Introduction - Income computation and disclosure standards (ICDS) - Income Tax - Ready Reckoner - Income Tax

Income Computation and Disclosure Standards Income Computation and Disclosure Standards (ICDS) have come into force from 1-4- 2017, i.e. assessment year 2017-18, and would apply to all assessees (other than an individual or an HUF not required to get his/its accounts for the previous year audited u/s 44AB ) following mercantile system of accounting, and are to be followed for the purposes of computation of income chargeable to income tax under the head Profits and gains of business or profession or Income from other sources . These ICDSs will be a new paradigm for computing taxable income of the assessee. Taxable profits would now be determined after making appropriate adjustments to the financial statements to bring them in conformity with ICDSs. Period of applicability:- ICDS would apply only with effect from assessment year 2017-18 and onwards. ICDS - 01 : I - Accounting policies (w.e.f. AY 2017-18) ICDS - 02 : II - Valuation of inventories (w.e.f. AY 2017-18) ICDS - 03 : III - Construction contracts (w.e.f. AY 2017-18) ICDS - 04 : IV - Revenue recognition (w.e.f. AY 2017-18) ICDS - 05 : V - Tangible fixed assets (w.e.f. AY 2017-18) ICDS - 06 : VI - Effects of changes in foreign exchange rates (w.e.f. AY 2017-18) ICDS - 07 : VII Government grants (w.e.f. AY 2017-18) ICDS - 08 : VIII - Securities (w.e.f. AY 2017-18) ICDS - 09 : IX - Borrowing costs (w.e.f. AY 2017-18) ICDS - 10 : X - Provisions, contingent liabilities and contingent assets (w.e.f. AY 2017-18) Notes:- Net effect on the income due to application of ICDS is to be disclosed in the Return of income. The disclosures shall be made in the tax audit report in Form 3CD . However, there shall not be any separate disclosure requirements for persons who are not liable to tax audit. Thus the returns of income have now been amended, by insertion of a new schedule ICDS Schedule ICDS Effect of Income Computation Disclosure Standards on profit Thus only the amount of net effect under each ICDS is required to be disclosed. The provisions of ICDS apply to all taxpayers, irrespective of the residential status. However, where a non-resident taxpayer falls under a presumptive tax scheme, the provisions of ICDS should not apply. Thus it can be said that any cases of incomes of non-residents, which do not fall under presumptive tax schemes or DTAA, the provisions of ICDS would apply. Where an individual or HUF falls under and opts to be covered by presumptive tax schemes, they would not be liable tax audit under section 44AB , and would fall under the exclusion clause of ICDS. Hence ICDS would not apply. However, if a tax payer opts out of a presumptive taxation, he is required to get his/its accounts audited u/s 44AB and thus ICDS would apply. ICDS would not apply for the purpose of maintenance of book profits. Tax Auditor is required to certify that the computation of total income is made in accordance with the provisions of ICDS.Thus a reconciliation may have to be prepared between the book profits and the ICDS income for the purposes of audit u/s 44AB. The provisions of ICDS apply only to the computation of income under the head PGBP and ncome from Other Source. Therefore, for various purposes other than computation of income under these two heads of income, under the Act as well, the provisions of ICDS would not apply. For example, ICDS would not apply for determining the time of credit of income for deduction of tax at source. This would continue to be governed by the date of credit in the books of account, or date of payment. The amount of expenditure on which tax has to be deducted will be determined by the entry in the books of account, and not by the computation or quantum of x`allowable expenditure under ICDS. If there is a conflict between the provisions of the Income-tax Act and the ICDS, the provisions of the Act would prevail to that extent.