Applicability of ICDS from Assessment Year 2017-18
The Ministry of Finance vide Notification No. 87/2016 dated 29-9-2016 notified ten Income Computation and Disclosure Standards (ICDSs), operationalising 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.
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 ten 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 Although, the said notification dated 31st March, 2015 was rescinded on 29th September 2016 vide Notification no. 86/2016, yet on the same date, ten revised ICDSs were notified vide Notification No. 87/2016.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 to the needs of their clients efficiently.
The ten ICDSs notified by the CBDT vide notification no. 87/2016 dated
29-9-2016 are to be followed by all assessees (other than individual or an 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.
Undoubtedly, the ICDSs are a significant step forward in the process of bringing computational discipline among taxpayers of all classes and ensuring uniformity and clarity in computation and reporting of taxable income. The ICDSs are a positive attempt at reducing litigation by providing stability and certainty in tax treatments of various items. The implementation of ICDSs is a significant development in light of notification of Ind-AS as it is intended to provide an equitable and uniform tax structure for Ind-AS compliant companies and other taxpayers following the existing Accounting Standards issued by ICAI.
However, the ICDSs require maintenance of information in a systematic manner for items which have a year-on-year impact (e.g., valuation of closing stock-in-trade), even for small taxpayers. This requires elaborate modifications in the information systems employed by small taxpayers, more so because, practically, each and every transaction can undergo a change in view of ICDS.
The implementation of ICDS will go a considerable way in bringing uniform and equitable tax treatment, but the applicability and interpretation of various provisions of ICDS may raise many issues.
H. N. Motiwalla