The Ministry of Finance has issued ten Income Computation and Disclosure Standards (ICDS); operatinalising a new framework for computation of taxable income by all assesses in relation to their income under the heads “Profit and gains of business or profession and “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 Act) vide “Notification No. 33/2015 [f.No.134/48/2010-TPL]/SO892 (E) DATED 31March 2015. List of the ICDS are as per the appendix attached. These ICDS address the important issue relating to taxability of corporate words when companies in India adopt their financial reporting to Indian Accounting Standards (Ind-AS) that are converged with international Financial Reporting Standards (IFRS) in a phased manner commencing from 1st April 2015. With the adoption of ICDS, irrespective of whether the company reports its financial results as per Ind-As or the existing AS they would compute their taxable income in accordance with ICDS. Inspite of the fact that now that Ind-As has been notified and most large companies would switch to Ind-As reporting from the year 2016-17, they will find significant differences between the principles used in ICDS and those in Ind-As. As a result, taxability of a Company could be altogether different.


These ICDS are applicable for computation of income chargeable under the head “Profit and Gains of business or profession” or “Income from other sources to all assesses following the mercantile system of accounting.

Taxable income 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 ICDS, with affect from assessment year 2016-17 (financial year ended on 31.03.2016).

However, ICDS also provides transitional provisions to facilitate first time adoption and consideration of the resultant impact on taxable income.

The adoption of ICDS could significantly alter the way companies computer their taxable income up till now, as many of the concepts from existing AS have been modified for the benefit of revenue which will have direct impact on the cash out flow of assessee.

It has been claimed that introduction of these ICDS will minimize tax related disputes by bringing greater consistency in the application of accounting principles.

Immediate Impact

  • Assessee is required to adopt ICDS inspite of As and Ind-AS are already in place.
  • The taxable income now might be visibly delinked from the accounting income as both will be computed under different set of standards and principles. The areas of significant differences between the existing AS and the corresponding tax positions would be the key areas that assesses would need to consider while implementing ICDS.
  • ICDS has been drafted keeping the existing AS base. There are significant differences between Ind-AS and existing AS. With Indian companies moving into Ind-As in phases from 1 April 2015 onwards, there would be additional adjustments required to be made to the accounting profit calculated using Ind-AS to arrive at the taxable income as per the Act.
  • Judicial pronouncements which are in favour of the assesses might no longer be operative.
  • ICDS has only considered the existing AS. The assessees while preparing its financial statements have also been relying upon numerous other literatures issued by the Institute of Chartered Accountants of India such as Guidance Notes, Accounting Standard Interpretations, etc. These supplementary materials require reconsideration carefully as it will have significant impacts on reporting of numbers for covered entities. They may impact computation of taxable income of their ongoing projects.
  • Considering the current status and divergent practices that are in existence, the implementation of new standards could result in significant variations in tax outflow. In many cases, the timing of taxable income under the new standards would differ from the timing of recognition under accounting standards.
  • There would be several additional records which will be needed to be prepared and kept available going forward. The differences between the two standards may give rise to additional computations and reconciliation, which in essence could result in the need for maintaining additional set of records especially for large and multi –location companies.

Considering the magnititude of the changes involved, all the stakeholders including assesses, professionals and regulatory officers would need to be educated on the new framework.

Appendix A : List of the ICDSs notified by the CBDT

ICDS No. ISCDs Corresponding AS
ICDS 1 Accounting policies AS-1
ICDS 2 Valuation of Inventories AS-2
ICDS 3 Construction contracts AS-7
ICDS 4 Revenue Recognition AS-9
ICDS 5 Tangible Fixed Assets AS-10
ICDS 6 Effects of the changes in the foreign Exchange rates AS-11
ICDS 7 Government Grants AS-12
ICDS 8 Securities AS-13
ICDS 9 Borrowing Cost AS-16
ICDS 10 Provision, contingent liability and contingent assets AS-29

Our Services

  • Analyzing and identifying the differences between the current tax computation and the requirements of ICDS.
  • Realign financial reporting with ICDS based measures.
  • Impact on tax computations, and impact on cash out flow.
  • Identify sources of additional information required as per ICDS requirements.
  • Implementation of changes in accounting and reporting policies and computation methodologies.