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Finance Bill 2018 unveils on ICDS

February 1, 2018 2319 Views
Vidya Shetty
Senior Manager, Deloitte Haskins and Sells LLP
Rajesh Patil
Director, Deloitte Haskins & Sells LLP
Bhavishi Vichhi
Deputy Manager with Deloitte Haskins and Sells LLP


There was much uncertainty around what Finance Bill 2018 would unveil. There were expectations of the likelihood of more tax incentives for the salaried class, of a likely increase in the holding period for determining long-term capital assets and the resultant impact on computation of capital gains etc. Most of such speculations have now been put to rest by the Finance Minister in his Budget proposals on 1 February 2018. One such proposal which did not get specific mention in Parliament, but which finds place in the Finance Bill Memorandum is related to the ICDS perspective. In our article below, we will throw light on this.

Finance Bill 2018 and ICDS

The ICDS-related proposals in the Finance Bill of 2018 are an aftermath of the Delhi High Court ruling in the case of Chamber of Income-tax Consultant vs. UOI dated 8 November 2017. In this case, the Delhi High Court had raised doubts about the constitutional validity of ICDS by making observations such as:

"Section 145 (2), as amended, has to be read down to restrict power of the Central Government to notify ICDS that do not seek to override binding judicial precedents or provisions of the Act. The power to enact a validation law is an essential legislative power that can be exercised, in the context of the Act, only by the Parliament and not by the executive. If Section 145 (2) of the Act as amended is not so read down it would be ultra vires the Act and Article 141 read with Article 144 and 265 of the Constitution……"

It appears that Finance Bill 2018 intends to put the matter to rest by providing various proposals in this context. The objective behind introducing the said proposals begins with the phrase:

"In order to bring certainty in the wake of recent judicial pronouncements on the issue of applicability of ICDS……"1

ICDS specific proposals in the Finance Bill 2018 are as under:

  •  ICDS I: It is proposed to insert section 36(1)(xviii) to provide that mark-to-market losses as computed applying this specific ICDS provision will be available as deduction in the computation of profits and gains of business or profession.

  •  ICDS II: It is proposed to amend section 145A to provide:

  ○  Valuation of inventory will be at cost or Net Realizable value (NRV) whichever is less as computed under this ICDS

  ○  Valuation of purchase and sale and of inventory will include allied tax, duty, cess or fee which were incurred to bring the goods or services to the place of its location and condition

  •  ICDS III: A new section 43CB is proposed to be inserted to provide that the 'percentage completion method' is an accepted method to compute the profits arising from specific construction contracts. Further, the contract revenue will include retention money and the contract cost will not be comprised of incidental interest, dividend and capital gains.

  •  ICDS-IV: Proposed insertion of new section 145B which will provide that:

  ○  Interest received on compensation or on enhanced compensation will be deemed to be income of the year of receipt

  ○  Claims linked to price escalation or export incentives will be deemed to be income of the year in which reasonable certainty about its realization exists.

  •  ICDS VI: New section 43AA proposed to be introduced will provide that any foreign exchange gain or loss in respect of specified foreign currency transactions shall be treated as income or loss, if computed according to this ICDS.

  •  ICDS-VII: It is proposed to insert a new section 145B to provide that recognition of subsidy or government grants etc. as income will be in the year of receipt, if it is not charged to tax earlier.

  •  ICDS-VIII: It is proposed to amend section 145A to further include that:

  ○  Inventory of unlisted or listed but not quoted securities to be valued at actual cost initially recognized

  ○  Inventory of category-wise listed securities may be valued at cost or NRV whichever is lower.

Though stakeholders hoped that considering the complexities involved in the implementation of ICDS, the Finance Minister may at least postpone if not drop the relevant provisions. That now looks unlikely in view of the retrospective proposed amendments brought in by Finance Bill 2018.


ICDS proposals in the Finance Bill 2018 may put to rest many of the controversies arising from time to time.


Information for the editor for reference purposes only

Rajesh Patil is Director, Vidya Shetty is Senior Manager and Bhavishi Vichhi is Deputy Manager with Deloitte Haskins and Sells LLP



  1 Source: Memorandum to Finance bill 2018

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