Many a time the requirement of consolidation of accounts is evident for companies working across the globe. Whereas in India, the financial year for every company is based on the April–March concept under the Companies Act, 2013 — certain relaxation is provided for companies working across the globe. This article is focused on the concept and procedure for change of financial year under the Companies Act, 2013.
Definition: Section 2(41)
The first proviso to Section 2(41) provides that where a company or body corporate which is a holding company, subsidiary, or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Central Government may, on an application made by that company, allow any period as its financial year.
Comparison with Companies Act, 1956
Under the new regime, the definition of financial year is more particular and limited with respect to the April–March year concept. Under the old Act (CA, 1956), there was no such restriction. As per Section 2(17) of the Companies Act, 1956, the financial year could have been more than 365 days or up to 15 months. It was optional for companies to follow a financial year as a calendar year or as 15 months.
As per Section 210(4) of the Companies Act, 1956, the period could be less or more than a calendar year, but it could not exceed fifteen months — with a provision for extension up to eighteen months where special permission was granted by the Registrar. There is no corresponding provision of Section 210(4) of the Companies Act, 1956 in the Companies Act, 2013.
After the Companies (Amendment) Ordinance, 2018, the power to adjudicate applications for change of financial year has been shifted to the Central Government (Regional Director) from the Tribunal.
First Financial Year
Any company incorporated on or after 1st January of the year has the liberty to extend its first financial year up to 31st March of the following year.
Example — XYZ Limited is incorporated on 12th January 2019. XYZ Limited may keep its first financial year from 12th January 2019 to 31st March 2020.
Whether or Not That Period is a Year
As per the first proviso of Section 2(41), holding companies, subsidiaries, or associate companies of a company incorporated outside India — which are required to follow a different financial year for consolidation of accounts — may apply to the Central Government for change of financial year. There is no restriction on such companies regarding the duration of the financial year. Many countries allow preparation of accounts from Christmas to Christmas, 360-day financial years, or otherwise.
Financial Year Under Various Acts
| Statute | Position |
|---|---|
| Income Tax Act, 1961 | The period starting from April 1 and ending on March 31 of the next year. |
| General Clauses Act, 1897 — Section 3(21) | “Financial Year” shall mean the year commencing on the first day of April. |
| GST Law (CGST/SGST Act, 2017) | Financial Year is not defined. Section 2(106) defines “Tax Period” as the period for which return is required to be furnished. |
| Union Budget | The Government of India prepares and follows the April to March financial year. |
Procedure for Change of Financial Year
The process for changing the financial year involves five steps:
Calling and passing of a Board resolution for change of financial year of the company as per Section 2(41) of the Companies Act, 2013.
- There is no fixed format prescribed; it is advisable to use NCLT-9 as per the requirement of the application.
- Copy of Minutes of Board Meeting — details of votes cast in favour and/or against the resolution must be included.
- Power of Attorney or Memorandum of Appearance.
- Details of any previous application made within the last five years for change in financial year, and outcome thereof along with copy of order.
- A copy of the justification/request letter from the holding, subsidiary, or associate company regarding consolidation of accounts.
Simultaneously filing of GNL-2 to the respective Registrar of Companies. The detailed application along with annexures shall be attached in GNL-2.
The Regional Director will examine the application and may call for further information. Any incompleteness must be re-submitted within fifteen days in E-Form No. RD-GNL-S.
Filing of the RD Order in INC-28 within 30 days of receipt of the order.
Filing Under Income Tax and GST
Statutory filings under the Income Tax Act and GST Act shall be prepared and filed as per the April–March financial year concept, whereas statutory filings under the Companies Act, 2013 would be as per the approved application. The financial year is important for Sections 96, 123, 129, 134, 143, 182, 197 and Schedule V of the Companies Act, 2013.
Conclusion
The intricacies of financial year adjustments under the Companies Act, 2013 are crucial for companies operating globally — especially those required to consolidate accounts across borders. The CA, 2013 provides a structured framework for altering financial year periods, with a significant shift from the flexible provisions of the previous Companies Act of 1956.
Under the current legislation, the financial year is primarily tethered to the April–March cycle, except for specific scenarios where companies associated with entities outside India seek alternative periods for consolidation purposes. The recent amendment transferring the adjudication authority from the Tribunal to the Central Government further streamlines the application process.