Applicability of ICDS

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Last Updated on 19 July, 2022

Introduction:

The Central Government has earlier notified two accounting standards under section 145(2) of the Income Tax Act, 1961 vide Notification No. 9949 [F.No. 132/7/95-TPL], dated 25-1-1996 to be followed by all assessees following mercantile system of accounting, namely Accounting Standard I relating to Disclosure of accounting policies and Accounting Standard II Disclosure of prior period and extraordinary items.

Ministry of Corporate Affairs (MCA) has issued announcement in 2010 for a roadmap of convergence with International Financial Reporting Standards (IFRS) in phased manner that posed one of the biggest challenge for the corporate sector how this change in financial reporting would impact taxable income, as many companies would report using Ind AS.

Hence, CBDT has constituted Accounting Standards Committee in 2010 to look at the taxation related aspects of Ind AS implementation.

Applicability of ICDS:

Pursuant to aforesaid notification S.O. 3079(E), in exercise of the powers conferred by sub-section (2) of section 145 of the Income -tax Act, 1961 (43 of 1961), the Central Government here notifies the income computation and disclosure standards as specified in the Annexure to be followed by all assessees (other than an individual or a Hindu undivided family who is not required to get his accounts of the previous year audited in accordance with the provisions of section 44B of the Income-tax Act, 1961), following the mercantile system of accounting, for the purposes of computation of income chargeable to the income-tax under the head “Profit and gains of business or profession” or “Income from other sources”. The notification shall come into force with effect from 1st day of April, 2016, and shall accordingly apply to the assessment year 2017-18 and subsequent assessment years.

Hence, it is applicable to all the assessees except an individual or a Hindu Undivided Family not required to get the accounts audited u/s. 44AB, following Mercantile System of Accounting and Income is chargeable under the head “Profit & gains of business or profession” or “Income from other sources”.

It shall not apply to the assessees following cash system of accounting.

The ICDS will be applicable from 1st April, 2016 and will accordingly apply in relation to A.Y. 2017-18 and subsequent years.

The introduction of ICDS will help bring increased consistency in computation and reporting of taxable income, reduce litigation and minimize the alternatives provided by the existing Accounting Standards issued by the Institute of Chartered Accountants of India.

Applicability Chart of Income Computation & Disclosure Standards:

Sr. No.	Particulars	ICDS Applicable?
1.	Income from Profit and Gains of Business or Profession Assessee follows Mercantile System of Accounting & having income under the head ‘Profit and Gains of Business or Profession’?	Yes
2.	Income from Other Sources Assessee follows Mercantile System of Accounting & having income under the head ‘Income from Other Sources’?	Yes
3.	Non-Resident Indians (NRIs) NRI follows Mercantile System of Accounting & have income under the head ‘Income from Other Sources’ or have income under the head ‘Profit and Gains of Business or Profession’?	Yes
4.	Cash System of Accounting If Cash system of Accounting is followed by Assessee?	No
5.	Maintenance of Books of Account Whether ICDS applicable for the maintenance of Books of Account?	No
6.	Income from Salary? If the assessee is an employee having only Income from Salary?	No
7.	Minimum Alternate Tax (MAT) Is ICDS applicable for the purpose of computation for MAT?	No
8.	Presumptive Taxation Whether ICDS is to be followed for the assessee following the scheme of Presumptive Taxation?	No

Also Read:
Income Computation and Disclosure Standards (ICDSs) Notified by CBDT

Law & Practice Relating to Income Computation and Disclosure Standards (ICDS)

Tags:ICDS Applicability of ICDS

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The statutory material is obtained only from the authorized and reliable sources
All the latest developments in the judicial and legislative fields are covered
Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
Every content published by Taxmann is complete, accurate and lucid
All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
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