ICDS - Income Computation and Disclosure Standards

As per Section 145 of the Income Tax Act, any assessee having taxable income under the heads “Profits and gains from business or profession” or “Income from Other Sources” has to compute their taxable income in accordance with cash or mercantile system of accounting.

Furthermore, the section states that the Central Government may notify from time to time if it is to be followed by any class of taxpayer or in any class of income.

Key Aspects of ICDS

• It is applicable to all taxpayers (corporate/non-corporate or resident/non-resident) irrespective of the turnover or income. 
• It will not have any impact on the minimum alternate tax (MAT) for corporate assessees as it will be based on the book profits to be determined as per the current applicable AS. It will only be applicable for computation of income chargeable under the heading “Profits and gains of business or profession” or “Income from other sources”. 
• It is applicable only on the computation of the income and not for maintenance of the books. If there is any conflict, then the Income Tax Act will prevail over ICDS. 
• Income Tax Authorities have the power to assess the income on the best judgment basis on non-compliance of ICDS. 
• All ICDS (except VII relating to Securities) contains transitional provisions which in general provide for recognition of outstanding contracts and transactions as on 1st April 2015 in accordance with it after taking into account income/expenditure/loss already incurred in the past. There is no ‘grandfathering’ for outstanding contracts or transactions as on 31st March 2015. 
• It does not provide any explanations or illustrations like AS. It only lays down the principles to be adopted for computing Income. 
• Revenue or Expenses on which there is no ICDS will continue to be governed by existing AS.

List of ICDS notified under the Income Tax Act

I – Accounting Policies

II – Valuation of Inventories

III – Construction Contracts

IV – Revenue Recognition

V – Tangible Fixed Assets

VI – The Effects of changes in Foreign Exchange Rates

VII – Government Grants

VIII – Securities 

IX – Borrowing Costs

X – Provisions, Contingent Liabilities and Contingent Assets
 

Below is the list of ICDS and corresponding notified AS:
 

Few ICDS for which drafts were circulated but not notified

1.  Events occurring after the end of Previous Year   
2. Prior Period Expense    
3. Leases   
4. Intangible Asset
 

The ICDS have been derived from the existing AS with specific deviations. However, there are no explanations and examples given in the ICDS, as given in AS.