Many a time the requirement of consolidation of accounts are evident for Companies working across the globe. Whereas in India, the financial year for every company is based on April-March Concept, under CA, 2013. However, certain relaxation is provided for companies working across the globe. This article is focused on concept and procedure for change of financial year under Companies Act, 2013
As per Section 2 (41) of Companies Act, 2013 “financial year“, in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up:
Provided that where a company or body corporate, which is a holding company or a 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 or body corporate in such form and manner as may be prescribed, allow any period as its financial year, whether or not that period is a year:
[Corresponding Section – 2 (17) of Companies Act, 1956]
Under new regime, the definition of financial year is more particular and limited with respect to April-March year concept except for the first financial year of the company or in case of a company or body corporate, which is a holding company, or a 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, subject to approval by CG.
Whereas under old act (CA, 1956) there was no such restriction. As per section 2(17) “financial year” means, in relation to anybody corporate, the period in respect of which any profit and loss account of the body corporate laid before it in annual general meeting is made up, whether that period is a year or not. This means that under old regime the financial year could have been more than 365 days or of 15 months. It was optional for companies to follow financial year as a calendar or as 15 months.
Further, as per section 210 (4) of Companies Act, 1956 – The period to which the account aforesaid relates is referred to in this Act as a “financial year”; and it may be less or more than a calendar year, but it shall not exceed fifteen months.
Provided that it may extend to eighteen months where special permission has been granted in that behalf by the Registrar.
There is no corresponding provision of Section 210 (4) of Companies Act, 1956 in Companies Act, 2013.
After Companies (Amendment) Ordinance, 2018 the power to adjudicate application for change of financial year of the company has been shifted to Central Government (Regional Director) from Tribunal.
FIRST FINANCIAL YEAR
Any company who is incorporated on or after 1st January of the year, such company can extend first financial year upto 31st March of following year.
Ex – XYZ Limited is incorporated on 12th January 2019. XYZ Limited have the liberty to keep first financial year from 12th January 2019 – 31st March 2020.
WHETHER OR NOT THAT PERIOD IS A YEAR
As per first proviso of Section 2 (41), the holding company or a 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 such company can apply to CG for allowing them to change the financial year.
There is no restriction on above mentioned companies to follow calendar year or any particular year or 365 days year, financial year can be of 345 days or 330 days or otherwise under the provision of section 2 (41). There are many countries who allow preparation of accounts from Christmas to Christmas, 360 days financial year or otherwise. The Companies can apply for financial year as per the requirement of Holding or subsidiary company.
FINANCIAL YEAR AS PER VARIOUS ACT
| UNDER INCOME TAX ACT, 1961 | UNDER GENERAL CLAUSE ACT, 1897 |
| the period starting from April 1 and ending on March 31 of the next year. | Section 3(21) “Financial Year” shall mean the year commencing on the first day of April. |
| UNDER GST LAW | UNION BUDGET |
| Financial Year has not been defined under any of Acts under the GST law, whereas as per section 2(106) of the CGST/ SGST Act, 2017 ‘Tax Period’ has been defined which means the period for which the return is required to be furnished. | The Government of Indian also prepare and follow April to March Financial year. |
Procedure for Change of Financial Year in simple five steps: –
Step 1. Calling and passing of Board resolution for Change of Financial Year of the company as per Section 2(41) of the Companies Act.
Step 2. Preparation and filing of Application in Eform RD-1 along with following documents:
- There is no fixed format which is prescribed for above application, it is advisable to use NCLT – 9 as per the requirement of the application.
- Copy of Minutes of Board Meeting. It is especially imperative that details of the number of votes cast in favour and or against the resolution is included in minutes of the meeting.
- Power of Attorney or Memorandum of Appearance.
- Details of any previous application made within last five years for change in financial year and outcome thereof along with copy of order.
- It is also advisable to attach a copy of justification letter or request letter from holding company, or a subsidiary or associate company as the case may regarding the consolidation of accounts of the companies.
Step 3. Simultaneously filing of GNL-2 to respective Registrar of Companies. The detail application along with annexures shall be attached in GNL-2.
Step 4. Regional Director would examine the application and he may call for further information. Incompleteness to be re-submit within a period of fifteen days, in e-Form No. RD-GNL-S.
Step 5. Approval and filing of RD Order in INC-28 within 30 days of receipt of order.
FILING UNDER INCOME TAX AND GST ACT.
The statutory filing under Income tax and GST act shall be prepared and filed as per April-March financial year concept whereas statutory filing under Companies Act, 2013 would be as per the application. The financial year is important for section 96, 123, 129, 134, 143, 182, 197 and schedule V of Companies Act, 2013.
CONCLUSION
The intricacies of financial year adjustments under the Companies Act, 2013 is 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 process for changing the financial year involves a series of steps, including planning, calling, and passing board resolutions, meticulous documentation, and approvals from regulatory authorities. Notably, the recent amendment transferring the adjudication authority from the Tribunal to the Central Government streamlines the application process.