Introduction to Income Computation & Disclosure Standards 2018
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- By Taxmann
- Last Updated on 26 April, 2022
Reason for bringing ICDS:
Accounting was maintained as per the accounting principles and tax was calculated based on certain adjustments carried out in the accounting books to arrive at the taxable income. Accounting standards were continuously evolving due to which taxation authorities faced difficulties in upgrading the adjustments to be carried out in tax laws.
ICDS have been prepared keeping accounting standards and Indian Accounting Standards (Ind AS) in view so that there is consistency between accounting policies and income tax provisions. Since ICDS are based on Accounting Standards (AS) or Ind AS, it will help in reducing the divergence between accounting and taxable income.
From when: ICDS became applicable with effect from Assessment year 2017-18. On whom: ICDS are applicable to any assessee who follows mercantile system of accounting (except an individual or HUF who is not required to get his accounts audited under section 44AB of the Act) and has an income under the head PGBP (except presumptive taxation) or Income from other sources. ICDS will be followed whether assesse follows accounting standard or Indian Accounting Standard (Ind AS). In any case, assessee (being individuals and HUFs) opting presumptive taxation are not liable to get their accounts audited under section 44AB and would be out of the ambit of tax audit and hence exempt from complying with the ICDS.
Disclosures in case of deviations from ICDS:
In case a person deviates from ICDS, disclosure about such deviation and its effect on profit and loss should be made in item no. 13(d) and 13(e) of Form No. 3CD.
Brief on Income Computation and Disclosure Standard:
ICDS I deals with significant accounting policies such as going concern, consistency, and accrual that helps entity represent true and fair view of state of affairs and income. ICDS II deals with valuation of inventories. It defines inventories and what forms part of inventory and what shall not be included in the cost. It specifies that inventory should be measured at lower of cost or Net Realisable Value (NRV). ICDS III deals with Construction Contracts. It specifies conditions and methods used to recognise and measure contract cost and contract revenue. ICDS IV deals with Revenue Recognition. It provides bases for recognition of revenue arising in the course of the ordinary activities of a person fromsale of goods, rendering of services or use by others of the person’s resources yielding interest, royalties or dividends. ICDS V deals with Tangible Fixed Assets. It provides criteria for determining whether an item is to be classified as a tangible fixed asset and what is included in the cost of asset. Depreciation on such assets shall be computed as per Income Tax Act, 1961. ICDS VI deals with effects of Changes in Foreign Exchange Rates. It deals with treatment of foreign currency transactions, translation of financial statements of foreign operation and treatment of forward exchange contract.
In case of conflict, Income Tax Act will prevail:
In the case there is a conflict between provisions of the Income-tax Act, 1961 and Income Computation and Disclosure Standard (ICDS), the provisions of the Income Tax Act shall prevail to that extent.
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