting the tax assessment year, changes in infrastructure, especially at the company level.
- The financial year for an individual will start from January 1st and end on Dec 31st. The change to January-December financial year would mean an individual has to pay taxes by the end of the same year. Moreover, there will be a change in the ITR filing, which may change to March 31st instead of July 31st, which is presently the last day for filing.
- Shifting to January to December period will remove the confusion surrounding the financial year and quarters. It will now be easier to remember the financial transaction timings.
- According to Assocham, change in the financial year will not only mean a change in book-keeping but also in the entire infrastructure of accounting software, taxation systems, human resource practices involving huge costs for both big and small industries.
- It would create unnecessary hurdles and bureaucratic and systemic delays.
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