CHANGES PROPOSED IN BUDGET 2018-19 FOR INCOME COMPUTATION DISCLOSURE STANDARDS[ICDSs]
- INCOME COMPUTATION DISCLOSURE STANDARDS (ICDSs)
The central government has notified ten ICDSs effective from A.Y. 2017-18.These are applicable to all assesses (other than an individual or a Hindu undivided family who are not subject to tax audit under section 44AB of the said Act) for the purposes of computation of income chargeable to income-tax under the head “Profits and gains of business or profession” or “Income from other sources”.
Proposed Amendment: The Delhi High Court in case of Chamber of Tax Consultants & Anr Vs. Union of India & Ors has held that certain provisions of ICDSs are ultra vires. In order to bring certainty, the following amendments are proposed to be effected with retrospective effect from A.Y. 2017-18, in the Income-tax Act in line with the ICDSs:
Section No. 36 & 40A
ICDS I: Accounting Policies :ICDS I provides that marked to market losses would not be allowed unless the same is in accordance with any other ICDS. Therefore, only Marked to market losses specifically permitted under any other ICDS would be allowable as deduction under section 36. Other marked to market losses would not be allowed as per section 40A.
ICDS VI: Effects of changes in Foreign exchange rates :Any gain or loss arising on account of effects of changes in foreign exchange rates in respect of specified foreign currency transactions shall be treated as income or loss.
Section No. 43CB
ICDS III: Construction Contract :Profits arising from a construction contract or a contract for providing services shall be determined on the basis of percentage of completion method as per ICDS III except for certain service contracts. Contract revenue shall include retention money, and contract cost shall not be reduced by incidental interest, dividend and capital gains.
Section No.145A :
ICDS II : Valuation of Inventory :Valuation of inventory shall be made at lower of actual cost or net realizable value computed as per ICDS II: Valuation of Inventories. However, inventories being securities not listed on a recognised stock exchange with regularity from time to time, has to be valued at actual cost initially recognised . Other securities held as inventory would be valued at lower of actual cost or net realisable value.