Fiscal Year

Definition

A fiscal year (also called financial year in India) is a 12-month period used for government accounting, budget preparation, and financial reporting purposes. In India, the fiscal year runs from April 1 of one calendar year to March 31 of the following calendar year. This is distinct from the calendar year (January to December) used in many Western countries. India's April-March fiscal year was inherited from British colonial administration and has been maintained since independence. All central and state government budgets, income tax assessments, GST annual returns, corporate financial statements, and most statutory compliance deadlines are aligned to this fiscal year cycle. The fiscal year is typically referred to by the years it spans, for example, FY 2024-25 refers to the period April 1, 2024 to March 31, 2025.

The concept of assessment year (AY) is closely related to the fiscal year in the context of income tax. The assessment year is the year immediately following the financial year in which income is earned. Income earned in FY 2024-25 is assessed in AY 2025-26, and the income tax return for that income must be filed (along with any taxes due) by July 31 of AY 2025-26 for non-audited individuals and by September 30 for companies and individuals requiring audit. This interplay between financial year and assessment year is fundamental to income tax compliance and requires careful attention to ensure returns are filed for the correct year. The Income Tax Act defines 'previous year' as the financial year immediately preceding the assessment year, which is the period in which income is actually earned.

There has been periodic discussion in India about shifting to a January-December fiscal year to align better with the calendar year and simplify international comparisons, most notably in the Shankar Acharya Committee Report of 1985 and subsequent periodic proposals. However, the change has not been implemented given the significant disruption it would cause to agricultural cycles (which influence rural income patterns and government revenue), state budget processes, and the vast number of compliance timelines linked to the current fiscal year. The NITI Aayog periodically revisits the question, but the April-March financial year is expected to remain the standard for the foreseeable future given the substantial systemic realignment any change would require.

Key Points

• India's fiscal year runs from April 1 to March 31, with all government budgets, income tax assessments, and statutory compliance timelines aligned to this cycle.
• The assessment year (AY) is the year following the financial year; income earned in FY 2024-25 is assessed in AY 2025-26 and returns are filed during AY 2025-26.
• Income tax returns for non-audited individuals are due by July 31 of the assessment year; for companies and audit-required taxpayers, the due date is September 30.
• GST annual returns (GSTR-9) for a financial year are due by December 31 of the following fiscal year; MCA annual filings are due within specified months after the AGM.
• The term 'previous year' in the Income Tax Act refers to the financial year in which income is earned, which is the year before the assessment year.
• Proposals to shift India to a January-December fiscal year have been periodically discussed but not implemented, largely due to the disruption it would cause to existing compliance frameworks.