To ensure consistency as well as clarity on taxation issues, the Finance Ministry has proposed new tax accounting standards related to income computation and disclosures by businesses.
The new draft of 12 Income Computation and Disclosure Standards (ICDS), for which comments have been sought from stakeholders till February 8, is aimed at having consistency in respect of issues that come under this ambit.
This ICDS is applicable for computation of income chargeable under the head ‘profits and gains of business or profession’ or ‘income from other sources’ and not for the purpose of maintenance of books of accounts, according to the Ministry.
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In the draft paper, the Ministry has suggested tax accounting standards for various matters, including those related to lease of equipment, construction-linked projects and inventory valuation.
“The premise of the tax accounting standards is to bring in consistency in the tax positions being adopted by the companies... and ensure adequate disclosure of these tax positions, including any exceptions to the same,” Vikas Vasal, Partner at KPMG in India, said.
The aim WAs also to avoid litigation on some of the contentious tax issues, by bringing in clarity and mandatory disclosures, he added.
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With regard to tax accounting standards, a committee, set up by the Central Board of Direct Taxes (CBDT), had submitted its first interim report in August, 2011. The final report was submitted in August, 2012. The draft standards, proposed by the panel, were placed in the public domain for comments.
“On the basis of the suggestions received from the stakeholders and examination of the same by the CBDT, the draft standards submitted by the committee have been revised,” the Ministry said in a release on Friday.
Mr. Vasal noted that initially the implementation of these standards would add to the administrative burden of entities.
Under Section 145 (1) of the Income Tax Act, 1961, income chargeable under the head ‘profits and gain of business or profession’ or ‘income from other sources’ be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.
Section 145 (2) provides that the Central Government may notify ICDS for any class of asssessees or income.