Financial Year Change of a Company under Companies Act, 2013

Companies Act, 2013 was introduced to replace the old Companies Act, 1956. The new Act brought along many changes as compared to the erstwhile Companies Act. In this article we will discuss about the changes it brought to concept of Financial Year. Financial Year is a very important concept for any company as it decides the period for which a set of records are to prepared, analysed and compared with previous or forthcoming periods. Normally, in Indian set-up financial year means period from 1^st April in current year to 31^st March in next year. But what if an entity wants to change its financial year, the same will be discussed as we proceed further. So let us get started.

What is meaning of Financial Year as per Companies Act, 2013?

As per Companies Act, 2013 meaning of Financial Year is –

• A period ending on 31^st March every year.
• For a company incorporated after 1^st January of a year, the period ending on 31^st March next year.

Unlike the previous act there is no option to the companies for choosing Financial Year as per their choice. Following provisions regarding Financial Year were also given in the act-

• Any company that was existing on the date of commencement of this act was instructed to re-align as per provisions of the act within a period of 2 years.
• In case of International Financial Services Centre, whether public or private company, where they are subsidiary of a foreign company are allowed to follow the financial year as followed by their parent company.

Why is Financial Year change required?

One question in your mind may ask that why even a change in Financial Year is required and why we are writing this article. Well let us answer that question.

• Issue at hand
  We all well aware of the MNC are operational in India, and not only MNC’s there may be companies which are associates or holdings of other companies that are located outside India. Now, the foreign company would need consolidation of all its subsidiaries/associates/holding companies as the case may be located throughout the world.
  In such case, if one of the company whose accounts are to be consolidated is following a different financial year than it will need lot of re-working for the purpose of consolidation.

• Government’s solution
  To consider the above issue, an amendment was brought and it was provided in Sec.2 (41) of the act that
  • If a body corporate which is a holding, subsidiary or associate company of a company incorporated outside India,
    And
  • It needs to follow a different financial year to get its accounts consolidated outside India
    Then
  • Central Government can allow such change if an application is given in prescribed form and manner.
    Also it was provided that
  • The period requested I above application may or may not be a year.
  • Tribunal was ordered to close all the previous requests for financial year change as per old provisions.

Who can seek change of Financial Year?

• As clear from the above discussion it is clear that only a company which is a holding or subsidiary or associate company shall apply for change in financial year to consolidate the accounts with their Parent Foreign Company.
• The option to apply for change of financial year is not available to domestic companies.

This decision is based on the premise that all other laws be it Income Tax, GST etc. treat 31^st March as end of the financial year and all due dates for payment of taxes and filing of return are planned accordingly. So as to maintain uniformity in Indian Corporate World, the option has not been extended to wholly domestic companies.

Procedure to be followed for change in Financial Year

As per (Section 2(41) [Rule 40 of the Companies (Incorporation) Fourth Amendment Rules, 2018], the application for the change in financial year needs to be submitted to the Regional Director.

Before this application is submitted certain internal procedures need to be followed. So, the sequence of events would be something like this-

• Conduct Board Meeting
  • First of all, a Board Meeting needs to be convened, for that prior notice should be sent to all the directors of the company. The notice should contain agenda, notes to agenda and draft resolution.
  • The meeting should be conducted as per schedule and required Board Resolution should be passed.
  • Either a Company Secretary or the Director should be authorized to file the Form RD-1 to the office of Regional Director.
• Send application to Regional Director
  • After the internal procedures are finished the form should be filed with Regional Director.
  • The application can be sent through e-form RD-1 available on the MCA portal.
  • Mainly following documents need to be attached with the application
  • Reason for requesting the change- all the necessary data to substantiate the request.
  • Copy of Board Resolution.
• Checking of Application at O/o Regional Director
  • The application thus submitted will be examined at the office of Regional Director.
  • If any information is found missing or certain additional details are required, intimation will be given on the contact details of the company.
  • Such rectification should be done within 15 days vide e-form RD-GNL-5.
  • Only 2 resubmissions are allowed as per law.
• Decision
  • If after considering all facts and documents produced in front of the Regional Director, it seems satisfactory to allow such change the application will be approved.
  • The intimation of approval of such application should be given to Registrar of Companies in form INC-28 within 30 days.

Conclusion

So from above discussion, we hope that the necessity and procedure of Financial Year Change of a Company under Co. Act, 2013. The option is available to only a very small set of companies, that too just to facilitate their consolidation with the accounts of parent company. The procedure also is made easy by the fact that all data can be submitted online through MCA portal itself. So all those companies wanting to get their financial years changed can refer this write-up to gain knowledge on the topic and act upon it through an efficient consultant.