The Ministry of Finance (MoF), on 31 March 2015, issued 10 Income Computation and Disclosure Standards (ICDS), operationalising a new framework for the computation of taxable income. All assesses were required to adopt these standards for the purposes of computation of taxable income under the heads ‘Profits and Gains of Business or Profession’ or ‘Income from Other Sources’.
The Central Board of Direct Taxes (CBDT) notified these standards under Section 145(2) of the Income-tax Act, 1961 (the IT Act) vide ‘Notification No. 33/2015 dated 31 March 2015. These standards were applicable for the previous year commencing from 1 April 2015, i.e. Assessment Year (AY) 2016-17 onwards.
Subsequent to notification of ICDS, a number of representations were made by many stakeholders which were examined by an Expert Committee (the Committee) comprising departmental officers and professionals. The Committee has recommended amendments to the notified ICDS as well as issuance of clarifications in respect of certain points raised by the stakeholders.
The MoF, on 6 July 2016, announced that the revision of ICDS as recommended by the Committee, is under consideration. Revision to the Tax Audit Report is also under process for ensuring compliance with the provisions of ICDS and capturing the disclosures mandated by them. Further, some of the taxpayers might have filed their return of income and obtained Tax Audit Report without incorporating the compliance with the ICDS and related disclosures in the absence of the revised Tax Audit Report.
In light of the above, MoF has announced that ICDS shall be applicable from 1 April 2016 i.e. Previous Year 2016-17 (AY 2017-18), instead of 1 April 2015. A notification to this effect is expected to be issued shortly.
The adoption of ICDS brings with it a significant change and is expected to alter the way companies compute their taxable income, as several concepts from the existing generally accepted accounting principles in India (Indian GAAP)/Indian Accounting Standards (Ind AS) have been modified. This has raised many implementation challenges for companies in India and the deferment of ICDS implementation can give India Inc. additional time to fully understand and evaluate the potential impact on their tax liability for a smooth and effective transition to ICDS.
It is also expected that with the additional time, companies would be able to better align their ICDS implementation with the Ind AS implementation process. It will also provide regulators time to issue all clarifications and make necessary amendments in ICDS or other legislations, for smooth implementation of ICDS.
We also expect regulators to provide full clarity regarding provisions of Minimum Alternate Tax (MAT) (for companies moving to Ind AS), revision to new tax audit forms and feedback on clarifications sought by various stakeholders.
However, the deferment has also given rise to some uncertainty as highlighted below:
While the deferment of ICDS does provide India Inc. additional time to plan its implementation, this deferment comes at a time when several companies might have already assessed the ICDS impact and planned their tax payments. This is likely to pose some difficulties for such companies. The CBDT should therefore provide further clarification and issue necessary amendments on a timely basis to address these uncertainties and enable smooth implementation of the ICDS framework in FY 2016-17.
To access the text of the MoF Press Release, please click here
To access the special edition of our First Notes on the overview of key matters and the implementation of ICDS dated 9 April 2015, please click here.
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