The proposal is that current financial year should be a 15-month one and next financial year will be a 9-month one (July-March).
MUMBAI: After the government postponed deadlines for filing tax and earning returns several companies and stakeholders have sought extension of current financial year to a 15-month one, to end in June 2020. As per the proposal the next financial year would start from July this year and would end in March 2020.
According to the people in the know several companies have seen all their ratios—from debt to equity to return on capital—go for a toss in last one month due to Coronavirus and shutdown that followed.
The government in last few days reached out to several industry experts to seek their opinion on impact of such a step, say people with direct knowledge of the matter.
“For several companies there is a need to extend the financial year to June end as most of their ratios have gone for a toss due to Coronavirus. It’s only fair that companies are given additional time because even when tax deadlines are extended, there is a pressure from revenue department to pay before March end, as that’s the year end for them,” said said Dinesh Kanabar, CEO, Dhruva Advisors.
Industry experts point out that for all the companies last one month has hugely impacted cash flows and that has resulted in their mark to market. Extension of the financial year may spread the bad period over more months and could help companies recover a bit say experts.
Government recently extended several March end dead lines like filing year end results or tax returns to June. Industry trackers say that the extension of the compliance deadline has provided relief for companies to meet the obligation, but that alone may not be enough.
“An extension of the financial year would not only relieve practical challenges around book closures and stock taking during a lock down, but also help in the larger backdrop of closing and reporting when things would hopefully be less unsettled, than doing it now in the midst of significant uncertainty” Gautam Mehra, Leader, tax and regulatory services, PwC India.
According to a person with direct knowledge of the matter, this particular proposal is being discussed by the government “at the highest level.” “Whether to extend the current financial year to June, September or December is not so much of an issue, but the government has to know if this is enough. The government may wait for few days before taking a decision to see impact of earlier announcements by the finance minister and the RBI,” he said.
The proposal is that current financial year should be a 15-month one and next financial year will be a 9-month one (July-March). However, some industry associations are pushing for a 21-month financial year that will end in December 2020, said people in the know.
“The impact of Covid19 is huge and it may disrupt the business and financial of the business for couple of quarters. Government was exploring the change in the financial year and now if the government is able to tweak the financial year, then the effects of Coronavirus on financials could be spread over extended the time frame,” said Paras Savla, partner, KPB & Associates, a tax advisory.
The government had earlier toyed with the idea of changing the financial year from April to March to calendar year– January to December. In July 2016 a committee was constituted to look at the proposal of moving to calendar year. A NITI Aayog discussion note too had mentioned that the current financial year system in India is not aligned to international practices and causes a lot of problem.
Insiders say that due to the current situation the government may consider whether to extend the current financial year to June or directly move to calendar year system.