Industry proposing Government for extension of financial year to be 15-month long

The Government has announced that it has postponed the deadlines for tax filing and earning returns. After the announcement, many companies and stakeholders have asked for an extension of the current financial year to a 15-month long financial year that will be ending in the month of June 2020.

The proposal that has been made includes that the next financial year would be starting from the month of July 2020 and would be ending in the month of March 2021.

According to the statements, many companies have seen their ratios. All from debt to equity to return on capital that has been reportedly gone for a toss in last month because of the Coronavirus pandemic and the lockdown that followed.

During the last few days, The government contacted some of the industry experts to ask for their opinions on the impact of the step of extending the current financial year.

Mr. Dinesh Kanabar, CEO, Dhruva Advisors said in a statement, “For many companies, there is a requirement for extending the current financial year to the end of June as a major part of their ratios have been in a toss because of the Coronavirus pandemic.  It is only fair that such companies have been given more time as even with the extension of the tax deadlines, there is still an amount of pressure from the revenue department to pay off before the end of March because that is still the year-end for them.

The Industry experts have pointed out that all the companies have been impacted in a huge way during the last month especially their cash flows. They added that the extension of the financial year will aid in spreading the bad period over more months. This could help several companies to recover a little.

The government has extended many deadlines that were earlier decided to end by 31st March. Some of these include filing of the year-end results or tax returns. These deadlines have been extended until June 2020. The Industry experts stated that the extension of the deadline has resulted in providing some relief to the companies to meet their obligation, but this may not be enough.

Mr. Gautam Mehra, Leader, tax and regulatory services, PwC India said in a statement, “An extension of the current financial year will be a relief for several practical challenges regarding the book closures and stock-taking during a lockdown. It will also help in the larger backdrop of closing and reporting by the time things get a little settled rather than doing it now amidst these times of uncertainty”

This proposal is currently being discussed by the government with industry experts at the highest level. The issue of whether to extend this financial year to the month of June, September or December is not really such a big of an issue, but the government has to figure out if doing this will be enough.

The government will wait for a few more days before it takes a final decision to see the impact of the previous announcements made by the finance minister and the Reserve Bank of India.

The proposal says that the current financial year should be extended to be a 15-month long one and the next financial year will be a 9-month long (starting from July-March). But, some of the industry associations have been trying to push for a 21-month financial year that will be ending in the month of December 2020.

Mr. Paras Savla, partner, KPB & Associates, a tax advisory said in a statement, “The impact of the Coronavirus pandemic has been a huge one and it may result in a lot of disruption of the business and finance department of the business for one or two quarters. He further added, "The government has been exploring the changes in the financial year and if it is able to tweak the current financial year, then the effects of Covid-19  on the finances could be spread overextended the time frame."

The government had earlier discussed the idea of tweaking the current financial year from April to March to the basic calendar year (from January to December). In the month of July 2016, a committee had been constituted by the government to discuss the proposal of moving to the basic calendar year. A discussion of the NITI Aayog had also mentioned that the current financial year system in India is really not in alignment with the international practices and this results in a lot of problems.

Many Insiders have even said that due to the current situation of lockdown, the government will consider if it should extend the current financial year to June or directly move it to the system of the calendar year.

PC : theeconomictimes

Read More: Various Insurance Policies Offered amidst the Coronavirus Pandemic