A Financial Year (FY) is the period from 1 April to 31 March – the government financial year in which you earn an income.
Companies around the world typically prepare their balance sheets and income statements for a one-year period. However, the start date of this period varies from country to country.
Time period of a Financial Year
This one-year period in India begins on April 1st and ends on March 31st. The period during which income is earned is referred to as the Financial Year or Financial management Year. Income tax returns are filed, and taxes for a company are typically paid the following year following the close of the financial year.
The Annual Financial Statement is a document that is presented to Parliament each financial year as part of the Budget process, as required by Article 112 of the Indian Constitution.
Annual Financial Statement
Article 112 of the Constitution requires the government to present to Parliament an estimate of receipts and expenditures for each financial year, which runs from April 1 to March 31. This is known as the annual financial statement.
It is split into three sections: the Consolidated Fund, the Contingency Fund, and the Public Account. The government is required to present a statement of receipts and expenditures for each of these funds.
The Consolidated Fund of India (CFI) is the most important government account. The Consolidated Fund contains the government’s receipts and expenditures, excluding exceptional items.
This fund was established under Article 266 (1) of the Indian Constitution. All revenues received by the government through direct and indirect taxes, money borrowed, and receipts from government loans are deposited in the Consolidated Fund of India.
Except for exceptional items, which are met from the Contingency Fund or the Public Account, all government expenditures are made from this fund. Importantly, no money can be withdrawn from this fund without the approval of the Parliament.
The Contingency Fund is established as an imprest account to meet the government’s urgent or unforeseen expenditures.
The government established this fund in accordance with Article 267 of the Indian Constitution. The President has access to this fund.
Any expenditure incurred from this fund requires subsequent approval from Parliament, and the amount withdrawn is returned to the fund from the Consolidated Fund.
The Public Account of India accounts for flows in transactions in which the government merely acts as a banker.
This fund was established in accordance with Article 266 (2) of the Constitution. It accounts for flows in transactions in which the government merely acts as a banker.
Provident funds, small savings, and so on are examples of these. These funds are not the property of the government. They must be returned to their rightful owners at some point. Because of the fund’s nature, expenditures from it do not need to be approved by Parliament.
Loans made by the government, borrowings from the Reserve Bank of India (RBI), and borrowings from foreign governments or institutions are all included in capital receipts, which also include loan recoveries, asset sales, and disinvestment.
The distinction between an annual financial statement and a budget
The term “budget” refers to a variety of documents, including the Annual Financial Statement. Demand for Grants, Appropriation Bill, Finance Bill, Memorandum Explaining the Provisions in the Finance Bill, Macroeconomic Framework Statement, Fiscal Policy Strategy Statement, Medium Term Expenditure Statement and other documents are included in the Budget.
As required by the Constitution, the Annual Financial Statement separates expenditure on revenue accounts from expenditure on other accounts.
The Union Budget is made up of revenue and capital sections, so the Annual Financial Statement is essentially the government’s budget.