Despite several proposals to change the financial year that starts in April and possibly adopt the calendar year as the new financial year, India has resolutely stuck to its April to March fiscal year, mainly as Indian agricultural and trading season begins in this month.
The last attempt to change the calendar year was three years ago, when a panel led by Shankar Acharya weighed in on alternates including starting the year from July to coincide with India’s crop calculation year and with the Samvat year, along with the calendar year, did not result in any switch.
“The main reason for this is the centuries-old tax collection and accounting system in India. Tinkering with the calendar will mean huge logistical changes in every shop, establishment and office in India … we therefore prefer the traditional April to March year. It suits India,” said Sumit Dutt Majumder, former chairman of the Central Board of Excise and Customs.
The current Indian financial year, starting from April 1 and lasting till March 31, was introduced by the British, who had set the dates in their Gregorian calendar based on the older system the Mughals had followed for tax collection. The Mughals, in turn, had based their tax collection year on earlier Indian traditions.
The Mughals had set the first day of Baisakh, which usually falls in the second week of the April, as the starting date, after studying the pattern of income and revenue collections in the Indo-Gangetic plains.
Usually, money from winter crops came in around this time and farmers paid revenues to landlords and dues to traders and money lenders.
Businesses and landlords in most states had a tradition of starting their new account ledgers around this time, which was useful for Mughal tax collectors.
Mughal emperor Akbar’s finance minister Todar Mal possibly accepted this tradition and assimilated this in the Mughal revenue account-keeping system.
Indian tax authorities say that the English, who started their empire-building at Fort William in Madras, found that both South India as well as Bengal, the first province whose Dewani they received from the Mughals, followed a system in which the new year, as well as accounting year, started in April.
“It was easy and made sense for the British to not disturb this. Taxes can only be recovered from subjects or citizens when they have money. After the harvest was done, all three classes whom the revenue authorities taxed in those days – farmers, landlords and traders – were flush with money,” said Majumder.
For traders and manufacturers, the Diwali to Holi season was and is considered the peak season in most parts of India, bringing them their maximum sales, making tax payments easier in March-end.
India is not the only country to follow this trend of having a separate financial year from a calendar year.
In Australia, the fiscal year starts on July 1 and ends on June 30.
In Canada, the government’s financial year is April 1 to March 31; though for individual taxpayers, the fiscal year is the calendar year, January 1 to December 31. While in United Kingdom, the personal tax year starts on April 6. Iran and Afghanistan, two of India’s neighbours, have a fiscal year that starts on March 21.