[FAQs] Income Computation & Disclosure Standards (ICDS) | Tax Audit | A.Y. 2023-24
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- Last Updated on 13 September, 2023
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 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 clarified3 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 clarified4 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 clarified5 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. Is adjustment required to be made in P&L A/c for ICDS adjustments?
Clause 13(d) requires the tax auditor to state whether any adjustment is required to be made to profits or losses to comply with the provisions of income computation and disclosure standards (ICDS). If the answer to clause 13(d) is affirmative, then such adjustments are required to be stated separately in respect to each ICDS. These adjustments shall be made only for computing the taxable income, and no corresponding adjustments shall be made to the financial statements maintained as per the Accounting Standards or Ind AS.
FAQ 4. How to compute the amount of increase or decrease in profit due to compliance with ICDS-IV?
In Clause 13(e) of Form 3CD, the disclosure shall be made about the profits increased or decreased after applying ICDS. The revised profits, after considering ICDS IV, shall be calculated in the following manner, and the net result of the table shall be reported in the said clause:
Accounting Standards (AS) – Reconciliation
Particulars |
Amount |
Profit before tax as per AS financials
Add: Income taxable (if not credited to P&L account)
Less: Income not taxable (if already credited to P&L account)
|
***
*** *** *** ***
(***) (***) (***) |
Net profit/ loss before tax as per ICDS | *** |
Indian Accounting Standards (Ind AS) – Reconciliation
Particulars |
Amount |
Profit before tax as per Ind AS financials
Add: Income taxable (if not credited to P&L account)
Less: Income not taxable (if already credited to P&L account)
|
***
*** *** ***
(***) (***) (***) (***) |
Net profit/ loss before tax as per ICDS | *** |
* Generally, industry’s practice is to book such interest only when it is received. So, this item may not be a reconciling item in some of the cases.
Note: the reconciliation shall be done in respect of every ICDS. For reconciliation related to different ICDS, visit taxmann.com/practice
FAQ 5. Clause 13(d) requires the details regarding the adjustment required for complying with the provisions of ICDS. Should such adjustments be entered separately for income taxable under the head “PGBP” and Income taxable under the head “Other Sources”?
The tax auditor needs to enter a consolidated amount by which the profit has been increased or decreased. Such increase or decrease is not required to be bifurcated between the different heads of income.
- Circular No. 10/2017, dated 23-03-2017
- Notification No. 87/2016, dated 29-9-2016
- Circular No. 10/2017, dated 23-03-2017
- Circular No. 10/2017, dated 23-03-2017
- Circular No. 10/2017, dated 23-03-2017
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