Determining Financial Year End for India Company
Did You Know?
The 12 months from April 1 to March 31 is widely accepted in India as the fiscal / accounting / financial year. It was acquired in 1867 by the British Government to position India’s financial year with the British Empire’s. Other British colonies, like Hong Kong and Canada, also follow the April-March routine. Before 1867, the fiscal year for India ran from May 1 through April 30. This comprehensive article covers almost everything you need to know about an Indian company determining the end of the financial year.
Most companies and businesses in India follow the accounting cycle from April to March, which is in sync with the Government’s fiscal year. However, a small percentage of companies adopt a particular period. For example, Nestle India follows an accounting year from January to December, while the financial year for Gillette India ends on June 30. Others such as MRF (October-September) and Bosch (January-December), which used to observe different accounting years, were recently reorganized to April-March when a steady financial year was called for under the new Companies Act. Companies like Nestle and Gillette have sought waivers to continue their old system. The RBI too follows its accounting year. As it likes to show a comprehensive image after all banks come out with their numbers, its accounting year starts with a three-month lag and follows a July-June cycle.
Why is It Important?
The fiscal year is the year during which governments render assessments of the country / state’s revenue and spending. It is the period for which the Government sets its financial and economic objectives and establishes the means to raise funds for the same. The Government introduces the action plan (budget) for the current fiscal year typically starting April at the end of the previous fiscal year. Considering that taxes is one of the Government’s primary sources of income, the tax year extends from April to March. Revenues earned in one accounting year (called the preceding year) are subject to tax in the following accounting year (called the assessment year). Most Indian corporations and other corporate organisations are compliant with the government and tax department’s fiscal year as it maintains continuity and improves data uniformity. It is why you must know everything about determining the financial year-end for an Indian company.
Tax Accounts must be made up to March 31. For those with a business / professional income, the income tax return is required to be filed electronically on or before October 31 of the fiscal year that follows. The due date for filing the tax return is on or before November 30, if the transfer pricing provisions are applicable.
In the case that a taxpayer wants to amend the paid income return, they will be entitled to do so either up to March 31 of the year following the tax year or until the expiration of the evaluation, whichever is sooner.
A financial transaction statement for the tax year on or before May 31 of the year following the tax year must be filed electronically under Form 61A.
Further, to claim the tax incentives/deductions, taxpayers have to furnish their tax returns on or before the due date specified for filing the tax returns.
Quarterly WHT Returns
The quarterly tax statements withheld must be submitted electronically to the tax authorities on or before July 31, October 31 and January 31 for the first three quarters of the tax year and on or before May 31 after the last quarter of the fiscal year.
Obligation to Submit Tax Returns for Assets Located Outside India
A resident taxpayer with any assets (including financial interests in any entity) outside of India or a signing authority in any account outside India is required to file a tax return.
In cases where taxpayers have assets outside India, the existing four and six-year time limits for reopening tax assessments (where income has escaped appraisal) have been increased to 16 years. In situations where an individual is classified as a non-resident employee, the period for providing notice of reassessment is increased from two years to six years.
Payment of Tax
For each quarter on or before June 15, September 15 and December 15 for the first three quarters of the tax year and on or before March 15 for the last quarter of the tax year, tax is payable in advance (where the tax payable for the year exceeds INR 10,000). Any correspondence of tax due on the return must be paid on a self-evaluation basis before filing the return. A tax return will be considered as flawed if the tax liability along with interest is unpaid on or before the date of submission of the tax return. The interest imposed for default in payment of advance tax is computed starting from the first day of the year following the tax year to the date of the assessment order.
Tax Audit Process
Audit for Income Tax Purposes
When you run a company in India, you are expected to get your account books audited for income tax purposes if the company revenue exceeds INR 50 million, so that the amount of all revenues, including sales, expenses and gross receipts, in cash, does not exceed 5 % of the total receipts and all payments, including expenditure, in cash do not exceed 5 % of the total payments.
For those opting for the presumptive taxation scheme, they shall not be required to get their accounts audited if the total turnover or gross receipts of the relevant previous year do not exceed INR 20 million. It has been active from tax year 2017/18 onwards. For those who are carrying on a profession, crossing the turnover threshold of INR 5 million would attract the requirement to have its books of accounts audited from April 1 2017. The sanction for non-compliance with this audit demand is INR 0.15 million, subject to 1% of total turnover/gross receipts.
Tax authorities may, at any phase of the proceedings, having regard to the nature, complication and volume of accounts or doubts as to the accuracy of accounts or other reasons, direct a taxpayer to have his accounts audited and to furnish the report after the necessary approval of the Chief Commissioner.
Statute of Limitations
The statute of limitations under the Income-tax Act in the case of submission of returns is one year from the end of the applicable tax year, and for evaluation of returns filed is 12 months (24 months in case movement pricing provisions are applicable) from the end of the relevant tax year for which the return is filed. It is for re-evaluation extent from five years to 17 years from the end of the relevant tax year.
Topics of Focus for Tax Authorities
To roll out e-assessment all over the country to share larger transparency and accountability, the Central Government has been empowered to inform a new scheme for scrutiny assessments to achieve the desired purpose. It would enable the evaluation to be carried out without any personal interface between the taxpayer and the revenue authorities. The scope of e-assessment has been expanded to include the best judgement evaluation as well. Further, similar e-proceedings have been established in respect of:
- Proceedings before Commissioner (Appeals).
- The imposition of penalty under the Income-tax Act.
Should you have any questions about determining your company’s financial year-end, feel free to contact us today.