[FAQs] ICDS & Maintenance of Books of Account under Tax Audit | A.Y. 2022-23
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- Last Updated on 5 September, 2022
FAQ 1. Should the reporting in Form 3CD be made as per books of account or after adjustment as per the Income Computation & Disclosure Standards (ICDS)?
The preamble of the ICDS provides that the ICDSs are applicable for computation of income chargeable under the head ‘ profit and gains of business or profession’ or ‘Income from other sources’ and not for maintenance of books of accounts.
Further, the CBDT1 has clarified that the books of account are to be maintained in accordance with the accounting policies applicable to the assessee. Thus, it can be concluded that the reporting in Form 3CD shall be in accordance with the books of account maintained by the assessee. Any adjustment made to profit or loss under the ICDS shall be reported in Clause 13 of Form 3CD.
Read More About- Income Computation And Disclosure Standards (ICDS)
FAQ 2. Who has to follow ICDS?
In exercise of the powers conferred by Section 145(2) of the Income-tax Act, 1961, the Central Government has notified2 the Income Computation and Disclosure Standards (also referred to as ICDS). ICDSs have been issued to bring uniformity in the accounting policies governing the computation of income for taxability under the Income-tax Act and to reduce litigations.
Every assessee earning income taxable under the head ‘ profit and gains from business or profession’ or ‘Income from other sources’ or both is required to compute taxable income in accordance with notified ICDS. However, the ICDS shall be followed only if the assessee maintains accounts per the ‘Mercantile system’ of accounting.
There is no threshold limit on the amount of turnover or taxable income for the applicability of ICDS. Thus, every assessee earning business income or residuary income shall be required to follow ICDS for the computation of income. The applicability of ICDS shall be subject to certain exceptions.
The CBDT has clarified that the general provisions of ICDS shall apply to all persons, including banks, NBFCs, insurance companies, etc., unless there are sector-specific provisions contained in the ICDS or the Act. For example, ICDS-VIII (Securities) contains specific provisions for banks and certain financial institutions, and Schedule I of the Act contains specific provisions for the insurance business.
Exception 1: Exemption to Individual or HUF not liable for tax audit
An Individual or HUF, who is not required to get his books of account audited for the previous year under section 44AB, shall not be required to comply with the requirements of ICDS.
A person opting for a presumptive taxation scheme is not required to maintain the books of account and get them audited. In this regard, the CBDT has clarified3 that the relevant provisions of ICDS shall apply to the persons (other than Individuals or HUF) opting for a presumptive taxation scheme. For instance, for computing the presumptive income of a partnership firm under section 44AD of the Act, the provisions of ICDS on construction contracts or revenue recognition shall apply for determining the receipts or turnover, as the case may be.
Exception 2: Exemption for MAT Computation
The CBDT has clarified that the provisions of ICDS are applicable for the computation of income under the regular provisions of the Act. As MAT is computed on ‘book profit’ that is net profit as shown in the Profit and Loss Account prepared under the Companies Act subject to certain specified adjustments, the provisions of ICDS shall not apply to the computation of MAT. However, where the assessee is liable to pay AMT under the provisions of Section 115JC, the provisions of ICDS shall be applicable for the computation of AMT as AMT is computed on adjusted total income, which is derived by making specified adjustments to total income computed as per the regular provisions of the Act.
FAQ 3. Who is required to maintain books of accounts as per Section 44AA?
Section 44AA provides for maintenance of books of account by an assessee under the Income-tax Act. The table below demonstrates the requirement for maintaining books of accounts by different taxpayers:
|Nature of Business or Profession||Category of Taxpayer||Threshold Limits for Income||Threshold Limits for Gross Turnover or Receipts|
|Mandatory in every case except when presumptive taxation scheme under Sec. 44ADA is opted by the assessee.|
|Non-Specified Professions||Individual or HUF||Rs. 2,50,000||Rs. 25 lakhs in any 3 years immediately preceding the previous year.|
|Non-Specified Professions||Others||Rs. 1,20,000||Rs. 10 lakhs in any 3 years immediately preceding the previous year.|
|Business||Individual or HUF||Rs. 2,50,000||Rs. 25 lakhs in any 3 years immediately preceding the previous year.|
|Business||Others||Rs. 1,20,000||Rs. 10 lakhs in any 3 years immediately preceding the previous year.|
|Presumptive Tax Scheme under Sec. 44AD||Resident Individual or HUF||Rs. 2,50,000||Taxpayer opted for the scheme in any of the last 5 previous years but does not opt for it in the current year.|
|Presumptive Tax Scheme under Sec. 44AD||Resident Partnership Firm||–||Taxpayer opted for the scheme in any of the last 5 previous years but does not opt for it in the current year.|
|Presumptive tax scheme under Section 44ADA||Resident Assessee||–||Taxpayer claims that profits from his profession are lower than those computed under Section 44ADA and total income exceeds the maximum exemption limit.|
|Presumptive Tax Scheme under Sec. 44AE||Any Assessee engaged in plying, hiring, or leasing goods carriage||–||Taxpayer claims that his profits are lower than the deemed profits.|
|Presumptive Tax Scheme under Sec. 44BB||Non-resident assessee engaged in the exploration of mineral oil||–||Taxpayer claims that his profits are lower than the deemed profits.|
|Presumptive Tax Scheme under Sec. 44BBB||Foreign Co. engaged in civil construction||–||Taxpayer claims that his profits are lower than the deemed profits.|
* Meaning of Specified Profession:
** Where business or profession has been set up during the previous year, the threshold limit of income or gross receipts of the current year shall be checked. In other words, in the case of a new business or profession, if income or turnover or receipt of the current year, as the case may be, are not likely to exceed the threshold limit, the assessee shall not be required to maintain the books of account.
Read More About- The Maintenance of Accounts Here
FAQ 4. What documents should be maintained by the taxpayers to comply with the requirement of maintenance of books of accounts as per Section 44AA?
The following documents should be maintained by the taxpayers to comply with the requirement of maintenance of books of accounts:
|Nature of Business or Profession||Threshold Limits||Books of Accounts to be maintained|
|Specified Professions other than company secretary and Information technology||Gross receipt exceeds Rs. 1,50,000 in any of 3 years immediately preceding the previous year||
|Medical Professions||Gross receipt exceeds Rs. 1,50,000 in any of 3 years immediately preceding the previous year||
|Specified Professions||In every case, irrespective of gross receipts and Income||Such books of accounts which may enable the Assessing Officer to compute the taxable income.|
|Non-Specified Professions||Income and turnover do not exceed the threshold limit as specified above||Not required to maintain books of accounts|
|Business||Income and turnover do not exceed the threshold limit as specified above||Not required to maintain books of accounts|
|Non-Specified Professions||Income and turnover exceed the threshold limit as specified above||Such books of accounts which may enable the Assessing Officer to compute the taxable income.|
|Business||Income and turnover exceed the threshold limit as specified above||Such books of accounts which may enable the Assessing Officer to compute the taxable income.|
FAQ 5. A is maintaining books of accounts at more than one location. Whether the address of all the locations is to be mentioned in the audit report?
Clause 11 of Form 3CD requires a list of books maintained and the address at which such books of accounts are kept. If such books of accounts are kept at multiple locations, then the auditor is required to mention the address of all the locations along with the details of books of accounts maintained at each location. In the case of a company assessee, the auditor should verify whether Form AOC-5 has been filed with the Registrar of Companies under the Companies Act to maintain books of accounts at a place other than the registered office.
The auditor’s duties regarding ‘books of account maintained’ is not limited to merely giving a list of books of account against clause 11(b). He is required to examine the books of account maintained. Based on such examination, he is required to state in Form No. 3CB whether books of account kept are ‘proper books of account’.
 Circular No. 10/2017, dated 23-03-2017
Notification No. 87/2016, dated 29-9-2016
 Circular No. 10/2017, dated 23-03-2017
 Notification: No. SO 17(E), dated 12-1-1977 artist includes actor, cameraman, director, music director, art director, dance director, editor, singer, lyricist, story writer, screen play writer, dialogue writer, and dress designer.
 Notification: No. SO 17(E), dated 12-1-1977 ‘Authorised Representative’ means a person, who represents any other person, in lieu of fee or remuneration, before any Tribunal or statutory authority, but does not include an employee of the person so represented or a person carrying on legal profession or a person carrying on the profession of accountancy.
 Notification: No. SO 2675, dated 25-9-1992
 Notification: No. SO 385(E), dated 4-5-2001
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