ICDS stands for Income Computation and Disclosure Standards. They were issued by the Government of India in exercise of powers conferred to it under section 145(2) of The Income Tax Act, 1961. The purpose of ICDS is to govern the computation of income in accordance with the pertinent tax provisions and to bring uniformity in accounting policies governing computation of income in accordance with tax-related provisions. ICDS has been framed using Generally Accepted Accounting Principles (GAAPs) with the assistance of the Institute of Chartered Accountants of India (ICAI) .
ICDS is applicable to taxpayers who are recipients of income under the head “Profits and gains of business or profession” or “Income from other sources,” irrespective of the accounting standards followed by the company. The provisions of ICDS will also be applicable to the persons computing income under the relevant presumptive taxation scheme. The standards specified in ICDS are applicable to revenues that are liable to tax on a gross basis, such as internet, royalty, and fees for technical services for non-residents u/s 11A of the Act. The provisions of ICDS are generally applicable to all taxpayers irrespective of their turnover or quantum of income, except for individuals or Hindu Undivided Family as they are not covered under the provisions of Tax Audit. ICDS will not be considered for the computation of Minimum Alternate Tax (MAT) .
ICDS includes 10 standards, which are as follows:
- Accounting Policies
- Valuation of Inventories
- Construction Contracts
- Revenue Recognition
- Tangible Fixed Assets
- Effects of Changes in Foreign Exchange Rates
- Government Grants
- Securities
- Borrowing Costs
- Provisions, Contingent Liabilities, and Contingent Assets
ICDS has been derived from the existing Accounting Standards (AS) with specific deviations. However, there are no explanations and examples given in the ICDS, as given in AS. The Form 3CD (Tax Audit Report) has been revised for making mandatory disclosures in compliance with ICDS. Noncompliance of ICDS could result in best judgment assessment by tax authorities, which may lead to protracted litigations.
