Confused about India’s financial year (April-March)? Know the historical reasons, how it works with agriculture & festivals, and why it’s different from the calendar year.
India’s financial year has always been a subject of curiosity, especially among foreign investors and economists.
While the world follows the January-to-December financial year, India stands out by starting its financial year in April.
India’s financial year
India’s financial year, which starts in April and ends in March, is a unique schedule that has sparked curiosity among many.
While some attribute it to cultural or historical reasons, others believe it’s a practical decision driven by economic factors.
This unique system has a fascinating history rooted in practicality and tradition. Let’s delve into the reasons behind this different approach.
A Leap from the Past: The Julian to Gregorian Calendar Shift
Back in the day, the British Empire, which once ruled India, followed the Julian calendar. This calendar marked March 25th, the spring equinox, as the start of a new year.
However, in 1752, a switch was made to the Gregorian calendar, with January 1st becoming the new year. This change created a gap, as the year 1751 was shortened to run only from March 25th to December 31st.
Taxes, Timing, and the Trouble with Transition
This calendar shift presented a challenge for accountants, especially regarding tax collection.
Since taxes were typically collected in March under the Julian system, implementing the Gregorian calendar would have meant collecting them three months earlier. This disruption could have thrown the entire financial system into disarray.
Festivities and Finances Don’t Mix
Another factor to consider was the festive season. December, with Christmas and New Year celebrations, wasn’t deemed ideal for intense financial activity. The focus during this time naturally shifted towards holidays and celebrations.
Post-Independence: Weighing the Benefits
After gaining independence, India explored the idea of aligning the financial year with the calendar year.
However, the government saw no major advantage in changing the well-established system. Additionally, India’s agricultural backbone played a crucial role in the decision.
Seasons, Crops, and Financial Cycles
India has two major crop seasons: Rabi (October-March) and Kharif (July-October). The Rabi season harvests typically occur in February and March, heavily impacting income calculations based on crop yields.
While accounts are opened in October, coinciding with the Kharif season’s end, this period also overlaps with Dussehra and Diwali, major festivals leading to significant business activity.
Sorting through financial calculations amidst these festivities makes ending the financial year in March a practical choice.
Conclusion: A System Rooted in History and Practicality
India’s unique financial year system, despite its difference from the calendar year, reflects a deep understanding of historical context, agricultural cycles, and festive periods.
This approach ensures a smoother flow of financial activity throughout the year, considering the rhythms of both agriculture and celebrations.