Income Computation and Disclosure Standards (ICDS)

The Indian government has notified 10 Income Computation and Disclosure Standards (ICDS) that are applicable for computing income chargeable as ‘Business income’ and ‘Income from other sources.’ ICDS would apply to both residents as well as non-residents, to individuals as well as companies.

Furthermore, with the introduction of separate standards for income tax, this would not result in maintaining different books of accounts for income tax purposes.

However, a reconciliation statement would have to be prepared to keep track of the differences. In case of any conflict, the provisions of the ITA would prevail over the ICDS. In such a scenario, whether the interpretation of law rendered by higher courts in India would also prevail over ICDS would be a litigation issue. The Finance Act, 2018, has incorporated the provisions of ICDS under the relevant provisions of the ITA with effect from 1 April 2017. Thus, it has settled the controversy on whether the interpretation of law rendered by higher courts in India would prevail over ICDS.

The 10 ICDS that would apply to both residents and non-residents are as follows:

• ICDS I relating to accounting policies
• ICDS II relating to valuation of inventories
• ICDS III relating to construction contracts
• ICDS IV relating to revenue recognition
• ICDS V relating to tangible fixed assets
• ICDS VI relating to the effects of changes in foreign exchange rates
• ICDS VII relating to government grants
• ICDS VIII relating to securities
• ICDS IX relating to borrowing costs
• ICDS X relating to provisions, contingent liabilities, and contingent assets.

The ICDS is effective for computing taxable income from financial years beginning 1 April 2016 and onwards