The Central Government was empowered by the Income Tax Act 1961 (‘the Act’) under section 145(2) to notify in the Official gazette the various Accounting standards to be followed for computing the Income under the head “Profits & gains of Business or Profession” or “Income from Other Sources”. The objective of framing these standards under Income Tax Act is to compute Income precisely and objectively.

Accordingly, in 1996 two tax Accounting Standards relating to ‘Disclosure of Accounting Policies’ and ‘Disclosure of prior period and extraordinary items and Change in accounting policies were notified by the Central Government.

In March 2015, after prolonged discussions, dialogues and debates over the issue of notification of Accounting Standards and its harmonization with Income Tax Laws, CBDT vide notification no. 33/2015 dated 31-03-2015 has notified 10 Income Computation and Disclosure Standards (ICDS) effective from 01-04-2015, applicable from Assessment year 2016-17 onwards. Following are the ICDS:

  • ICDS-I            Accounting Policies                 AS-1
  • ICDS-II           Valuation of Inventories       AS-2
  • ICDS-III         Construction Contracts         AS-7
  • ICDS-IV          Revenue Recognition            AS-9
  • ICDS-V           Tangible Fixed Assets            AS-10
  • ICDS-VI          The Effect of Changes in      AS-11  Foreign Exchange Rates
  • ICDS-VII        Government Grants               AS-12
  • ICDS-VIII       Securities                                  AS-13
  • ICDS-IX          Borrowing Cost                       AS-16
  • ICDS-X           Provisions, Contingent         AS-29

Liabilities and Contingent Assets

ICDS applies to all tax payers following mercantile system of accounting. The non-compliance of ICDS may result into best judgement assessment and exposure to penalties.

It is beyond doubt that these standards will significantly change the way companies compute their taxable Income from assessment year 2016-17 i.e. first year of its implementation. How the Income Tax Authorities and specially those at lower part of the echelon will take this will be crucial and hope the bedrock principles – ‘reduction of litigation’ and ‘certainty to issues’ adhered at the time of drafting will also be kept in mind equally at its implementation and application.


Contributed by CA Garima Goyal

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