Financial Year Definition
A financial/fiscal year is used for budgeting and government accounts. It is different in each country. It is also used by businesses and other groups to report their finances.
It’s easier to keep track of your money and file your taxes correctly if you know your business’s financial year. Depending on your business, you may be able to choose when you want your financial year to start and stop.
Here, we will explore everything about a financial year!
Understanding Financial Year Meaning
A financial year is twelve months long and is used by businesses, governments, and other groups to compute their budgets, profits, and losses.
Companies often pick a date to end their financial years for several reasons. November and December are the busy months for many businesses. So, accounts might be busy at this time. Businesses that only open during certain times of the year may choose to end their fiscal year in September or October because that’s when they’re busiest. So, the financial year could really be any twelve-month time a business wants.
Importance of Financial Year
Look at some of the top reasons why the financial year is important for everyone:
- In the assessment year, taxpayers must pay taxes on income they made in the previous year.
- The government computes how much money the country generates and spends by looking at the financial year.
- During this time, the government sets its economic and financial goals and plans how it will get the money it needs. This is the action plan, which is also known as the budget, for the next year, which starts in April. The government generally gives it to the people at the end of the previous financial year
- The financial year of the government and tax department is used by most businesses as well. This keeps things consistent and makes it easy to compare statistics.
Importance of Company’s Financial Year
Preparing for a Performance Review
For many business organizations, the end of a financial year is also the time to review the employees’ work performance and salaries. If your employees know when your company’s financial year ends, they can prepare to make a good impression during their performance review.
Assessing Job Security
Employees are often interested in knowing how the company performed or whether it reached its goals in a financial year. If your company had a strong financial year, your employees would likely feel secure in their jobs and have a positive outlook for the coming year.
Preparing for Next Year
At the beginning of a new financial year, you may announce the company’s plans and goals for the next 12 months. This allows employees to make the necessary preparations to adapt to these changes and perform better in the new year.
How to Choose Your Financial Year End?
Any time within 53 weeks from the date your business was formed can be the end of its financial year. The legal end of your fiscal year is when you file your first tax return, but it is best to set the end of your fiscal year when you start your business.
The financial year for most businesses and companies in India runs from April to March, which is the same as the fiscal year for the government. However, a small number of companies choose a certain time. Like, Nestle India’s accounting year runs from January to December, while Gillette India’s financial year finishes on June 30.
That is everything you must be aware of the financial year.
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FAQs
Difference between assessment year and financial year?
A financial year is the twelve months during which a person makes money for tax reasons. An assessment year is the time when earnings from the previous year are calculated, taxes are due, and Income Tax Returns (ITRs) are filed.
How does a financial year differ from a calendar year?
The first day of the year is always January 1 and the last day of the month is always December 31 on the calendar. There is no set day for the beginning of a financial year or the end of it.
Why is the financial year important for businesses and individuals?
When a company must report its financial data, it needs to know when the financial year starts and ends so that it can plan its budget, keep track of income and expenses, and compute how much taxes it owes at the end of each year.