Better way to understand ICDS in a simple and layman language.

2. ICDS

3. Introduction of ICDS
 Ten- Income computation and disclosure standards
have been introduced by Central Board of Direct
Taxes (CBDT) on 31-March 2015 by Notification No.
33/2015 dated 31/03/2015 under the provisions of
section 145(2) 0f the Income Tax, 1961.

4. ICDS-Objective and Idea
i. Filling Gaps that are existing in the current direct
taxation regime.
ii. Bringing Consistency and clarity in computation of
Taxable Income and Providing stability on tax
treatments of various items.
iii. Tax natural framework in facilitation of smooth
implementation of Ind AS

5. Scope of ICDS
i. ICDS have been issued for the purpose of computation of
income chargeable under the head “Profit and Gains of
Business or profession (‘PGBP’)” or “Income from other source
(‘IOS’)” and not for the purpose of maintenance of books of
account. ICDS are to be followed by all the assesses following
the mercantile system of accounting.
ii. In case of conflict between the and ICDS, provision of all Act
shall prevail to that extent.
iii. Transitional provisions have been inserted in all ICDS except
ICDS on Securities. Income , expense, loss or provision existing
or entered into on after 01-04-2015 are to be recognized as per
ICSD. However Income, expense, loss or provision, if any
recognized before 31-03-2015 shall be taken into account for the
period commencing on 01-04-2015 to avoid double
taxation/non-taxation in pre and post ICDS period.

6. List of ICDSs
ICDS I
•Accoun
ting
polices
(AS-1)
ICDS VI
•The
effects
of
Changes
in
Foreign
Exchang
e Rates

7. ICSD I Relating to Accounting
Policies
 Marked to Market Loss or an expected loss shall not
be recognised unless the recognitions of such loss is
in accordance with the provision of any other ICDS.
 Accounting polices shall not be changed without
reasonable case.

8. ICSD II relating to Valuation of
Inventories
 Unlike AS-2, Standard costing method has not been
prescribe to measure cost.
 ICDA provide for valuation of inventories in the case of
service provide are materials or surplus to be consumed in
rendering of service .
 Method of valuation of inventory once adopted cannot be
changed , unless there is a reasonable cause for doing .
 In case of dissolution of a partnership firm or association of
person (AOP) or Body of individual value of inventories shall
be the net realizable value on the date of dissolution.

9. ICDS III relating to construction contract
 Contract revenue is to be recognized when there is reasonable
certainty of its ultimate collection.
 Contract revenue shall comprise of (a) initial amount of
revenue agreed in the contract including retention and (b)
variation in the work , claims and incentive payments if it can
be measure reliably.
 Contract revenue already recognized as income is to be written
off as bad debt (and not as an adjustment of the amount of
contract revenue)if the collection of that revenue later
becomes uncollectible.
 Contract costs shall not be reduced by any incidental income
being in the nature of interest, dividend and capital gains. The
same shall be separately chargeable to tax.

10. ICDS IV relating to Revenue
Recognition
Revenue service contract only to be recognized on
percentage completion method as against AS9 revenue
recognition where both completed service contract method
and percentage completion method is permitted for
recognition of revenue from service contract.
Disclosure requirements similar to construction have been
prescribed from services contract.

11. ICDS V relating to tangible fixed assets
 In case of acquisition of a tangible fixed asset in exchange
for another asset , shares, or other securities the fair
value of the tangible fixed asset so required shall be its
actual cost .
 There is not concept of revaluation of asset in the ICDS .
The same is in conformity with the provision of the act
wherein also the concept of revaluation of assets is not
recognised.
 ICDS prescribes disclosure requirement similar to
requirement of tax audit report . Even the person not
subject to tax audit have to company with such disclosure
requirement.

12. ICDS VI relating to effect of change in
foreign exchange rate
 Paragraph 46A of AS-11 grants an options to recognize exchange difference arising
on reinstatement of long term foreign currency monetary items under foreign
currency monetary item translation difference account and amortize the same
over the balance period of such long term asset or liability where as ICDS that
profit /loss arising at the year end on reinstatement of monetary items shall
recognised as income or expenses.
 Marked to market gains or losses are unrealized in nature . All gains or losses on
forward exchange or similar contract entered into trading or speculation contract
shall be recognized only statement aforesaid exchange difference shall be allowed
/ taxable as deduction income respectively in the year reinstatement.
 Also similarly marked to market profit / loss in respect of monetary item i.e.
foreign currency loans made or received purchase or sale of goods whose price is
denominated in foreign currency etc. shall be recognised as income or expenses.
 Premium or discount on forward exchange contracts shall be recognised as income
or expenses on amortisation basis over the life of the contract.

13. ICDS VII relating to government grants
 Grants in respect of depreciable fixed asset is to be
reduced from actual cost of such assets. This
treatment is similar to explanation 10 to sec 43(1).
How ever AS 12 prescribes that the same may either
be adjusted with the value of assets or recognized as
income on reasonable basis over a period of time.
 Additional disclosure are required to be made for
each pervious year which inter-alia includes nature &
extent of grants reduces from the block of asset,
grants not reduce from the block of assets with
reasons & grants not recognized as income with
reasons.

14. ICDS VIII relating to
securities
 This ICDS deals with securities held as stock in trade
and not for securities held as investment .
 Where a securities is required in exchange for
another security , cost shall be fair value of the
security acquired.
 Securities listed on a recognized stock exchange
shall be actual cost initially recognized or net
realizable value, whichever is lower.
 Securities not listed on a recognized stock exchange
shall be valued at actual cost as initially recognized.

15. ICDA XI relating to
Borrowing cost
 This ICDS deals with borrowing cost other than relating to exchange differences
arising from foreign currency borrowings. The same will be treated in terms of
ICDS on The effect of changes in foreign exchange rate.
 Borrowing coat is respect of borrowing partly used for acquisition of the
qualifying asset to be capitalized in accordance with the following formula:
 (A)*(B)/(C)
 (A) borrowing cost except directly relatable to specific purpose .
 (B) average cost of qualifying asset at the first day of the pervious years and
 (C)average cost of asset at the first day and the last day of the pervious year.
 Unlike AS 16 , suspension of capitalization of borrowing cost is not covered in the
ICDS.

16. ICDS X relating to provision, contingent
liabilities &contingent assets
 AS 29 requires the recognition of a provision when it
is probable that there will be outflow of resource.
However , under ICDS provision is to be recognized
when there is reasonable certainty (more likely than
not ) for the out flow of resources.

17. Comparison of ICDS, Indian
GAAP and Ind AS
 ICDS Income Computation and Disclosure Standards
issued by the CBDT on 31 March 2015
 Ind AS Indian Accounting Standards notified by the
MCA on 16 February 2015
 AS Indian Accounting Standard(s) Notified under
the Companies (Accounting Standards) Rules, 2006