From 1st of April 2015 new accounting standards drafted by CBDT, i.e. Income Tax Disclosure Standards (ITDS), notified by finance ministry on 8th January would be used to compute the taxable income of business.

Here are the answers for most Basic 4 Questions asked by 2015 taxpayers!!

1.) What will be the purpose of book profit after 1st April, 2015?

The only tax purpose for which book profits would be used from next fiscal onwards would be to determine whether a company that is claiming tax exemptions is liable to pay the 18.5% minimum alternate tax (MAT). Companies that do not pay the 30% corporate tax are liable to pay MAT if their tax liability when tax breaks are excluded, falls below 18.5% of their book profit.

2.) Which Accounting Standards are covered under ITCD?

The new accounting standards cover valuation of inventory, construction contracts, revenue recognition , tangible fixed assets, effects of changes in foreign exchange rates, government grants, securities, borrowing costs, leases, intangible assets, provisions, contingent liabilities and contingent asset.

3.) Is it Compulsory to follow these Accounting Standards?

The proposed Income Tax Computation and Disclosure Standards (ITCD) 2015 make it compulsory for tax payers to follow it while calculating their income tax liability, which could be quite different from the profit or loss, reported in the Profit and Loss Account prepared as per the Companies Act.

4.) Do Companies have to maintain two sets of books? 

Companies do not have to maintain two sets of accounts for stakeholders and the tax authorities. Introduction of ITCD will necessitate some changes in the tax return forms.

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