Do you know we have two starts in one year?
The new year is celebrated on January 1st, but solely for the purpose of setting resolutions or renewing previous vows. For the Indian government, many enterprises, investors, and taxpayers, the financial year begins on April 1st.
What is a Financial Year?
A financial year, also known as the Fiscal year is a 12-month period used by the government, corporation or organization to compute how much money is generated, spent, and so on. It is basically the period in which income is earned.
In India, the financial year runs from April 1 to March 31. The year from April 1, 2022, to March 31, 2023, is commonly referred to as FY 2022-23, or may alternatively be referred to as FY 2023 depending on the ending year.
On the 31st of March of each Indian financial year, companies learn about their financial health.
|Note- The colonial British administration established the present fiscal year in 1867 to match India’s financial year with that of the British Empire. Other colonies like Hong Kong and Canada also follow the same.|
Why did the Indian Government maintain British Authority after Independence?
There are several reasons why the Indian government maintained British authority after independence. Some of them are:
Because the start of the fiscal year coincided with the Hindu new year, known as Vaishakha, the government chose to keep the date the same.
Because most crops are harvested in February and March, the financial year was not modified in order to receive an accurate estimate of revenue from the agricultural sector.
The end of the year i.e., November and December are the seasons of the festival, and merchants and retailers are active with their sales at this time. As a result, they are unable to do accounting and file tax returns at the same time.
Why should you be concerned?
As a company, you can make new financial resolutions on January 1 and start investing right away, but the taxation on your investments will follow the April-March cycle. Your tax returns are filed for every financial year from April to March. The deadline for making tax-saving investments under Section 80C, such as PPF, ELSS, etc., falls on March 31. All tax-related changes announced in the Budget of any year are applicable for income earned from April 1 of the following year.
So, you need to remain on the edge!
Requirement of Financial Year
In terms of your financial model, you must meet specific conditions. Following are the requirements:
- The length of your FY cannot exceed 371 days (53 weeks)
- Form T1139 is used by sole proprietorships and most partnerships to change their fiscal year
- Corporate fiscal periods are more difficult to amend in most situations, requiring them to file a letter seeking the adjustment to the relevant tax services office
- As long as the chosen year fits the 371-day criteria, new firms can choose any tax year-end as long as it is their first tax year
- Within 53 weeks after formation, new firms must pick a tax year-end
Consult a specialist before deciding on a fiscal term for your company due to the legal and financial implications.
Importance of Financial Year
The money earned in one accounting year (referred to as the preceding year) is taxed in the next accounting year (called assessment year) which most firms and commercial organizations follow for many reasons such as –
- It is the time period during which the company assesses its revenue and expenditure
- It is the time when the company puts forth its financial and economic objectives, as well as the methods to achieve them
- It is the time when the company draws a financial statement to determine your business financial position over a specific period of time
- It is the time when you can promote regularity and facilitate data comparability to study the virtues and faults
- You can lead more investment by presenting the company’s income stream to the investors and assisting them to realize the worth of your firm
How can you Track your Financial Performance?
Evaluating essential financial records in order to acquire a better understanding of how the organization is operating economically is known as financial statement analysis. While there are many various forms of financial documents that may be examined as part of the financial year process, the following are some of the most significant, particularly for managers:
Balance sheet: It is a financial statement that shows a company’s assets, liabilities, and equity at a certain point in time.
Income statement: It describes a company’s sales, costs, and profits over a period of time.
Cash Flow Statement: A statement that shows how actions from the balance sheet and income statement affect cash flow. It is divided into three categories: operating, investing, and financing.
Annual Report: A document that discusses a firm’s activities and financial situations. It often includes the papers stated above, as well as extra insights and narratives from important corporate officials.
How ANS Commerce can help?
Taking the right financial decision is a must to run a smooth business and grow successively. So, you must not let external stress hamper your internal work. We, at ANS Commerce, know how difficult it is to manage production along with sales. Therefore, we help companies make smart investments to broaden the range of services and diversify sales. Whether it is performance marketing or marketplace management or simple warehousing and fulfilment, we take care of all the hard work for the companies so they can smoothly carry out internal functions.