Quick Summary
The Income Tax Department has provided a detailed list of the Income Computation and Disclosure Standards (ICDS) along with the key reconciliations required between Accounting Standards and ICDS for computing taxable income. The document, issued under the Income-tax Act, 2025 and amended by the Finance Act, 2026, explains how ICDS are intended to bring greater uniformity in the computation of taxable income and reduce litigation arising from differences in accounting treatment. For businesses
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FAQ :
ICDS are standards issued by the Central Government under the Income-tax Act to ensure uniformity in accounting policies and provisions used for income-tax computation, thereby reducing litigation.
The Income Tax Department has listed 10 notified ICDS, covering areas such as Accounting Policies, Valuation of Inventories, Construction Contracts, Revenue Recognition, Tangible Fixed Assets, Foreign Exchange Rates, Government Grants, Securities, Borrowing Costs, and Provisions.
No, ICDS applies solely to the computation of taxable income and does not prescribe how books of account should be maintained. Taxpayers must still maintain their accounts according to applicable accounting frameworks.
Reconciliation is required because accounting profit and taxable profit may not always follow identical recognition and measurement principles. The Income Tax Department provides formats to adjust financial statement profits to arrive at taxable income in accordance with ICDS.
ICDS V: Tangible Fixed Assets covers the reconciliation for tangible fixed assets, addressing differences in treatment between accounting standards and tax computation, including adjustments for depreciation, impairment, and revaluation.
Businesses and tax professionals following the mercantile system of accounting are primarily affected, as they need to make specific adjustments to their reported profits to determine taxable income in line with ICDS.
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