By Mohit Jain | mohitjain.8829@gmail.com |
The CBDT had constituted an Accounting Standards Committee in 2010. The committee has submitted its final report in August, 2012. The committee recommended the Accounting Standards notified under the act should be made applicable only to the computation of taxable income and a taxpayer should not be require to maintain books of accounts on the basis of these accounting standards. These accounting standards, made applicable only for the computation of taxable income, are Income Computation and Disclosure Standards (ICDS).
Here, in this article are the 5 important things people needs not know about the ICDS.
ICDS applicable with effect from AY 2016-17
The notification regarding ICDS shall come into force with effect from 1stApril, 2015 and shall accordingly apply to the assessment year 2016-17.
ICDS applicable to assessee following mercantile system of accounting
The income computation and disclosure standards are required to be followed by all assessee following mercantile system of accounting, for purpose of computation of income chargeable under the head “profit and gain of business profession” or “Income from other sources”.
Thus, ICDS are not applicable to the assessee following cash system of accounting.
ICDS is not for maintaining books of accounts
The ICDS notified by CBDT vide notification S.O. 892(E), dated 31-3-2015, are not meant for maintenance of books of accounts. They are to be followed for computation of income under Income Tax Act, 1961.
ICDS is not applicable for computation of MAT
As per Section 115JB(1) of the Income Tax Act, 1961, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012, is less than 18.5% of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of 18.5%.
It is specifically written in section 115JB(1) that the MAT will be payable by the assessee on total income as per books of accounts. The book profit is calculated by following accounting standards issued by ICAI and as per the PART II of schedule III to the Companied Act, 2013. Thus, ICDS shall not apply for the computation of MAT.
ICDS are not applicable to assessee covered by presumptive taxation u/s 44AD and 44AE
The CBDT in its notification has specifically clarified that the income computation and disclosure standards are required to be followed by assessee following the mercantile system of accounting. The assessees, opting for presumptive taxation are not required to maintain any accounts. So, they can’t be said to be following any system of accounting whether mercantile or cash. Thus, it appears that the ICDS shall not be apply to computation of income the head “profit or gain of business profession under section 44AD and 44AE. CBDT needs to clarify the same.
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