Technical Guide on Income Computation and Disclosure Standards
The Ministry of Finance vide Notification No. 87/2016 dated 29.09.2016 notified ten Income Computation and Disclosure Standards (ICDSs), operationalizing a new framework for computation of taxable income by all assessees (other than individual or a HUF who is not required to get his accounts of the previous year audited in accordance with the provisions of Section 44AB of the Income-tax Act, 1961) following the mercantile system of accounting for the purpose of computation of income under the heads “Profits and gains of business or profession” or “Income from other sources”. These standards became applicable w.e.f. April 1, 2016 and shall apply accordingly to the assessment year 2017-18 and subsequent assessment years. These ICDSs will be a new paradigm for computing taxable income of the assessee. Taxable profits would now be determined after making appropriate adjustments to the financial statements [whether prepared under existing AS or Ind AS] to bring them in conformity with ICDSs. With regard to the recent developments in the field of taxation and also considering the need of augmenting the knowledge and competencies of the members of our fraternity the Direct Taxes Committee of the Institute of Chartered Accountants of India has come out with this Technical Guide.
Winds of change are moving fast for all businesses and professions in the world. Therefore, with the changing environment, knowledge, efficiency, performance and skills of our members need to be continuously enhanced and sharpened to enable them to succeed in this competitive business environment.
Continuous amendments have also been made in taxation laws which have rendered it necessary for members to update themselves with the legislative changes. One of the recent amendments brought in by the CBDT during the year 2015 was the notification of 10 Income Computation and Disclosure Standards (ICDSs) vide Notification no. 32/2015 dated 31st March, 2015. Although, the said notification dated 31st March, 2015 was rescinded on 29th September 2016vide Notification no. 86/2016, yet on the same date, 10 revised ICDSs were notified vide Notification no.87/2016.These ICDSs will have a significant impact on computation of taxable income. Therefore, the members need to be apprised about the change so that their knowledge and skills may be enhanced to the level where they can cater the needs of their clients efficiently.
The 10 ICDSs notified by the CBDT vide notification no. 87/2016 dated 29.09.2016are to be followed by all assessees (other than individual or a HUF who is not required to get his accounts of the previous year audited in accordance with the provisions of section 44AB of the Income-tax Act, 1961) following mercantile system of accounting, for the purposes of computation of income chargeable to income tax under the head “Profits and gains of business or profession” or “Income from other sources”. The said notification shall apply to the assessment year 2017-18 and subsequent assessment years. The said notification has raised various concerns regarding the applicability, interpretation, implementation and impact of ICDSs on the taxability of an assessee, especially since these are applicable to almost all persons including small businesses and proprietorship concerns.
The CBDT also sought suggestions of ICAI for smooth implementation of Income Computation and Disclosure standards (ICDSs) which were submitted to them from time to time.
Through this technical guide, an effort has been made to gear up the members of our fraternity for implementation of ICDSs and to guide the stakeholders about the significant changes and impact which will take place in computation of taxable income. Reference to Indian Accounting Standards (Ind-AS) and Accounting Standards (AS), to the extent as considered necessary has been made at many places in this technical guide. Also, this publication will assist the members to remove the ambiguity and guide them in implementation of the ICDSs in a more effective manner.