ICDS (Income Computation and Disclosure Standards)
Key Points about ICDS -Income Computation and Disclosure Standards
- Notification No of ICDS :- Central Government has notified Income Computation and Disclosure Standards vide Notification No. S.O. 3079(E), dated 29-9-2016 In pursuance of the powers granted to it under section 145(2) of Income Tax Act 1961
- Old Notification on ICDS Rescined :- The CBDT has vide Notification No. S.O. 3080(E), dated 29-9-2016 rescinded Notification No. S.O. 892(E) dated 31-3-2015 with effect from 31-3-2016.
- Applicability of ICDS : Notification No. S.O. 3079(E), dated 29-9-2016) came into force with effect from 1-4-2016 and became applicable with effect from Assessment Year 2017-18.
- ICDS Notified are
Sr No ICDS No ICDS Relating to 1 ICDS-I Accounting Policies 2 ICDS-II Valuation of Inventories 3 ICDS-III Construction contracts 4 ICDS-IV Revenue Recognition 5 ICDS-V Tangible Fixed Assets 6 ICDS-VI Effects of changes in foreign exchange rates 7 ICDS-VII Government grants 8 ICDS-VIII Securities 9 ICDS-IX Borrowing Costs 10 ICDS- X Provisions, contingent liabilities and contingent assets - Assessee Covered under ICDS:-All assessees following mercantile system of accounting except an individual or HUF who is not required to get his accounts audited under section 44AB of the Act
- Standard Cost use allowed in ICDS : Use of standard cost technique for measurement of cost of inventories allowed if the results approximate the actual cost and subject to certain required disclosures in this regard.
- Latest Books on ICDS
- Use of retail method in retail trade :Use of retail method in retail trade for measurement of cost of inventories of large number of rapidly changing items that have similar margins and for which it is impracticable to use other costing methods allowed. However, an average percentage for each retail department is to be used. A global percentage for all retail departments not allowed
- Revenue from Interest on refund of tax/cess/duty:- Recognition of revenue from Interest on refund of tax/cess/duty is allowed in the previous year of receipt on cash basis.
- Use of percentage completion method : Use of percentage completion method for recognition of revenue from service transactions Mandatory subject to the following two exceptions:
(1) Option to recognize revenue on a straight line basis over the specific period where services are provided by an indeterminate number of acts over a specific period of time
(2) Option to recognize revenue when rendering of services is completed or substantially completed in case of service contracts with duration of not more than 90 days - Use of completed service contract method: -Use of completed service contract method of revenue recognition allowed for recognition of revenue from service transactions is allowed.Option to recognize revenue when rendering of services is completed or substantially completed in case of service contracts with duration of not more than 90 days…However, it would appear that this option not available to services directly linked to construction contracts -e.g., project manager’s fees, architect’s fees
- Revenue on a straight line basis :Option to recognize revenue on a straight line basis over the specific period where services are provided by an indeterminate number of acts over a specific period of time.However, it would appear that this option not available to services directly linked to construction contracts – e.g., project manager’s fees, architect’s fees
- Translation of financial statements of foreign operations :To be translated as if the transactions of the foreign operation have been those of the person itself. No classification of foreign operations(foreign branches) as integral foreign operations and non-integral foreign operations
- Shares of a closely held company : shares of a closely held company can be regarded as held as stock-in-trade
- Securities held by Scheduled Banks and Public Financial Institutions :Part-B of ICDS VIII (new) contains special requirements regarding securities held by Scheduled Banks and Public Financial Institutions—to be classified and measured as per RBI Guidelines
- Disclosure of ICDS in Tax Audit Report – 3CD:
- Disclosures required by ICDSs to be made against new item (f) of Clause 13 of Form No. 3CD New sub-clause (f) of clause 13 requires “Disclosures as per ICDS” ICDS-wise as under in Form No.3CD:(f) Disclosure as per ICDS:
(i) ICDS I – Accounting Policies (ii) ICDS II – Valuation of Inventories (iii) ICDS III – Construction Contracts (iv) ICDS IV – Revenue Recognition (v) ICDS V – Tangible Fixed Assets (vi) ICDS VII – Government Grants (vii) ICDS IX – Borrowing Costs (viii) ICDS X – Provisions Contingent Liabilities and Contingent Assets. Item Nos. (d) and (e) of clause 13 of Form No. 3CD as substituted by Notification No. 3080 require disclosure as under:
(d) Whether any adjustment is required to be made to the profits or loss for complying with the provisions of income computation and disclosure standards notified under section 145(2).
(e) if answer to (d) above is in the affirmative, give details of such adjustments:
Increase in profit (Rs.) Decrease in profit (Rs.) Net effect (Rs.) ICDS I Accounting Policies ICDS II Valuation of Inventories ICDS III Construction Contracts ICDS IV Revenue Recognition ICDS V Tangible Fixed Assets ICDS VI Changes in Foreign Exchange Rates ICDS VII Government Grants ICDS VIII Securities ICDS IX Borrowing Costs ICDS X Provisions, Contingent Liabilities and Contingent Assets Total
- Disclosures required by ICDSs to be made against new item (f) of Clause 13 of Form No. 3CD New sub-clause (f) of clause 13 requires “Disclosures as per ICDS” ICDS-wise as under in Form No.3CD:(f) Disclosure as per ICDS: