Will India shift its financial year?

If the BJP comes to power, sources say it may change the financial year (April-March) to the calendar year (January-December).
Shrimi Choudhary reports.

The department of revenue has asked for proposals from the income-tax department to finalise taxes as part of the Budget, which would be presented in July after the new government takes office.

Making the financial year co-terminus with the calendar year is one of the key suggestions, say sources familiar with the matter.

In its April 24 letter, the department asked tax officials to give recommendations, by May 15, for consideration during the budgetary exercise of 2019-2020.

According to sources in the know, there are some suggestions which have been in discussion and would be recommended by the department as part of pre-Budget consultation.

Source say bureaucrats have started brainstorming on the tax policies, analysis and legislations for both direct and indirect taxes.

If the Bharatiya Janata Party comes to power, sources say it may change the financial year (April-March) to the calendar year (January-December).

However, it may face operational challenges and should be given sufficient time before changing the system.

If it gets introduced, this would end the 150-year British practice.

Similarly, the tax department is also pitching for making the financial and assessment year same under the I-T Act.

For this, a proposal was presented during a meeting with the NITI Aayog.

The Narendra Damodardas Modi government appointed a panel on changing the financial year to the calendar year.

Under the income-tax system, an assessment year is the year that comes immediately after a financial year.

Besides, officials may also suggest further rationalisation of tax slabs for the small and mid-level taxpayers.

"The current tax rates are ambiguous in nature, especially the lower slabs. As suggested, we would work towards harmonising the tax rates, currently prone to interpretation," says a source.

Under the current I-T slabs, income up to Rs 2.5 lakh is exempt from tax, those earning up to Rs 5 lakh pay 5 per cent, and those earning up to Rs 10 lakh have to pay 20 per cent tax.

Those with income above Rs 10 lakh have to pay 30 per cent tax.

Since April 1 this year, those with taxable income up to Rs 5 lakh would not have to pay any tax, as they have been given tax credits in the interim Budget passed by Parliament.

If various investment schemes are also factored in, those with income up to Rs 10 lakh might escape the tax net in the current financial year.

Meanwhile, the long-pending report on direct tax code is expected to be submitted by May 31.

The report would also incorporate several new tax policies to streamline the whole taxation system.