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FY Decoded: Why Financial Year In India Starts From April, Not From January?


The most cited cause is the influence of Imperial Britain’s centuries-long rule over India. (Representative image)

The tradition continued even after India gained Independence from the crown.

For over 150 years, India’s financial year has begun on April 1 and ended on March 31. This period of 12 months is of prime importance for government accounting and the presentation of the budget. Businesses and individual taxpayers also use the fiscal year for filing taxes and returns.

It is widely understood that keeping track of the financial year is critical. But why does it even start one quarter after the calendar year has begun? There are a few interesting reasons for this.

The most cited cause is the influence of Imperial Britain’s centuries-long rule over India.

The British had shifted to the Gregorian calendar year system in the 18th century, but kept the financial year in line with the old calendar year (from April to March).

In February, Zerodha co-founder Nithin Kamath tweeted a picture from his son’s history factbook, which explained this oddity.

The book said that the English government changed New Year’s date from March 25 to January 1 before switching to the Gregorian calendar. That year ran from March 25 to December 31– missing three months. Accountants found the change unfair. They decided to keep the financial year intact.

To ease the calculations of their financial transactions, the East India Company maintained the accounting reporting system they had carried from their home country.

The tradition continued even after India gained Independence from the crown.

The primacy of the agricultural sector in the Indian economy is another possible reason for the financial year beginning in April.

The income of a large chunk of households in India depends on the yields in February and March. Taking this into account for the financial year gives the government a good idea about the revenue status.

Yet another commonly cited reason is the host of festivals that crowd the end of the calendar year.

Navratri, Diwali, Christmas and New Year all happen between September and December. This is a period of heightened economic activity in terms of purchasing power receiving a boost due to bonuses and sales going up for retailers. Accounting becomes complex and time-consuming.

The financial year ending on March 31 helps avoid such a collision in schedules. It also leaves room for accounting employees to enjoy the holidays like the rest of the populace.

It is interesting to note that other countries such as New Zealand, Japan, and Canada, also have a similar financial year to India. In several other countries, the fiscal year is different from the calendar year. To date, the exact reason behind this remains unknown.

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