FY 2026 is Here! Why India Follows an April-March Financial Year?

Today is April 1, which marks the beginning of a new financial year (FY 2026) in India, bringing fresh tax changes, revised salary structures, and updated investment rules. Unlike the calendar year, which runs from January to December, India follows an April-to-March financial year, a system rooted in history and essential for taxation, budgeting, and financial reporting. 

This system has been in place since the British era and continues to be followed even today. While several countries use the calendar year as their financial year, India sticks to the April-March cycle due to historical, economic, and administrative reasons.

Historical Background

The April-March financial year system was first introduced during British rule. The British government followed this cycle to align with the agricultural patterns in India. Since a significant portion of the Indian economy was agrarian, tax revenues were collected after the harvest season, making April a logical start for the financial year.

The system was officially adopted in 1867 and continued even after independence. While there have been discussions about shifting to the calendar year, the current system remains deeply rooted in India’s economic framework.

Agricultural Economy and Taxation

India’s economy is still highly dependent on agriculture. The two major crop cycles in India are:

• Kharif (Monsoon crops): Sown in June-July and harvested in October-November.
• Rabi (Winter crops): Sown in October-November and harvested in March-April.

By aligning the financial year with these agricultural cycles, the government ensures that farmers and businesses can settle their accounts and taxes after the main harvest seasons. This timing allows tax collections and budget planning to be more efficient.

Budget Preparation and Implementation

The Union Budget, which is a crucial economic event in India, is presented on February 1 every year. This gives the government two months to get parliamentary approval before the financial year begins in April. If the financial year were to start in January, the budget would need to be prepared much earlier, making financial planning and revenue estimation more challenging.

Alignment with International Practices

While some countries, like Germany and China, follow the January-December financial year, many Commonwealth nations, such as the United Kingdom, Canada, and Singapore, follow the April-March cycle. Since India has significant economic and trade relations with these countries, keeping the same financial year makes international transactions and financial reporting smoother.

Government and Corporate Accounting

The Indian government, banks, and corporate sector have structured their financial reporting, tax assessment, and auditing cycles around the April-March financial year. Changing the financial year would require extensive restructuring of systems, regulations, and accounting practices, leading to temporary confusion and increased administrative work.

Previous Recommendations to Change the Financial Year

There have been discussions about shifting India’s financial year to January-December. The Shankar Acharya Committee (2016) studied the feasibility of such a move. However, it was found that transitioning to a new financial year would involve logistical and economic challenges. Thus, the current system remains in place.

Conclusion

India’s April-March financial year is a result of historical traditions, agricultural cycles, taxation efficiency, and administrative convenience. While there have been suggestions to align it with the calendar year, the existing structure continues to be the most practical choice for the Indian economy. As FY 2026 begins today, taxpayers and businesses must prepare for changes in tax rules, salary structures, and investment regulations.

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