Financial Year (FY) or Fiscal Year
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Meanwhile, The Standing Committee attached to Finance Ministry in their [http://18.104.22.168/lsscommittee/Finance/16_Finance_46.pdf Report on Budget Estimates for 2017-18] tabled in the Parliament on 17 March 2017 (para 2 on page 50), under the title "Changes in the Budgetary Schedule" has recommended that FY
Meanwhile, The Standing Committee attached to Finance Ministryin their [http://22.214.171.124/lsscommittee/Finance/16_Finance_46.pdf Report on Budget Estimates for 2017-18] tabled in the Parliament on 17 March 2017 (para 2 on page 50), under the title "Changes in the Budgetary Schedule" has recommended that FY be changed to calendar year.
Latest revision as of 06:32, 20 March 2017
The one year period for which financial statements of a government or a company is prepared is referred to as the financial year or fiscal year (FY).
Countries, depending on their institutional requirements, define their financial year (FY) different from their calendar year (which runs from 1 January to 31 December). India’s financial year runs from 1st April to 31st March of next year.
In short, a financial year may be represented as FY. Generally, in India, financial year 2016-17 would be abbreviated as FY 2016-17 in statutory documents. However, following the American practice, some also use the nomenclature of FY 17 or FY 2017, which stands for the financial year ending 31 March 2017.
For income tax purposes, the year falling next to a financial year is known as Assessment Year. It is called so, because assessment of tax liability is done during that period, for the income corresponding to the previous financial year. For instance, for the Fiscal Year 2016-17, the Assessment Year would be 2017-18.
Calendars are a natural result of our past political & cultural history. India did not define its FY. It inherited this for historical reasons. Post-independence, India’s official calendar was fixed on the strength of recommendations of Calendar Reform Committee constituted in November 1952. The Committee chaired by Dr. Meghanad Saha had submitted their Report in 1955 .
On 6th July 2016, Ministry of Finance (Budget Division) has announced constitution of a Committee headed by Dr. Sankar Aacharya to examine the desirability and feasibility of having a “new Financial Year”.
The Committee is expected to give its recommendations by 31 December, 2016. The terms of reference (ToR) of the Committee are as under:
Examine the merits and demerits of various dates for the commencement of the financial year including the existing date, taking into account, inter-alia, the following:
- The genesis of the current financial year and the studies made in the past on the desirability of change in financial year;
- The suitability of the financial year from the point of view of –
- correct estimation of receipts and expenditure of Central and State Governments;
- the effect of the different agricultural crop periods;
- the relationship of financial year to the working season;
- impact on businesses;
- taxation systems and procedures;
- statistics and data collection;
- the convenience of the legislatures for transacting budget work; and
- other relevant matters.
The Committee may, after due examination of all relevant factors, recommend the date of commencement of the financial year which, in its view, is the most suitable for the country.
In case a change in the financial year is recommended, the Committee may also work out the modalities for effecting the change. This would inter-alia include:
- appropriate timing of change;
- the determination of a transitional period;
- the change in tax laws during the transitional period;
- the amendments that may be required in various statutes; and
- changes in the coverage of the recommendations of the Finance Commission.
Meanwhile, The Standing Committee attached to Finance Ministry, in their Report on Budget Estimates for 2017-18 tabled in the Parliament on 17 March 2017 (para 2 on page 50), under the title "Changes in the Budgetary Schedule" has recommended that FY be changed to calendar year.
History of India’s FY
It was in 1867 that the British had set FY for India to be from April to March to confirm with English practice. Subsequently, the Report of the Chamberlain Commission on Indian Finance and Currency of 1915 had concluded that ..."Under present arrangements the Indian budget is presented before the end of March and the Finance Minister has accordantly to prepare his estimates in ignorance of the most important factor on which the results of the year will depend". This situation still exists.
Calendar Reform Committee 1952
India’s official calendar was fixed on the strength of recommendations of Calendar Reform Committee constituted in November 1952. The Committee chaired by Dr. Meghanad Saha had submitted their Report in 1955 .
Report of Estimates Committee (1958)
Post independence, changing the FY from April-March to a cycle of October-September was part of the recommendations in 20th Report of Estimates Committee (1958). Considering (i) historical evolution, (ii) unpredictability of monsoon impact on farm produce,(iii) need for efficiency in implementation of civil works funded from budget, (iv) desirability of giving more time to MPs to travel in constituencies instead of tying them down with Budget session for 4 months, (v) to avoid end of the year rush in expenditure, (vi) to enhance accuracy in budget estimates relating to receipts and expenditure, the Estimates Committee (1958) had suggested FY to start from October; budget to be presented to Parliament during August and to be voted by September. During this period they had suggested for no other business in Parliament, except detailed discussion on Budget. The Estimates Committee concluded by saying “…it is desirable that early action to give effect to this change is taken in consultation with all the State Governments."
Their Report presented in 1958, gave 32 action points relating to Budget Reforms. That was a Committee of 30 Parliamentarians (2nd Lok Sabha); it had veteran leaders/statesmen, of that time, who had far reaching influence on India’s public policy, like Balvantrai Mehta, S.A. Dange, Mahavir Tyagi, Sucheta Kripalani etc.The committee was serviced by Shri Sakhdar, in his capacity as Joint Secretary to the Committee.
L.K. Jha Committee (1984)
The Experts Committee headed by Shri L.K. Jha (1984) had also examined a need for change in the FY. The Committee, while recommending the commencement of financial year from January, mainly with reference to the impact of South West monsoon on the economy, had mentioned in their Report that if for any reason, a changeover to the calendar year is not acceptable despite its many advantages, then on balance, it might be best to live with the existing financial year and avoid the problems of transition.
Government of India did not favour any change in the financial year for some of the following reasons
- The advantages arising out of the change would only be marginal in view of the innumerable considerations in the formulation of budget policies;
- Change in the financial year would upset the collection of data and it might take a long time to return to normalcy in this regard; and
- The change would create a large number of problems, as extensive amendments to tax laws and systems, financial procedures relating to expenditure authorization and other matters would become necessary and in that process the administrative machinery would get diverted to problems of transition instead of concentrating on improving the tax collection machinery.
Other Country experiences
One can look at a few other countries. For eg: Ireland had changed their fiscal year after joining European Union. The Americans too, effective from 1976, changed their fiscal year from July – June to October-September by passing a legislation Budget process and impounding Act 1974. The said Act was signed by Richard Nixon on 12th July 1974. Americans changed the date as part of overarching Budget Reforms. Through those reforms they had also established Congressional Budget Office (CBO) that scrutinizes Federal Government’s budget proposals for the Congress. They set definite time-lines for consultations within the executive.