Income Computation and Disclosure Standards ICDS

ICDS – Objectives and principles

• Terms of reference of the Accounting Standard Committee

 To study the harmonization of Accounting Standards issued by ICAI with the direct tax laws in India, and suggest Accounting Standards which need to be adopted under section 145(2) along with the relevant modifications;

 To suggest method for determination of tax base (book profit) for the purpose of Minimum Alternate Tax (‘MAT’) in case of companies migrating to IFRS in the initial year of adoption and thereafter; and

 To suggest appropriate amendments to the Act in view of transition to Ind-AS regime

• Principles adhered to by the Accounting Standard Committee

 Reduction of litigation;

 Minimization of alternatives; and

 Certainty to issues.

• List of ICDS

I Accounting policies

II Valuation of inventories

III Construction contracts

IV Revenue recognition

V Tangible fixed assets

VI Changes in foreign exchange rates

VII Government grants

VIII Securities

IX Borrowing costs

X Provisions, contingent liabilities and contingent assets

Salient features of ICDS

• To supersede the existing tax AS

– Tax AS I relating to disclosure of accounting policies

– Tax AS II relating to disclosure of prior period and extraordinary items and changes in accounting policies

• Applicable to all taxpayers following accrual system of accounting

• Applicable only for computation of income under the heads of –

– “profits and gains of business / profession”; and

– “income from other sources”

• Not for the purpose of maintenance of books of accounts • Conflict between provisions of the Act and ICDS – Provisions of the Act to prevail