Over the years there have been several disputes between tax payers and Revenue Authorities on accounting policies adopted by tax payers for computing their tax liabilities. Consequently to harmonise accounting policies with Income Tax Laws, Finance Minister has proposed new Tax Accounting Standards related to income computation and disclosures to be made by business entities.   

Todays business and tax environment is increasingly complex. Need of transparency is high. Tax Accounting Standards will ensure consistency and clarity on taxation issues.

The new draft of 12 Income Computation and Disclosure Standards (ICDS), for which comments have been sought from stakeholders till February 8, is aimed at having consistency in respect of issues that come under this ambit.

In the draft paper, the Ministry has suggested tax accounting standards for various matters including those related to lease of equipment, construction-linked projects and inventory valuation. The draft standards proposed by the panel was placed in public domain for comments.  On the basis of the suggestions received from the stakeholders and examination of the same by the CBDT, the draft standards submitted by the committee have been revised.

This ICDS is applicable for computation of income chargeable under the head ‘profits and gains of business or profession’ or ‘income from other sources’ and not for the purpose of maintenance of books of accounts.

Section 145 (2) provides that the central government may notify ICDS for any class of asssessees or income.Companies, however, do not have to maintain two sets of accounts for stakeholders and the tax authorities.

One key deviation from the ICAI AS is that Tax AS would not recognize anticipated loss like marked-to-market (MTM) losses.

With the introduction of Tax Accounting Standards from next fiscal year, there will be more of administrative work to be done. We hope that tax committee will certainly look into aspects of double taxation and higher administrative cost with regard to the tax benefits which is highly expected. There are hope for tax benefits and not tax complexities from Tax AS.

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