FAQ on ICD

1. 4/30/2015 CAclubindia News : ICDS, the basic questions
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ICDS, the basic questions
1. What is ICDS?
The Ministry of Finance has issued ten Income Computation and Disclosure Standards (ICDS), which is a new framework for
computation of taxable income
2. Who does it apply to?
It applies to all assesses in relation to their income under the heads “Profit and gains of business or profession” and “Income from
Other Sources”. ( All assesses following the mercantile system of accounting )
3. Where does this new ICDS flow from?
The Central Board of Direct Taxes (CBDT) has notified these standards under Section 145(2) of the Income­tax Act, 1961 vide
“Notification No. 33/2015 [F. No. 134/48/2010­TPL]/SO 892(E) dated 31 March 2015”.
4. What is the content of Section 145?
145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the
provisions of sub­section (2), be computed in accordance with either cash or mercantile system of accounting regularly82 employed by the
assessee.

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(2) The Central Government may notify in the Official Gazette from time to time [accounting standards] to be followed by any class
of assessees or in respect of any class of income.
(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method
of accounting provided in sub­section (1) 83b[or accounting standards as notified under sub­section (2), have not been regularly followed by
the assessee], the Assessing Officer may make an assessment in the manner provided in section 144.]
5. When is it applicable from?
These standards are applicable for the previous year 2015­16, ( Assessment Year 2016­17 onwards )
6. Why were these issued
These Standards were issued to ensure that regardless of the Financial Reporting framework followed by Companies ( IND AS or existing
Indian Accounting Standards ) tax computations would be guided by a separate set of ICDS.
7. Would this impact Income Tax computation for advance tax for Q1 2015­16
Yes, these Standards being applicable for FY 2015­16 would have to be considered in computing the advance tax for quarter ended Jun 30,
2015
8. How many Standards have been issued

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Ten Standards have been notified for implementation
ICDS Description
Accounting
Standard
I Accounting Policies AS 1
II Valuation of Inventories AS 2
III Construction Contracts AS 7
IV Revenue Recognition AS 9
V Tangible Fixed Assets AS 10
VI The Effects of Changes in Foreign Exchange Rates AS 11
VII Government Grants AS 12
VIII Securities AS 13
IX Borrowing Costs AS 16
X Provisions, Contingent Liabilities and Contingent Assets AS 29
9. What are the key concerns at a macro level
a. The ICDS were first drafted with reference to the Indian Accounting Standards as the base. The proposed convergence to IFRS based
IND AS would result in conflicts for entities which are required to adopt IND AS

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b. The computation of net income as per the financial statements and taxable income as computed under ICDS may differ even substantially
in certain cases
c. The impact of judicial pronouncements not in line with the proposed ICDS treatment could be an issue
d. While separate books of accounts may not be needed, reconciliations between taxable income as per ICDS and net income as per books
would be necessitated causing enhanced paper work
e. All assesses ( not only Corporate ) will be required to follow these Standards in respect of P & G of Business or Profession and Income
from other sources
f. Materiality and Prudence are not really considered in the ICDS framework
10. Will this impact the 44AB tax audit
Yes, as the taxable income is required to be computed in accordance with these standards, they would impact tax audit as well.
Source : ­