The Central Board of Direct Taxes (CBDT) has ushered in a new framework for computation of taxable income for businesses.

For this purpose, CBDT has now notified 10 income computation and disclosure standards (ICDS) that will go long way in minimising tax related disputes.

These 10 ICDS — which will come into effect from April 1, 2015 — will also bring greater consistency in the application of accounting principles governing the computation of income, say accountancy experts.

This CBDT move to notify the 10 ICDS is also timely as it will facilitate adoption of IND AS (IFRS converged standards).

As against 12 ICDS proposed, the CBDT has now notified 10 standards, covering Accounting Policies, Valuation of Inventories, Construction Contracts, Revenue Recognition, Tangible Fixed Assets, Effects of Changes in Foreign Exchange Rates, Government Grants, Securities, Borrowing Costs, Provisions Contingent Liabilities, and Contingent Assets.

G Ramaswamy, former CA Institute President, said the CBDT move was good from a tax collection point of view as it would recognise proper income without differentiating between corporate and non-corporate assesses.

This would set to rest all controversies around computation of income for income-tax purposes, Ramaswamy told BusinessLine.

Sai Venkateshwaran, India-Head for Accounting Advisory Services, KPMG in India, said the adoption of ICDS will significantly alter the way companies compute their taxable income, as many of the concepts from existing Indian GAAP have been modified.

This will have an immediate impact on companies, who will need to take this into account when paying their advance taxes for the first quarter of 2015-16, he said.

Sumit Seth, Partner, Price Waterhouse, said the introduction of ICDS could result in significant changes in the areas of capitalisation of borrowing costs, derivative contracts, foreign currency transactions, and revenue recognition to name a few.

Companies which will be adopting the IFRS converged Ind AS will have to more closely evaluate its implications, including interaction with Ind AS.

For example, ICDS mentioned that the marked to market loss or an expected loss would not be recognised, however it does not specifically address situations involving recognition of marked to market gains. This is particularly important in the context of Ind AS, which requires recognition of both unrealised losses and gains on items such as derivatives, equity investments, etc, he said.

Dolphy D’Souza, Partner with India member firm of EY Global, said the notification of ICDS was imperative to ensure smooth implementation of Ind AS and, therefore, should have maintained a tax neutral position.

Unfortunately ICDS are not tax neutral vis-à-vis the current Indian GAAP and tax practices followed currently and may give rise to litigation, D’Souza said.

For example, based on AS 7 Construction Contracts, the current practice is to recognise any expected loss on a construction contract as expense immediately. In contrast, ICDS will require expected losses to be provided for using the percentage of completion method.(CBDT - The Hindu)