Applicability of Income Computation and Disclosure Standards

Income Computation and Disclosure Standards were issued by the Government of India with the aim of bringing uniformity in accounting policies governing computation of income in accordance with Income tax provisions and reducing the irregularities amongst them.

The Central Board of Direct Taxes (CBDT) constituted an Accounting Standard Committee, which had earlier issued draft of 14 Tax Accounting Standards in 2012. Later, on the basis of recommendations received, CBDT revised 12 out of 14 draft ICDS and issued them to know public opinion. On 31^st March 2015, Government of India issued 10 out of these 12 ICDS, with effect from 1^st April 2015 (FY 2015-16, AY 2016-17).

Section 145 of the Income Tax Act states that any person taxable under the heads Profit and gains from business or profession or Income from other sources is required to compute their taxable income in accordance with cash or mercantile system of accounting.  Introduction of ICDS u/s 145(2) of Income Tax Act 1961 will have a potential impact on compliance practices of taxpayers following the mercantile system of accounting for computing income chargeable to Income tax. It will significantly affect the way assesses compute their taxable income.

Eligible assesse

ICDS are to be followed by all assesses following Mercantile System of accounting and are taxable under the head Profit and gains from business or profession or Income from other sources.

It is applicable to all taxpayers (resident/non-resident, corporate/non corporate, firm, etc.) irrespective of the turnover or status of the taxpayer.

The Central Government, from time to time, may notify, ICDS to be followed by any class of taxpayer.

Objective of ICDS

Stated objectives behind issuing ICDS are as follows:

1.      To bring uniformity in accounting policies.

2.      Reduce irregularities in tax related provisions.

3.      Accelerate smooth computation of taxable income.

Features of ICDS

1.      No need to maintain separate books of accounts since it is only applicable on computation of income and not on maintenance of accounts. Books of accounts are to be maintained as per the accounting policies applicable to them.

2.      In case of conflict between ICDS and the Income Tax Act, the provisions of Income Tax Act will prevail over ICDS.

3.      Income tax authorities have the power to assess the income on the basis of their best judgement in case of non-compliance of ICDS.

4.      It will not have any impact on Minimum Alternate Tax.

List of ICDS

ICDS No.	Corresponding AS	Income Computation and Disclosure Standards
I	AS 1	Accounting Policies
II	AS 2	Valuation of Inventories
III	AS 7	Construction Contracts
IV	AS 9	Revenue Recognition
V	AS 10	Tangible Fixed Assets
VI	AS 11	The Effects of Changes in Foreign Exchange Rates
VII	AS 12	Government Grants
VIII	AS 13	Securities
IX	AS 16	Borrowing Costs
X	AS 29	Provisions, Contingent Liabilities and Contingent Assets

Non-compliance of ICDS

Every eligible assesse is required to implement ICDS. Non-compliance of ICDS will result in Best Judgement Assessment by the tax authorities, where the income of the assesse is computed on the best judgement basis.