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1. What is ICDS?

The Ministry of Finance has issued ten Income Computation and Disclosure Standards (ICDS), which is a new framework for computation of taxable income

2. Who does it apply to?

It applies to all assesses in relation to their income under the heads “Profit and gains of business or profession” and “Income from Other Sources”.  ( All assesses following the mercantile system of accounting )

3. Where does this new ICDS flow from?

The Central Board of Direct Taxes (CBDT) has notified these standards under Section 145(2) of the Income-tax Act, 1961 vide “Notification No. 33/2015 [F. No. 134/48/2010-TPL]/SO 892(E) dated 31 March 2015”.

4. What is the content of Section 145?

145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly82 employed by the assessee.

(2) The Central Government may notify in the Official Gazette from time to time [accounting standards] to be followed by any class of assessees or in respect of any class of income.

(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) 83b[or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee], the Assessing Officer may make an assessment in the manner provided in section 144.]

5. When is it applicable from?

These standards are applicable for the previous year 2015-16, ( Assessment Year 2016-17 onwards )

6. Why were these issued     

These Standards were issued to ensure that regardless of the Financial Reporting framework followed by Companies ( IND AS or existing Indian Accounting Standards ) tax computations would be guided by a separate set of ICDS.

7. Would this impact Income Tax computation for advance tax for Q1 2015-16

Yes, these Standards being applicable for FY 2015-16 would have to be considered in computing the advance tax for quarter ended Jun 30, 2015

8. How many Standards have been issued

Ten Standards have been notified for implementation



Accounting Standard


Accounting Policies

AS 1


Valuation of Inventories

AS 2


Construction Contracts

AS 7


Revenue Recognition

AS 9


Tangible Fixed Assets

AS 10


The Effects of Changes in Foreign Exchange Rates

AS 11


Government Grants

AS 12



AS 13


Borrowing Costs

AS 16


Provisions, Contingent Liabilities and Contingent Assets

AS 29

9. What are the key concerns at a macro level

a. The ICDS were first drafted with reference to the Indian Accounting Standards as the base.  The proposed convergence to IFRS based IND AS would result in conflicts for entities which are required to adopt IND AS

b. The computation of net income as per the financial statements and taxable income as computed under ICDS may differ even substantially in certain cases

c. The impact of judicial pronouncements not in line with the proposed ICDS treatment could be an issue

d. While separate books of accounts may not be needed, reconciliations between taxable income as per ICDS and net income as per books would be necessitated causing enhanced paper work

e. All assesses ( not only Corporate ) will be required to follow these Standards in respect of P & G of Business or Profession and Income from other sources

f. Materiality and Prudence are not really considered in the ICDS framework

10. Will this impact the 44AB tax audit

Yes, as the taxable income is required to be computed in accordance with these standards, they would impact tax audit as well.


Published by

CA Sripriya K
(Finance Professional)
Category Income Tax   Report

4 Likes   70 Shares   28959 Views


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