MCA financial year flexibility comes with tax reporting catch for companies

Aug 26, 2026

Companies allowed to align their financial year with overseas parents or for commercial reasons will still have to maintain separate accounts and statements for income tax purposes, according to evidence recorded in the Joint Committee’s report on the Corporate Laws (Amendment) Bill, 2026.

Companies could get greater flexibility to align their financial year with overseas parent companies or other commercial requirements, but the proposed change will not alter their income tax reporting requirements, according to the Joint Committee’s report on the Corporate Laws (Amendment) Bill, 2026.

The Bill proposes to empower the Central Government to allow companies and body corporates to realign their financial year to the period ending March 31 of the following year, including on the basis of commercial considerations.

The Ministry of Corporate Affairs told the committee that companies permitted to follow a financial year different from the April to March cycle would still have to prepare accounts and statements separately for income tax purposes.

The report records that companies already permitted to change their financial year have conditions requiring them to prepare separate accounts and statements for income tax purposes. It further records that the concerned companies maintain accounts for their parent company and separately for income tax purposes.

Global reporting flexibility, separate tax track

The proposed change is particularly relevant for Indian companies operating with overseas parent companies or global joint ventures where the parent follows a reporting calendar different from India’s April to March cycle.

The committee said the proposed provision would provide greater flexibility to such companies and described it as “a pro business flexibility” that would “greatly benefit Indian companies operating with foreign parent companies or global joint ventures.”

However, the committee proceedings indicate that the ability to change the corporate financial year would not by itself change the accounting requirements applicable for income tax purposes.

For finance functions, this could mean maintaining reporting capabilities for the group’s financial year alongside information required for India’s tax reporting framework.

Approval framework to be prescribed

The Bill leaves the detailed process for obtaining approval to subordinate legislation.

The ministry told the committee that matters such as eligibility criteria, timelines for disposal of applications, resubmission and rectification could be dealt with through delegated legislation because they are administrative and procedural in nature.

Stakeholders, however, sought greater certainty in the legislation, including objective eligibility criteria and time bound disposal of applications.

The committee noted that an open ended approval process could create uncertainty around corporate compliance. It said “objective criteria, a disposal period and express transitional treatment would improve predictability” while preventing the flexibility from being used to defer compliance or obscure financial reporting.

The report also records stakeholder concerns that a change in financial year could have implications for annual accounts, audits, annual returns, annual general meeting timelines and statutory filings if transitional provisions are not clearly specified.

Companies can return to April to March

The proposed framework would also address companies seeking to return to the April to March financial year after having moved to another reporting cycle.

During its deliberations, the committee recorded the ministry’s explanation that the existing framework does not expressly provide for a company to return to the April to March cycle after changing its financial year.

The proposed amendment seeks to provide that flexibility, with the ministry explaining that companies currently have to obtain approval for changes and that the new provision would also allow them to return to the Indian financial year.

The report separately records that companies following a financial year different from the Indian cycle would continue to have income tax related accounting requirements, reinforcing the distinction between corporate reporting and tax reporting.

Panel backs provision without amendment

After considering stakeholder submissions, the ministry’s responses and its own deliberations, the Joint Committee recommended that Clause 18 of the Bill be accepted without amendment.

Clause 18 also proposes changes to the definitions of Cost Accountant, Regional Director and Registered Valuer and seeks to raise the statutory ceiling for a small company to Rs 20 crore in paid up capital and Rs 200 crore in turnover.

The committee said the proposed expansion of the small company definition would bring a significantly larger number of private companies within reduced compliance obligations.

The financial year flexibility, however, remains a proposed change under the Corporate Laws (Amendment) Bill, 2026. The committee’s recommendation forms part of the legislative process and does not by itself bring the provision into force.

[ET CFO]