Central Board of Direct Taxes (CBDT) had earlier notified ICDS
effective from tax year 2015-16, for compliance by all taxpayers
following the 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".
Concerns were raised by stakeholders on challenges arising from
implementation of ICDS and pending revision of tax audit form to
capture disclosures required in terms of ICDS, CBDT had announced
deferment of the effective date of ICDS by one year vide Press
Release in July 2016. Now in deference to this, CBDT has rescinded
the old ICDS and notified amended ICDS to be effective from tax
year 2016-17 and onwards. These amended ICDS also are for
compliance by the taxpayers following the mercantile system of
accounting and for the purposes of computation of income chargeable
to income tax under the Business head or Other Sources head. The
amendments aim to bring the amended ICDS closer to Accounting
Standards issued by the Institute of Chartered Accountants of India
Key amendments made to old ICDS are summarized below:
permitting standard costing method
for inventory valuation;
making the amended ICDS applicable to
service and construction contracts commencing after 1 April 2016
and thus providing complete grandfathering to such contracts
commenced prior to 31 March 2016 from applicability of ICDS;
permitting straight line method for
revenue recognition if services are provided by an indeterminate
number of acts over a specific period of time;
revenue from service contracts whose
duration does not exceed 90 days may be recognized when rendering
of services is complete or substantially complete
interest on refund of any tax, duty
or cess taxable in the year in which such interest is received
borrowing cost incurred on general
purpose borrowings needs to be capitalized to the cost of
qualifying assets as per normative formula prescribed in ICDS IX
only if qualifying assets require 12 months or more for their
acquisition, construction or production.
Changes have also been introduced in Tax Audit Report for
including ICDS related disclosure requirements and for quantifying
adjustment to profits or loss for complying with the ICDS.
Notification deferring the ICDS as promised by the CG by way of
the Press Release clears the ambiguity with respect to the binding
nature of the Press Release which preceded the Notification and
provides certainty to the taxpayers, yet again depicting the focus
of the present Government.
Further, some of the amendments to ICDS such as restricting
capitalization of interest on general borrowing to the assets,
which necessarily require period of 12 months or more for its
acquisition, construction or production, providing same tax
treatment in respect of forex fluctuation for integral and
non-integral operations is welcome.
Source: Notification No. 86/ 2016 dated 29 September
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