4 reasons why the financial year starts from April 1st in India

In India, April marks the beginning of a new financial year. However, have you ever questioned why it is April rather than some other month like January which is the first month of the calendar? Some say it's because April is auspicious, while others argue it's a purely practical reason for factors we have explained below. However, the decision to start the financial year in April wasn't taken randomly. Historical events, cultural practices, and economic considerations shape it.

Let's explore four important reasons behind India's unique financial year calendar and its significance for individuals, businesses, and the government.

1. Coincidence with the Indian crop cycle

The financial year in India begins on April 1^st and goes on until March 31^st of the following year, a schedule that roughly corresponds with the crop cycle in many parts of the country. Agriculture holds a significant position in India's economy and India historically was an agrarian economy. Monsoons, which hit the country from June to September, play a vital role in agricultural activities. Farmers plant seeds mainly in June and July and harvests typically occur from October to March.

This synchronisation helps the government craft effective plans for the agricultural sector. For example, based on the expected crop output for the upcoming year, the government can declare agricultural policies, assign subsidies and alter credit policies, and prepare for food grain procurement, dissemination and storage.

Farmers, as well as agriculture-related businesses benefit from this timeline. By forecasting crop yield, they can make informed decisions and plan their operational costs. This overlap of the financial year and the crop cycle serves not just as a tradition but as a functional tool that boosts agricultural practices and policies in India.

2. Coincidence with the Hindu/Lunar calendar
 

The financial year in India, which starts in April and ends in March, also coincides with Vaisakhi or the Lunar New Year. This timing could explain the April-to-March fiscal schedule. Some experts believe that when selecting these dates, the Indian government might have taken this cultural tradition into account. By setting the fiscal year in India to start with the Lunar New Year, officials may aim for enhanced cultural unity.

3. British influence
 

India didn't arrive at the April-to-March financial year in isolation. Rather, the British Empire had a hand in it. Before independence, India followed the financial calendar of Britain. The Indian government has continued to use the same concept even after gaining independence.

However, British influence on India's financial setup extends beyond just dates. Many of the financial policies followed in India today are based on the British system, including the concepts of public debt. The legacy of British rule can still be seen in various aspects of Indian society and culture.

4. Alignment with global practices
 

Another reason why the financial year starts from April 1^st in India can be the country’s need to align its financial practices with global standards. India follows a financial year from April to March, just like other major economies and trade partners, including Canada, New Zealand, the United Kingdom, Hong Kong, and Japan. Such alignment streamlines international trade and economic interactions. These nations can more easily conduct financial transactions with India.

Final words
 

So, now you know the financial year starts from which month in India, and it is not just a random date but a well-thought-out decision that aligns with the country's agricultural, economic, and administrative needs.

Moreover, it is important to note that proper financial planning is essential in any fiscal year. To structure your financial year in an effective manner, you should focus on budgeting, boosting your savings, investing in tax-saving instruments and more. A good place to start is by opening a savings bank account that can help you manage your finances effectively. You can opt for IDFC FIRST Bank’s Savings Account. It offers high interest rates, flexible withdrawals, online banking services, and value-added features to help you manage your finances in a seamless manner. 

 

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