Why Does India Close its Financial Year on 31st March?
One interesting aspect of the Indian financial system is the fact that the financial year runs from April 1st to March 31st of the following year. This means that March 31st marks the end of the financial year in India, a deadline that is significant for businesses and individuals alike.
Now the question arises, why March 31st is chosen as the closing of the financial year in India? To answer this question, we need to look back at the history of the financial system of India and how it has evolved over time.
31st March: A Closing of Financial Year in India
We all know, March 31st is the end of the financial year in India. The financial year in India runs from April 1st to March 31st of the following year. This system was established in 1867 by the British colonial government and has been followed ever since.
The reason for choosing March 31st as the end of the financial year is primarily historical and related to the British colonial system of taxation.
In the early 1800s, the British colonial government in India introduced a new system of taxation called the "fiscal year," which began on April 1st and ended on March 31st of the following year. This system was introduced to align with the British tax year and to make it easier to collect revenue from British taxpayers living in India. Over time, this system became the standard for financial planning and budgeting for the Indian government and private sector as well. Therefore, the March 31st deadline is still used in India today to mark the end of the financial year for tax purposes and financial reporting.
Additionally, the April 1st to March 31st financial year allows for better management and monitoring of government finances, as it coincides with the cropping patterns and the start of the monsoon season in India. This ensures that the government has sufficient funds to support agriculture, which is a significant part of Indian economy.
What is a Financial Year?
A financial year, also known as a fiscal year, is a 12-month period used for accounting, financial reporting, and taxation purposes by businesses and governments. It is a period of time that is used to calculate and report financial performance, including revenue, expenses, and profits or losses.
The financial year can vary depending on the country and the organization. In most countries, the financial year coincides with the calendar year, starting on January 1st and ending on December 31st. However, in some countries, such as India and the United Kingdom, the financial year starts on April 1st and ends on March 31st of the following year.
The financial year is important because it is used to prepare financial statements, including the balance sheet, income statement, and cash flow statement, which are used to evaluate the financial performance of a company. It is also used for tax purposes, with companies required to file tax returns and pay taxes based on their financial performance during the financial year.
Hope now the readers are aware that why the closing of the financial year of India “31st March” is financially significant. For more such information, stay connected with Step Up Academy.