Financial Year

Meaning & Definition

A Financial Year (FY) is a 12-month time period that companies and government entities use for accounting, financial reporting, budget preparation, and taxation purposes. The financial year in India begins on April 1 and ends on March 31 of the following calendar year. All organizations use this time period to record revenue, cost of goods sold, taxes, and report an annual set of financial statements.

Important aspects of the Financial Year

• Provides consistency in the financial reports of both companies, as well as government entities. 
• Assists businesses & individuals for tax calculation and filing purposes, budgeting, and planning. 
• Provides support for compliance with all accounting laws and regulations; 
• Provides set periods of time to cover payroll, and for both an audit or financial review.

Compliance & Policy Considerations 

The financial period in India is defined by the Income Tax Act of 1961. 

Key related definitions include:

Assessment Year (AY) is defined as the year that is the assessment period for the previous financial year. Tax returns are filed after the end of the assessment year. 

Business entities that do business in India must retain proper records of their financial transactions for the applicable financial year and file a tax return for each year of the applicable financial year.