APPLICIABILITY:
The Central Government hereby notifies the income computation and disclosure standards as specified in the Annexure to be followed by all assessees, following the mercantile system of accounting, for the purposes of computation of income chargeable to income-tax under the head “Profit and gains of business or profession” or “ Income from other sources”.
EFFECTIVE FROM:
Effect from 1st day of April, 2015, and shall accordingly apply to the assessment year 2016-17 and subsequent assessment years.
| ICDS NO. | ICDS NAME | AS NO. |
| I | Accounting Policies | 1 |
| II | Valuation of inventories | 2 |
| III | Construction contracts | 7 |
| IV | Revenue recognition | 9 |
| V | Tangible fixed assets | 10 |
| VI | The effects of changes in foreign exchange rates | 11 |
| VII | Government grants | 12 |
| VIII | Securities | 13 |
| IX | Borrowing costs | 16 |
| X | Provisions, contingent liabilities and contingent assets | 29 |
ICDS v/s AS:
ICDS II: ICDS provide for valuation of inventory for service providers, which is specifically excluded from AS 2. The inventory in such cases would include contracts in progress on the last day of the year but not those that have been completed.
ICDS III & IV: Revenue from construction contracts and service contracts must be recognized by a percentage completion method.
ICDS VI: Treatment of premium/discount on forward contracts will be governed by the provisions of ICDS, which appear to differ from existing court judgments.
ICDS VII: All kinds of government grants would now become taxable, either upfront, or by way of reduced depreciation.
ICDS IX: Borrowing costs must be capitalized according to a special formula provided under the ICDS. This formula is different from the concept of Weighted Average Cost of Borrowing specified under AS 16. Also, all fixed assets are considered as ‘Qualifying Assets’.
VIEWS:
Although the government has clarified that wherever the ICDS contradicts the I-T Act the latter shall prevail, There are many chances of disputes which may result in huge penalties.
“While we expect more clarity to emerge from the CBDT, it is quite likely that wherever a Supreme Court judgment has interpreted the provisions of the Income Tax Act, it would prevail over ICDS but in cases where the judicial pronouncement is based on an interpretation of the boarder commercial or accounting principles, the requirements of the ICDS may prevail,” said Sai Venkateshwaran, partner and head of accounting advisory services at KPMG.
Conclusion:
There should be more clarification on ICDS, They should be amended and they should be in align with Tax Provisions, so that there will be no disputes.
