Income Computation and Disclosure Standards (ICDS)
As the name suggests, simplifying and providing a stable benchmarking system for computation of Income and its disclosure, the government of India introduced the Income Computation and Disclosure standards (ICDS). ICDS has been enforced through the Generally Accepted Accounting Principles with recommendations of ICAI.
ICDS aims at bringing a uniform arrangement for applicability of accounting principles on stated taxpayers and mandatory computation procedures to be followed for their taxation. ICDS further refines the Section 145 of the Income-tax Act, 1931 by adding to it the following expressions:
– ICDS is to be followed by every assessee following mercantile system of accounting (other than those who are not liable to get their accounts audited under Section 44AB) for computation of their income taxable under the head of ‘Profit and Gains of business or profession ‘ or ‘Income from Other Sources’.
– ICDS, as stated above, are also equally applicable on all persons irrespective of any turnover threshold limit including those computing their Income under Presumptive Taxation Scheme (whether stated under 44AD, 44ADA or 44AE).
– ICDS shall apply on the companies, irrespective of applicability of other accounting standards including AS or IND-AS. It shall also apply for computation of AMT (Alternative Minimum tax) and shall ignore the aspect of MAT (Minimum alternate tax).
– If any standards as stated by ICDS conflict with any provision of the Income Tax Act, then the Act will prevail in all situations.
– For non-compliance of ICDS, the tax authorities have been granted power under Section 144 to assess the income of the taxpayer based on the stated ICDS standards.
List of Notified ICDS
Due to constant improvements and changes in accounting standards, the tax authorities faced many difficulties for bringing adjustments to the tax laws. This led to the introduction of ICDS.
Here is the list of ICDS and proposed provisions therein notified by the government to be applicable from FY 2016-17:
ICDS 1 (Change in Accounting Policy): It specifies standards for
– Disclosure requirement for changes made in accounting policies, compared with defined standards.
– Policies which can affect the computation of income or can bring any material impact in the coming years.
ICDS 2 (Valuation of Inventory): It specifies standards for
-Valuation of inventory with standard methods like LIFO, FIFO, weighted average cost, retail cost or standard cost for both AS-2 and ICDS -2.
– Valuation of opening inventory
– Permitted options to change inventory valuation technique.
– Valuation of inventory in case of dissolution at NRV.
ICDS 3 (Construction Contracts ): It specifies standards for
– Collection and disclosure of revenue from construction contracts
– Retention of contract money
– Recognition of work contracts
– Early Stage of Contracts
– Incidental Income not to be included in contract income.
ICDS 4 (Recognition of Revenue): It specifies standards for
– Recognition of revenue when collected from the sale of goods or rendering or services.
– Methods for recognition of revenue for service contracts.
– Disclosure of recognized revenue.
ICDS 5 (Tangible Fixed Assets): It specifies standards for
– a Category of tangible fixed assets only.
– Disclosure of actual costing of fixed assets including trade discounts rebates if any.
– Capitalization of stand by equipment and servicing components.
-Disclosure on consumption of fixed assets in P&L a/c.
– Recording and disclosure of assets purchased against non-monetary consideration.
– Assets obtained against consolidated prices.
-Disclosure of depreciation methods, subsidies, benefits granted on a purchase of fixed asset or reimbursements.
ICDS 6 (Effect of Change in Foreign Exchange Rate): It specifies standards for
– Transactions made in foreign currency
– Disclosure of transactions of foreign currency
– Treatment of foreign currency transactions in the nature of forwarding exchange contracts.
ICDS 7 (Government Grants): It specifies standards for
-Recognition and treatment of grants received from the government.
– Grant of a depreciable fixed asset by the government.
– Recognition and disclosure of grants.
ICDS 8 (Securities): It specifies standards for
– Securities held as stock in trade.
– Recording and disclosure of the cost of securities held as stock in trade.
ICDS 9 (Borrowing Costs): It specifies standards for
– Capitalization of the borrowing costs.
– Disclosure of qualifying assets.
– Cessation of Capitalisation
– Transitional procedures and Disclosures of borrowing costs.
ICDS 10 (X Provisions, Contingent Liabilities, and Contingent Assets): It specifies standards for
– Recognition of contingent liabilities and Assets
– Transitional provisions and Disclosure.
CBDT at intervals issues timely clarifications and explanations on the applicability of ICDS. While following of ICDS Standards for every taxpayer is compulsory and to be applied during the computation of his/her taxable Income.
