Prime Minister Narendra Modi is backing a plan that could change a 150-year-old practice that goes behind fixing your Budget and the financial calendar, including your tax returns.
He is pushing for a January-to-December fiscal year instead of the current financial year — from April to March — that was adopted in 1867, principally to align the Indian financial year with that of the British government.
So if his idea goes through, what exactly can you expect? Let's drill down the rationale behind his reform plan:It helps create a better cover for our farmers
The biggest driving factor behind the suggestion is that the financial year timing did not allow India to account for the impact of monsoon rains. Agriculture contributes more than 15% to India’s GDP and above 58% rural households depend on farm yields. Assuming there is drought, which is the norm between June and September, a change in the accounting period will help in better farm allocation.The rest of the world does it
The shift is in tune with the current global practice as most big economies follow the January-December cycle. As a matter of fact, 156 nations follow calendar year as financial year.
Even top firms and agencies such as World Bank and IMF use the calendar year for data reporting. It makes sense as India integrates itself with the world economy. Foreign firms don't have to struggle with two types of financial years, here and at their parent country, which means better business for us.It leads to optimum utilisation of resources
Another argument is that the current set up does not allow proper utilisation of the working seasons and does not keep into mind the national culture and habits, because of which there is a direct impact on data collection for national accounts.It takes into account our weather
Any financial year, a Niti Aayog-backed panel points outs, will be affected by the behaviour of the South West monsoon in the preceding financial year as well as the one which falls within the financial year itself. The panel wants the Budget to be finalised in October, after the South West monsoon is over – when the kharif crop is known and the rabi crop could be estimated. This would enable the presentation of the budget in November, which would lead to the start of the financial year in January.But implementing it would also mean a lot of changes
Apart from changing the Budget date, India will have to rework its tax assessment year, reorganise tax infrastructure, including at firm level and, probably even tweak the Parliament session timings. But relax, it won't change your tax payment schedule.Let's not forget that GST is round the corner too
If Modi government decides to go for it now, it may clash with the GST rollout planned for this year. That could be too much to ask for from firms and government departments who are still trying to figure out how to align themselves with the big tax reform.And most importantly, some states may not be up to it
Maharashtra, a BJP-run state, had raised concern over this plan, saying that it will consume a lot of administrative and manpower time, especially when they are trying to cope with the GST rollout and Plan and non-Plan expenditure merger.