Income Computation and Disclosure Standards (ICDS)
Introduction
The Central Board of Direct Taxes (CBDT) has notified Income Computation and Disclosure Standards (ICDS) under Section 145(2) of the Income-tax Act, 1961, to ensure uniformity in tax computation and reduce litigation. ICDS is relevant only for tax computation, not for maintaining books of accounts.
Applicability
ICDS applies to all taxpayers earning income under the head “Profits and Gains from Business or Profession” or “Income from Other Sources”, provided they follow the mercantile system of accounting. There is no turnover or income threshold for its applicability. However, it does not apply in the following cases:
(a) Individuals and HUFs are not required to get their accounts audited under Section 44AB.
(b) Taxpayers opting for presumptive taxation schemes. However, relevant provisions of ICDS may apply to determine turnover or receipts under such schemes.
(c) Computation of Minimum Alternate Tax (MAT) under Section 115JB (ICDS applies for Alternative Minimum Tax (AMT) under Section 115JC).
List of Notified ICDS
The following 10 ICDS are notified:
(a) ICDS I – Accounting Policies
(b) ICDS II – Valuation of Inventories
(c) ICDS III – Construction Contracts
(d) ICDS IV – Revenue Recognition
(e) ICDS V – Tangible Fixed Assets
(f) ICDS VI – The Effects of Changes in Foreign Exchange Rates
(g) ICDS VII – Government Grants
(h) ICDS VIII – Securities
(i) ICDS IX – Borrowing Costs
(j) ICDS X – Provisions, Contingent Liabilities, and Contingent Assets
ICDS vs. Generally Accepted Accounting Principles (GAAP)
ICDS is based on the Accounting Standards (AS), which were notified by the Ministry of Corporate Affairs (MCA). It applies irrespective of whether a company follows AS or Ind-AS. However, in the event of a conflict, the provisions of the Income-tax Act and Rules prevail.