Income Tax


Friday 25 May 2018

Income Computation and Disclosure Standards (ICDS)

              Draft of 14 Tax Accounting Standards were first issued in August 2012. However, these were revised further and 12 drafts Income Computation and Disclosure Standards (ICDSs) were issued in January 2015 for public comments. From above notification, 10 ICDSs were finalized excluding the standards on ‘Leases’ and ‘Intangible Assets’. However, in January 2016, Income-tax Simplification Committee recommended deferment of ICDS. Section 145(2) – the Central Government has power to notify “ICDS”. CBDT vide Notification dated March 31, 2015 introduced 10 ICDS to be effective from April 1, 2015 and thus, the same was applicable from AY 2016-17 onwards. On September 29, 2016 revised ICDS notified effective from AY 2017-18 and Form 3CD was amended. Recently, on March 23, 2017, CBDT has issued certain clarifications by way of FAQs. The Finance Ministry had notified ten Income Computation and Disclosure Standards (ICDS) from assessment year (AY) 2016-17 [financial year (FY) 2015-16] (hereinafter referred to as “old ICDS”). 

              Subsequent to various representations from taxpayers seeking guidance and clarifications for implementation of ICDS, the Finance Ministry, vide a Press Release 2, deferred the implementation of ICDS by one year to AY 2017-18 [FY 2016-17]. That Press Release had stated that revision of ICDS and tax audit report was also under consideration. The extent to which the new ICDS has been aligned with Indian Accounting Standards (Ind AS) also needs to be evaluated. In the wake of implementation of Ind AS from FY 2016-17, taxpayers are already engaged in configuring migration from IGAAP to Ind AS.

           The introduction of the new ICDS is a welcome step as it addresses some issues voiced by businesses. ICDS are applicable to an assessee following mercantile system of accounting. ICDS will apply for computation of taxable income under the head Profit & Gains of Business under the Income Tax Act. This is irrespective of the accounting standards i.e. either Accounting Standards or Ind-AS. It is clarified that if the tax assessee has been following standard costing method on regular basis then tax payer may continue to follow the same. ICDS is applicable to those sources of incomes which are assessable on net basis and does not apply to incomes liable to tax on gross/presumptive basis. This is because specific provisions of the Act shall prevail over ICDS. Let’s have a look on ICDS.

                                                                                                                     Prepared By
                                                                                                                     Tushar G Agrawal
                                                                                                                     (CA Student)

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