Income Computation
and Disclosure
Standards (ICDS)
- An Overview
Presentation by:
CA Ayush Goel
Designated Partner
B A S & Co. LLP
Contents:
1) Background
2) General Principles
3) List of ICDS
4) ICDS details
5) Overview of the FAQs
Background:
 Section
145(1) of the Income-tax Act, 1961 (Act) stipulates
that the method of accounting for computation of income
under the heads “Profits and gains of business or
profession” and “Income from other sources” can
either be cash or mercantile system of accounting.
 Section
145(2) of the Act states that the Central Government
may notify the accounting standards (now income
computation & disclosure standards w.e.f Finance Act
2014) to be followed by any class of assesses or in respect of
any class of income.
Background:
 On
31st March, 2015, the Central Government notified
10 ICDS which was initially effective from 1st April,
2015.
 Vide announcement dated 6th July 2016, the Applicability
of ICDS was deferred to be now applicable from F.Y.
2016-17
 Vide Notification No. 87/2016, the previous set of ICDS
notified was replaced by New Set of said 10 ICDS
 First set of clarifications in FAQ format was issued on
23rd March 2017
General Principles:




HEADS COVERED: ICDS are applicable for computation of income
chargeable under the head “profits and gains of business or
profession” and “income from other sources”.
ASSESSEES COVERED: ICDS applies to all taxpayers (NO TURNOVER
LIMIT). Exemption now provided for Individual and HUF not Having Tax
Audit
CONFLICT BETWEEN LAW & ICDS: In case of conflict between the
provisions of the Act and ICDS, the provisions of the Act shall prevail to that
extent.
o What if in case of conflict between HC / SC rulings or Income
Tax Rules and ICDS?
MERCANTILE SYSTEM: ICDS applies only to taxpayers following
‘mercantile system’ of accounting.
General Principles:

ICDS are ‘not applicable’ in following circumstances:
a. Where the assessee follows cash system of accounting
b. Where income chargeable to tax comprises of income other than
‘profits and gains of business or profession’ or ‘income from other
sources’.

Whether ICDS apply in case of presumptive taxation?
ICDS is applicable for Provisions of Presumptive Taxation. How?
 ICDS
impact over maintenance of books of accounts?
ICDS are not supposed to provide the manner of
maintenance of books of accounts they simply provide
the income computation and disclosure manner.
General Principles:

Whether ICDS have any impact on Minimum Alternate Taxation?
Since ICDS does not apply in maintenance of books of account by an
assessee thus ICDS should not have any initial impact on MAT
computations.
 Whether

ICDS have any impact on Alternate Minimum Tax?
What are the consequences of ICDS non-compliance?
ICDS non-compliance, as per the provisions of section 145(3) shall enable
the Assessing Officer to make an assessment in the manner provided under
section 144 of the Income Tax Act 1961 . However there is no specific
penal provision inserted in the law regarding non-compliance of ICDS.
General Principles:
 How
disclosures under ICDS are to be made or
where to be made:
All ICDS notified provide for the disclosure requirement and the
Impact Analysis shall be notified in the revised format of 3CD as
notified on 29th Sept 2016
 Penal
Consequences of ICDS non-compliance:
There are no specific provisions inserted in the income tax law
particularly in Chapter – XXI
However any additions in income due to applicability of ICDS
may attract concealment penalty consequences etc.
List of ICDS
1) ICDS I: Accounting Policies (AS-1)
2) ICDS II: Valuation of Inventories (AS-2)
3) ICDS III: Construction Contracts (AS-7)
4) ICDS IV: Revenue Recognition (AS-9)
5) ICDS V: Tangible Fixed Assets (AS-10)
6) ICDS VI: The Effects of Changes in Foreign Exchange Rates (AS-11)
7) ICDS VII: Government Grants (AS-12)
8) ICDS VIII: Securities (AS-13*)
9) ICDS IX: Borrowing Costs (A-16)
10)ICDS X: Provisions, Contingent Liabilities and Contingent Assets
(AS-29)
ICDS-I: Accounting Policies
KEY AREAS

Fundamental Accounting Assumptions
◦ Going Concern
◦ Consistency
◦ Accrual


Change in Accounting Policies: Reasonable Cause
Disclosure of Accounting Policies
Major Considerations in Selection of Accounting
Policies
AS – 1
a. PRUDENCE
b. SUBSTANCE OVER FORM
c. MATERIALITY
ICDS – I
a. SUBSTANCE OVER FORM
b. No recognition of Mark-to-Market
losses or an expected loss unless
the recognition of such loss is in
accordance with the provision of
any other ICDS.
Materiality
No concept of materiality in ICDS unlike, AS-1.
 No likely significant tax impact
 In absence of materiality concept, considerable time and cost will
be involved making trivial adjustments in net profit as per books
of accounts to arrive at PGBP since authorities may insist on strict
application of ICDS even on small value items.

Prudence
Based upon the concept of ‘prudence’, AS-1 precludes
recognition of anticipated profits and requires recognition of
expected losses.
 However, ICDS provides that expected losses or mark to
market losses shall not be recognized unless permitted by any
other ICDS to avoid differential treatment for recognition of
income and losses.
 What about MTM Gain??

Transitional Provisions
All contracts or transactions existing on 1st day of April, 2016 or entered into on or
after the 1st day of April, 2016 shall be dealt with in accordance with the provisions of
this standard after taking into account the income, expense or loss, if any, recognized
in respect of the said contract or transaction for the previous year ending on or
before the 31st March, 2016.
Disclosures
•
Disclosures of accounting policies or of changes therein cannot remedy a wrong
or inappropriate treatment of the item.
•
If the fundamental accounting assumptions of Going Concern, Consistency and
accrual are followed, specific disclosures is not required. If a fundamental
accounting assumptions is not followed, the fact shall be disclosed.
ICDS-II: Valuation of Inventories
Deals With
 Valuation of Inventories
 Cost of Inventories
 Cost of Purchase
 Cost of Conversion and
 Other Cost
Does Not Deals With
 ICDS –II shall not apply in following cases:
a. Work-in-progress arising under ‘construction contracts’
b. Work-in-progress which is dealt with by other ICDS
c. Share, debentures and other financial instruments held as stock in
trade (dealt under ICDS –VIII)
d. Producers’ inventories of livestock, agriculture and forest
products, mineral oils, ores and gases to the extent that they are
measured at net realizable value.
e. Machinery spares, which can be used only in connection with a
tangible fixed asset and their use is expected to be irregular
(covered under ICDS-V)
Value of Opening Inventory
 Value of opening inventory should be same as preceding year’s closing
inventory.
 In case of a newly commenced business, the value of the opening
inventory shall be the cost of the inventory.
 Cases of conversion of capital asset into stock-in-trade with intent to
commence business may remain unaffected due to overriding provisions
of Section 45(2) of the Act.
 If business is commenced with acquisition of running business on slump
sale, price paid will be ‘cost’ of opening inventory.
 If partner takes over running business of firm/LLP, value agreed with
other partners for inter-se settlement shall be ‘cost’ for the partner.
Valuation Criteria
As per ICDS-II the inventories shall be value at:
◦ Cost or
◦ Net Realizable Value
Whichever is lower.
How to Determine Cost
COST can be determined by either of the following
methods:
a. FIFO Method
b. Weighted Average Method
c. Specific Identification of Cost Method or
d. Retail Method
e. Standard Cost
Valuation of Inventories in case of Firm/AOP/BOI
Dissolution
According to ICDS, in case of dissolution of a partnership
firm or association of person or body of individuals,
notwithstanding whether business is discontinued or
not, the inventory on the date of dissolution shall be
valued at the net realizable value.
 This is unfair particularly as there is no specific provision
for allowing such NRV as the cost to the successor of the
business.
 Also this is contrary to law settled by Apex court in the
case of Sakthi Trading Co. v. CIT

Case laws discussed
Sakthi Trading Co. v. CIT [2001] 118 Taxman 301 (SC) /
250 ITR 871
If on dissolution of the firm the business is not
discontinued, then, the ordinary principle of commercial
accounting permitting valuation of stock-in-trade at Cost or
Net Realizable value whichever is lower will apply.

Transitional Provisions
• Interest
and other borrowing costs, which do not meet the criteria for recognition
of interest as a component of the cost per para 11, but included in the cost of
inventory as on the 1st day of April, 2016, shall be taken into account for determining
cost of such inventory for valuation as on the close of the previous year beginning
on or after 1st day of April, 2016 if such inventory continue to remain part of
inventory as on the close of the previous year.
Disclosures
The following aspects shall be disclosed, namely:a) the accounting policies adopted in measuring inventories including the
cost formulae used, and
b) the total carrying amount of inventories and its classification
appropriate to a person.
ICDS-III: Construction Contract
Construction Contracts
AS - 7
ICDS III
 Real Estate Developers
It does not deal with recognition of revenue by ICDS is silent whether the same is applicable to
Real Estate Developers and there is separate Real Estate Developers or not.
Guidance Note on the same issued by the ICAI. Clarification is brought by FAQ
 Contract Cost
Contract Cost includes:
The scope of the Contract Cost has been
- Direct cost
widened to include “Allocated Borrowing Cost”
- Cost allocated to the contract
in accordance with ICDS on Borrowing Cost.
- Cost specially charged to the customer
under the terms of the contract
Construction Contracts
AS - 7
ICDS III
 Recognition of Contract Revenue
Contract revenue to be recognized if it is
The criteria “if it is possible to reliably measure the
possible to reliably estimate the outcome of outcome of a contract” has been omitted.
a contract.
Contract revenue to be recognized when there is
reasonable certainty of its ultimate collection.
 Impact: The recognition of contract revenue may preponed under ICDS
Construction Contract
AS-7
ICDS III
 Situation when outcome of contract cannot be reliably estimated
Contract revenue and contract costs to be recognized
as revenue or expenses by reference to the POCM if
the outcome of the contract can be estimated reliably;
else, revenue should be recognized only to the extent
of contract costs incurred.
ICDS provides that early stage of a
contract shall not exceed 25% of the stage
of completion.
In other words, upto 25% of the stage of
completion, if the outcome of
No quantitative threshold laid down for determining construction contract cannot be reliably
the stage of completion, until when, the outcome of a measured, contract revenue is recognized
contract cannot be reliably measured.
only to the extent of cost incurred.
Impact: Under ICDS, profit recognition has to start compulsorily once 25% stage is completed but
the same is not the case currently under AS – 7.
Construction Contract
AS-7
ICDS III
 Retention Money
Contract revenue shall comprise:
The initial amount of revenue agreed in the contract
Contract revenue shall comprise:
The initial amount of revenue agreed in the contract,
including retentions.
Impact Analysis: There are various judicial precedents like Angelique International Ltd. vs Department of
Income Tax [ITA No.4085/DEL/2011] which does not recognize retention money as income for tax purpose if
there is no enforceable debt. ICDS leads to deviation from the settled judicial position.
 Incidental Income
Any incidental income, not included in the contract Contract cost shall be reduced by any incidental
revenue, shall be deducted while computing income, not being in the nature of interest,
construction cost.
dividends or capital gains, that is not included in the
contract revenue. Therefore, those interest income,
dividend income and capital gains shall be taxed as
income in accordance with the applicable provisions
of the Act.
Construction Contract
AS-7
ICDS III
 Recognition of foreseeable losses
It permits to recognise immediately the ICDS does not permit recognition of the
foreseeable losses on a contract regardless of foreseeable/expected losses on a contract.
commencement or stage of completion of
contract.
ICDS on accounting policies also does not
permit recognition of foreseeable loss.
Impact: ICDS deviates from the present legal settled position in the case of CIT V/s. Triveni
Engineering & Industries Ltd (49 DTR 253) (Del) & CIT v. Advance Construction Co. (P) Ltd (275 ITR
30) (Guj)) in which foreseeable losses on construction contracts were allowed as a deduction for
tax purpose.
ICDS requires application of ICDS on construction
contracts for recognition of revenue on mutatis mutandis
basis.
• Threshold of 25% stage of completion for recognition of income
• No recognition of the foreseeable losses on a contract. However, AS-7
permits immediate recognition of the foreseeable losses on a contract
regardless of commencement or stage of completion of contract.
• Stage of completion can be determined with reference to (a) total
estimated costs v/s. cost incurred till balance sheet date; or (b) survey of
work performed; or (c) completion of physical proportion of work
Transitional Provisions
•Contract revenue and contract costs associated with the
construction contract, which commenced on or after 1st day of April,
2016 shall be recognized in accordance with the provisions of this
standard.
•Contract revenue and contract costs associated with the
construction contract, which commenced on or after before the 31st
day of March, 2016 but not completed by the said date, shall be
recognized based on the method regularly followed by the person
prior to the previous year beginning on the 1st day of April, 2016.
Disclosures
A person shall disclose:
a) The amount of contract revenue and,
b) The methods used to determine the stage of
completion of contracts in progress.
ICDS-IV: Revenue Recognition
Scope of ICDS-IV
It deals with the basis for recognition of revenue arising in the
course of ordinary activities of a person from:
◦ The sale of goods
◦ The rendering of services
◦ The use by other of the person’s resources yielding interest,
royalties or dividends.
What is Sale of Goods
In a transaction involving sale of goods the revenue shall be
recognised:
 When the seller of goods has transferred to the buyer the property
in the goods for a price or
 All significant risks and rewards of the ownership have been
transferred to the buyer and
 The seller retains no effective control of the goods transferred to a
degree usually associated with ownership.
Thus where transfer of property in goods does not coincide with the
transfer of significant risks and rewards of ownership, revenue in such
a situation shall be recognised at the time of transfer of significant
risks and rewards of ownership to the buyer.
Further revenue shall not be recognised when there is absence of
reasonable certainty of its ultimate collection.
AS – 9
ICDS
 It does not apply to companies ICDS is silent on same.
engaged in insurance business.
Revenue from service transactions ICDS provides only for percentage
are recognised as percentage
completion
method
for
completion method or by the
recognition
of
service
completed
service
contract
transactions.
method.
Exemptions now available
Exemption provided for Interest on Tax, Duty, Cess
Transitional Provisions
•The transitional provisions of ICDS on construction contract shall
mutatis mutandis apply to the recognition of revenue and the associated
costs for service transaction undertaken on or before the 31st day of
March, 2016 but not completed by the said date.
• Revenue for a transaction, other than a service transaction referred to
in Para 10,undertaken on or before the 31st day of March, 2016 but not
completed by the said date shall be recognized in accordance with the
provisions of this standard for the previous year commencing on the 1st
day of April, 2016 and the subsequent previous year.
Disclosures
Following disclosures shall be made in respect of revenue recognition,
namely:a) A transaction involving sale of good, total amount not recognized as
revenue during the previous year due to lack of reasonably certainty of
its ultimate collection along with nature of uncertainty;
b) The amount of revenue from service transactions recognized as revenue;
c) The method used to determine the stage of completion of service
transaction;
d) For service transactions in progress at the end of the previous year;
e) Amount of costs incurred and recognized profits (less recognized losses)
upto the end of previous year;
f) Amount of advances received and;
g) the amount of retentions.
ICDS-V:Tangible Fixed Assets
Components of Actual Cost



Cost shall comprise of purchase price, import duties and other
taxes, excluding those subsequently recoverable and any directly
attributable expenditure on making the asset ready for its intended
use. However trade discounts and rebates to be reduced.
Administration and general overheads are to be excluded unless
they relate to a specific tangible asset.
Expenditure incurred on start-up and commissioning of the project
including expenditure on test runs and experimental production to
be capitalized.
Actual Cost’s Determination



Self Constructed Tangible Fixed Asset: Cost in addition to normal parlance
shall also include cost of construction directly related to such asset,
however any internal profits to be eliminated.
Asset Acquired for Non-Monetary Consideration: Fair value of tangible
fixed asset so acquired shall be the actual cost.
Expenditure that increases the future benefits from existing asset beyond
its previously assessed standard of performance is added to the actual
cost.
AS- 10
ICDS
 It applies to tangible fixed assets as well  It applies to only tangible fixed assets.
as goodwill
 Cost of fixed asset comprises its
 It has similar definition to AS 10 but the
purchase price, non refundable taxes and
words used are actual cost as compared
any directly attributable cost of bringing
to cost in AS -10.
the asset to its working condition for its
intended use.
Impact:
The Act provides for the definition of the term ‘actual cost’ and it is again
repeated in the ICDS but it does not modify the concept of actual cost.
However when there is conflict in interpreting the abovementioned term
under ICDS and Act, the Act will prevail over ICDS. Such a narrow definition
in ICDS might encourage the taxpayer to contend that expenditure on
acquisition which is not part of actual cost should be deductible as revenue
instead of capitalising.
AS- 10
ICDS
 AS 10 read with guidance note on  It provides that machinery spares
Machinery for Spares provides for
which can be used only in
charge to P/L, however spares to specific
connection with an item of tangible
asset should be capitalised and shall form
fixed asset and their use is expected
part of that Asset .
to be irregular, shall be capitalized.
Stand-by equipment and servicing
equipment also to be capitalized.
Impact:
ICDS specifies that machinery spares dedicated to a tangible fixed asset should be
capitalized, it does not provide any further guidance on subsequent treatment that
whether it will form part of the block of the asset. However, in absence of such
clarification spares would form part of the block and once the principal asset is put to use,
the spares shall qualify for the depreciation at the same rate.
Assets acquired against non-monetary consideration
AS- 10
ICDS
 When a fixed asset is acquired in exchange  When a tangible fixed asset is
or in part exchange for another asset, the
acquired in exchange for other asset,
cost of acquired asset should be recorded
the fair value of the tangible fixed
either at FMV or NBV of asset given up,
asset so acquired shall be its actual
adjusted for any balancing payment or
cost.
receipt of cash or other consideration.
 Fixed asset acquired in exchange for shares  When a tangible fixed asset is
or other securities in the enterprise should
acquired in exchange for shares or
be recorded at its FMV, or the FMV of the
other securities, the fair value of the
securities issued, whichever is more clearly
tangible fixed asset so acquired shall
evident.
be its actual cost.
Usual Practice: Concept of cost should normally relate to what is given up.
Assets acquired for a consolidated price
AS- 10
ICDS
 Para 15.3 says that when several assets are  When several assets are purchased
purchased for consolidated price, the
for a consolidated price, the
consideration is apportioned on fair basis as
consideration shall be apportioned to
the various assets on a fair basis.
determined by competent valuers.
Impact: In absence of determination by registered valuers in ICDS words “fair basis”
becomes subjective and might be prone to litigation.
Transitional Provisions
•The actual cost of tangible fixed assets, acquisitions or construction of which
commenced on or before the 31st day of March, 2016 but not completed by
the said date, shall be recognized in accordance with the provisions of this
standard.
Disclosures
Following disclosures shall be made in respect of tangible fixed assets, namely:a) Description of asset or block of asset;
b) Rate of depreciation;
c) Actual cost or written down value, as the case may be;
d) Additions or deductions made during the year with dates; in the case of
any addition of an asset, date put to use; including adjustments on account
of• CENVAT credit claimed and allowed under the CENVAT Credit rules,
2004;
• Change In rate of exchange of currency;
• Subsidy or grant or reimbursement, by whatever name called;
• Depreciation allowable; and
• WDV at the end of year.
ICDS-VI: The Effects of Changes
in Foreign Exchange Rates
Revenue Monetary Items (like trade receivables, payables,
bank balance, etc.)
AS- 11
 Reported using the closing rate
 Exchange difference recognised in P&L A/c
 Allowed under the Act also.
Impact: No change in tax position
ICDS
 Converted into reporting currency
by applying the closing rate
 Recognised as income or expense
subject to provisions of Rule 115
Revenue Non-Monetary Items (like inventory)
AS- 11
ICDS
Impact
 Which are carried in terms of
historical cost denominated
in a FC - Reported using the
exchange rate at the date of
the transaction
Converted into
reporting currency
using the exchange
rate at the date of
the transaction.
No exchange difference would arise
under both
 Which are carried at fair
value or NRV or other similar
valuation denominated in a
FC - Reported using the
exchange rates that existed
when the values were
determined i.e. closing rate.
Converted into
reporting
currency
using
the
exchange
rate at the date
of
the
transaction.
No exchange difference would arise
as per ICDS. Hence, the FE gain/loss
as per the books of accounts will
have to be reduced/ added back
respectively while computing the
taxable income.
No change in the position
Capital Monetary Items – Relating to Imported assets
AS- 11
ICDS
 Requires recognition in P&L A/c.
 Requires recognition in
 Option of capitalization u/s 211(3C) of companies Act,
P&L A/c subject to
1956 as per which (Para 46 & 46A) exchange
provisions of Section
differences arising in case of long-term foreign
43A.
currency monetary items shall be either adjusted to  No Para 46 & 46A exists.
capital asset or accumulated in FCMITDA.
Impact:
 Presently, Section 43A permits capitalization on payment basis of exchange
differences relating to asset acquired from a country outside India.
 Hence, there would be no change in the tax position.
Capital Monetary Items – Not relating to Imported assets
AS- 11
ICDS
 Requires recognition in P&L A/c.
 Requires recognition in
 Option of capitalization u/s 211(3C) of companies Act,
P&L A/c subject to
1956 as per which (Para 46 & 46A) exchange
provisions of Section 43A.
differences arising in case of long-term foreign  No Para 46 & 46A exists.
currency monetary items shall be either adjusted to
capital asset or accumulated in FCMITDA.
Impact:
 Section 43A does not apply since it applies only if it relates to the imported assets.
 Presently, such FE differences are not recognized for tax purposes i.e. gain is not
taxable, loss is not deductible/ allowable.
Capital monetary items – Not relating to Imported assets
Conclusion
Since ICDS requires recognition in P&L A/c subject to provisions of Section
43A and Section 43A applies only if it relates to imported assets, a controversy
may arise, whether such exchange fluctuation gain or loss on capital monetary
items (not relating to imported assets) would be allowable as an income or
expense as per ICDS or not.
May be considered as non-cognizable for tax purposes based on its Capital
nature.
It is also arguable that judicial settled position would remain unchanged as the
Act shall prevail in case of conflicts with ICDS.
Forex Derivatives – Forward Exchange
Contracts
Purpose
AS - 11
ICDS
Others (i.e.
trading,
speculation,
firm
commitment,
highly probable
forecast)
Marked to market at each
balance sheet date and the gain
or loss be recognised in the P&L
a/c.
Premium,
discount
or
exchange
difference
on
contracts be recognised at the
time of settlement only.
No amortization of premium/
discount.
Transitional Provisions
•All foreign currency transactions undertaken on or after 1st day of April, 2016 shall
be recognized in accordance with the provisions of this standards.
•Exchange differences arising in respect of monetary items or non-monetary items,
on the settlement thereof during the previous year, shall be recognized in
accordance with the previous year ending on the 31st March, 2016.
• The financial statements of foreign operations for the previous year commencing
on the 1st day of April, 2016 shall be translated using the principles and procedures
specified in this standard after taking into account the amount recognized on the
last day of the previous year ending on the 31st March, 2016.
ICDS-VII: Government Grants
Government Grants
AS- 12
ICDS VII
 Recognition of grant
• On reasonable assurance of compliance of
• On reasonable assurance of compliance of
attached conditions and reasonable certainty
attached conditions and reasonable
of ultimate collection
certainty of ultimate collection
• Mere receipt is not sufficient
• Recognition cannot be postponed beyond
date of actual receipt
Impact: If the grant is recognized on receipt basis, it would create DTA/DTL and MAT mismatch
also. Further, an issue may arise whether grants received in earlier years but not recognized
pending fulfillment of conditions will require recognition on receipt basis as per ICDS in year of
transition.
 Grants other than those covered by specific provisions
• Revenue grant to be credited as income or
• Same as AS-12 but no clarification that it is
reduced from related expense.
restricted only to revenue grants.
Government Grants
AS- 12
ICDS VII
 Relatable to depreciable fixed assets
• Requires reduction from the cost of fixed
asset or recognition as deferred revenue by
systematic credit to P&L A/c.
• Consistent with Explanation 10 to Section
43(1), requires reduction from the cost of
fixed asset.
 Relatable to non depreciable fixed assets
• To be credited as capital reserve, if no
conditions attached to the grant.
To be treated as income –
• on an upfront basis, if there are no
• To be credited to P&L A/c over period of
conditions attached to grant.
incurring cost of meeting conditions of grant. • over period over which cost of meeting
conditions is incurred.
Government Grants
AS- 12
ICDS VII
 Grant in the nature of promoter’s contribution
• To be credited to capital reserve and to be
treated as shareholders funds.
• No such clarity for grants in the nature of
promoter’s contribution. Therefore, by
implication, requires recognition as income.
 Compensation for expenses / loss incurred or for giving immediate financial support
• To be recognised in P&L A/c in the year in
• Same as AS-12
which it is receivable
 Disclosure requirement
• No disclosure of unrecognized grants
• Disclosure of unrecognized grants
Transitional Provisions
•All
the Government grants which meet the recognition criteria of para 4 on
or after 1st day of April, 2016 shall be recognized for the previous year
commencing on or after 1st day of April, 2016 in accordance with the
provisions of this standard.
Disclosures
Following the disclosures shall be made in respect of Government Grants,
namely:a) Nature and extent of Government Grants.
b) Nature and extent of Government Grant Income.
c) Nature and extent of Government Grant not recognized.
d) Reasons for not recognizing, thereof.
ICDS-VIII – Relating to Securities
Securities
AS- 13
ICDS VIII
 Applicability
This Standard deals with accounting for
investments in the financial statements of
enterprises.
This ICDS deals with securities held as stock-intrade.
Assets held as stock-in-trade are not
‘investments’
*** As per ICDS VIII value of Private Co. Shares and Not Actively traded shares are to be valued at
COST
Securities
AS- 13
ICDS VIII
 Carrying amount
Current investments
Securities held as Stock-in-trade shall be valued at actual cost or NRV,
are valued at lower of whichever is lower. (where the actual cost cannot be ascertained by
cost and fair value.
reference to specific identification, the cost shall be determined on the
basis of FIFO.)
Individual Scrip wise
Valuation
Category wise Valuation Classification into four categories namely, (a) shares; (b) debt securities;
(c) convertible securities; and (d) any other securities not covered above.
Valuation of unlisted/ thinly traded securities at cost - At the end of any
previous year, securities not listed on a recognized stock exchange; or
listed but not quoted on a recognized stock exchange with regularity from
time to time, shall be valued at actual cost initially recognized.
Example
Valuation as per AS
13
Shares
Cost
NRV
Valuation as per
ICDS
Lower of cost or NRV
Lower of cost or
- Individual scrip wise NRV - Category wise
A Ltd.
100
60
60
B Ltd.
200
140
140
C Ltd.
800
10
10
D Ltd.
400
250
250
E Ltd.
200
450
200
Total
1700
910
660
910
Impact: Category wise valuation results into accelerated taxation since appreciation in the
value of certain securities will be set off against diminution in the value of other securities.
Securities
AS- 13
ICDS VIII
 Pre-acquisition Interest
• AS 13 and ICDS on securities both require the pre-acquisition interest to be deducted from the
actual cost.
• SC in Vijaya Bank’s case (187 ITR 541) had ruled that pre-acquisition interest paid is part of
purchase cost of security.
• But as per the case of American Express International Banking Corpn. v. CIT [2002] 125 Taxman
488 (Bom.), if income from securities is taxed under PGBP, department ought to have taxed
interest received from broken period and allow deduction of interest paid for broken period.
• Also the above case is followed as a prevalent practice.
Example
Interest Bearing Security acquired on 1st February, 2016
Interest rate
12%
Interest Payable
Half Yearly (31st Dec & 30th June)
Cost of Interest Bearing Security
1,010 (Rs. 1,000 - Face Value & Cost at which security
acquired plus Rs. 10 – Pre-acquisition interest for 1 month)
AS 13 & ICDS
Prevalent Practice
Cost of Security as on 31-03-2015*
1,010
1,000
Adjustment to P&L for 2015-16
NIL
10 debited as int. exp.
Adjustment to P&L for 2016-17
50 credited as income
60 credited as income
Adjustment in Cost
10 reduced from cost
NIL
On 30th June, 2016 when int. received
*NRV is assumed to be higher than cost
Securities
AS- 13
ICDS VIII
If an investment is acquired by the issue of shares or
assets, the acquisition cost should be the fair value
of the securities issued/fair value of the asset
given up. Alternatively, the acquisition cost of the
investment may be determined with reference to the
fair value of the investment acquired if it is more
clearly evident.
Where a security is acquired
in exchange for other
securities or asset, the fair
value of the security so
acquired shall be its actual
cost.
Usual Practice: Concept of cost should normally relate to what is given up.
ICDS-IX: Borrowing Cost
What constitutes as ‘borrowing costs'
Borrowing costs are interest and other costs incurred by a
person in connection with the borrowing of funds and
include:
oCommitment charges on borrowings
oAmortised amount of discounts or premiums relating to
borrowings
oAmortised amount of ancillary costs incurred in connection
with the arrangement of borrowings
oFinance charges in respect of assets acquired under finance
leases or under other similar arrangements.
Borrowing Costs
AS - 16
ICDS
• Method of Capitalisation:
 Specific Borrowings:
 Specific Borrowings:
Actual borrowing costs incurred on the
Actual borrowing costs
borrowing during the period less any income
incurred during the period
from temporary investment of those borrowings.
on the funds borrowed.
Impact: AS-16 requires income from temporary deployment of unutilised funds to be
reduced from borrowing cost. However, ICDS does not provide for the same. The income
from temporary deployment of unutilised funds from specific loans shall be taxable as
Income from other sources under the ICDS.
SC ruling in Tuticorin Alkali Chemicals (227 ITR 172) requires that interest income earned
from temporary deployments of funds has to be offered to tax immediately as IFOS. Hence
above deviation has no tax impact.
Borrowing Costs
AS - 16
ICDS
• Commencement of Capitalisation:
The date of fulfilment of three
conditions viz. incurrence of capex,
incurrence of borrowing costs and
preparatory activities are in progress.
a) Specific borrowings – Date on
which funds were borrowed
b)General borrowings – Date on
which funds were utilised.
Impact: The capitalisation period starts early under the ICDS as compared to
AS-16.
Borrowing Costs
The borrowing costs eligible for capitalisation to
include:
To the extent funds are borrowed specifically for the purposes of
acquisition, construction or production of a qualifying asset, the
amount of borrowing costs to be capitalised on that asset shall be
the actual borrowing cost incurred.
 To the extent funds are borrowed generally and utilised for the
purposes of acquition, construction or production of a qualifying
asset, the amount of borrowing cost to be capitalised shall be
computed in accordance with the formula:
AXB/C

Borrowing Costs
AS - 16
ICDS
 General Borrowings:
 General Borrowings:
Costs determined by applying capitalisation
Costs
determined
rate to the expenditure incurred on the asset.
following formula;
The rate is weighted average of borrowing
A* B
costs applicable to the borrowings during the
C
period other than specific borrowings.
by
Transitional Provisions
All the borrowing costs incurred on or after 1st April, 2016 shall be
capitalized for the previous year commencing on or after 1st day of
April, 2016in accordance with the provisions of this standard after
taking into account the amount of borrowing costs capitalized, if any,
for the same borrowing for any previous year ending on or before 31st
day of March, 2016.
Disclosures
The following disclosures shall be made in respect of borrowing costs:a) The accounting policy adopted for borrowing costs; and
b) The amount of borrowing costs capitalized during the previous
year.
ICDS-X: Provisions, Contingent
Liabilities and Contingent Assets
Recognition of provisions
AS - 29
ICDS
 Provisions shall be recognised if it is  Provisions shall be recognised if it is
probable that outflow of economic
reasonably certain that outflow of
resources will be required.
economic resources will be required.
 Provision is not discounted to NPV
 Provision is not discounted to NPV
Impact:
 The criteria for recognition of provisions on the basis of the test of ‘probable’ (i.e. more
likely than not criteria) replaced with the requirement of ‘reasonably certain’.
 In the absence of definition and scope of ‘reasonably certain’ criteria, an ambiguity would
arise on assessment of ‘reasonably certain’ criteria.
 In the Act, there is no specific provision for recognition of provisions. However, provisions
are allowed based on accrued liabilities as per ordinary principles of commercial
accounting.
Contingent assets & reimbursement claims
AS - 29
 Contingent assets/ reimbursement
claims are recognized if inflow of
economic benefits/ reimbursement is
“virtually certain”.
ICDS
 Contingent assets/ reimbursement
claims to be recognized if inflow of
economic benefits/ reimbursements is
“reasonably certain”.
Impact:
 Revenue authorities may contend that ‘reasonably certain’ is a lower threshold than
‘virtually certain’.
 It is not made clear whether transitional provision requires recognition of all past
accumulated contingent assets in F.Y. 2015-16.
Transitional Provisions
All provisions or assets and related income shall be recognized for the previous year
commencing on or after 1st day of April,2016 in accordance with the provisions of this
standard after taking into account the amount recognized ,if any, for the same for any previous
year ending on or before 31st day of March,2016.
Disclosures
Following disclosure shall be made in respect of class of provision ,
namely:a) a brief description of the nature of the obligation;
b) the carrying amount
Overview of FAQs
S.NO.
1.
2.
3.
4.
5.
FAQs
What is the interplay between
maintenance of books of accounts?
Answers/Clarifications
ICDS-I
and ICDS is not meant for maintenance of books of accounts or
preparing financial statements. The accounting policies
mentioned in ICDS-I shall be applicable for computing
income under the heads “PGBP” or “IFOS.”
Whether inconsistent judicial precedents shall prevail The ICDS have been notified after due deliberation and
over ICDS?
after examining judicial view for bringing certainty on the
issues covered by it. Since certainty is now provided by
notifying ICDS, the provisions of ICDS shall be applicable to
the transactional issues dealt therein in relation to
AY 2017-18 and subsequent AYs.
Does ICDS apply to non-corporate taxpayers that are
not required to maintain books of account and/ or
those are covered by presumptive scheme of
taxation?
If there is a conflict between ICDS and other specific
provisions of the Income-tax rules, 1962 (the Rules),
which provisions shall prevail?
How will ICDS apply to companies that adopted IndAS?
ICDS shall also apply to persons computing income under
the relevant presumptive taxation scheme, as ICDS are
applicable to specified persons having income chargeable
under the head “PGBP” or “IFOS.”
The provisions of Rules, which deal with specific
circumstances, shall prevail.
ICDS shall apply irrespective of the accounting standards
adopted by companies i.e., either Accounting Standards
(ASs) or Ind-AS.
Overview of FAQs
S.NO.
6.
7.
8.
9.
10.
FAQs
Answers/Clarifications
Whether ICDS shall apply to computation of
Minimum Alternate Tax (MAT) under section 115JB of
the Act or Alternate Minimum Tax (AMT) under
section 115JC of the
Income-tax Act, 1961 (the Act)?
Whether the provisions of ICDS shall apply to banks,
non-banking financial institutions,
insurance
companies, powersector, etc.?
ICDS shall not apply for computation of MAT. However,
ICDS shall apply to AMT, as AMT is computed on adjusted
total income, which is derived by making specified
adjustment to total income computed as per normal
provisions of the Act.
The general provisions of ICDS shall apply to all persons,
unless there are sector specific provisions contained in the
ICDS or the Act.
Whether similar principles as contained in ICDS-I
related to
Marked to Market (MTM) loss or an expected loss
applies to recognition of MTM gain or expected
incomes?
ICDS-I provides that an accounting policy shall not be
changed without “reasonable cause.” The term
“reasonable cause” is not defined.
Which ICDS would govern derivative instruments?
The principle as contained in ICDS-I relating to MTM losses
or an expected loss shall apply mutatis
Mutandis to MTM gains or an expected profit.
Under the Act, “reasonable cause” is an existing concept
and has evolved well over a period conferring desired
flexibility to the taxpayer in deserving cases.
ICDS-VI provides guidance on accounting for derivative
contracts, such as forward contracts and other similar
contracts. For derivatives not within the scope of ICDS-VI,
provisions of ICDS-I would apply.
Overview of FAQs
S.NO.
11.
12.
13.
14.
15.
FAQs
Answers/Clarifications
Whether the recognition of retention money, the
receipt of which is contingent on the satisfaction of
certain performance criterion is to be recognized as
revenue on billing?
Whether ICDS-III and ICDS-IV should be applied by
real estate developers and BOT operators. In
addition, whether ICDS is applicable for leases?
Retention money, being part of the overall contract
revenue, shall be recognized as revenue subject to
reasonable certainty of its ultimate collection condition
contained in para 9 of ICDS-III on construction contracts.
At present there is no specific ICDS notified for real estate
developers, BOT projects and leases. Therefore, the
relevant provisions of the Act and ICDS shall apply to these
transactions as may be applicable.
As a principle, interest accrues on time basis and royalty
accrues on the basis of contractual terms.
Subsequent non-recovery in either cases can be claimed as
deduction in view of section 36 (1) (vii) of the Act.
The condition of reasonable certainty of ultimate
collection is not laid down for taxation of interest,
royalty and dividend. Is the taxpayer obliged to
account for such income even when the collection
thereof is uncertain?
Is ICDS applicable to revenues that are liable to tax on YES
gross basis for non-residents under section 115A of
the Act?
What shall be the treatment of expense incurred It shall be treated as capital expenditure as per para 8 of
after the conduct of test runs and experimental ICDS -V.
production but before commencement of
commercial production?
Overview of FAQs
S.NO.
16.
17.
18.
19.
FAQs
Answers/Clarifications
What is the taxability of opening balance as on 1 It shall be recognized in the previous year relevant for
April, 2016 of Foreign Currency Translation
assessment year 2017-18 to the extent not recognized in
Reserve (FCTR) relating to non-integral foreign the income computation in the past.
operation, if any, recognized as per AS-11?
For subsidy received prior to 1 April, 2016 but not
recognized in the books pending satisfaction of
related conditions and achieving reasonable certainty
of receipt, how shall the same be recognized under
ICDS on or after 1 April, 2016?
Government grants received on or after 1 April, 2016 and
for which recognition criteria are also satisfied thereafter,
the same shall be recognized as per the provisions of ICDSVII.
However, if the subsidy is already received prior to 1 April,
2016, ICDS-VII shall not apply and it shall continue to be
recognized as per the law prevailing prior to that date.
Whether the taxpayer shall be permitted to claim YES
deduction of interest on security offered to tax on
accrual basis but not received while computing the
capital gain?
How the securities held as stock in trade shall be For the measurement of securities held as stock in trade,
valued “category wise” under ICDS-VIII?
the securities are to be first aggregated category wise. The
aggregate cost and net realizable value (NRV) of each
category of security is compared and the lower of the two
is to be taken as carrying value as per ICDS-VIII.
Overview of FAQs
S.NO.
20.
21.
22.
23.
24.
25.
FAQs
Answers/Clarifications
Whether borrowing costs to be capitalized under
ICDS-IX should exclude portion of borrowing costs
that is disallowed under specific provisions such as
14A, 43B, 40(a) and 40A(2)(b)?
Whether bill discounting charges and other similar
charges would fall under the definition of borrowing
cost?
How to allocate borrowing costs relating to general
borrowing to different qualifying assets?
What is the impact of Para 20 of
ICDS-X containing transitional provisions?
Borrowing costs shall exclude those borrowing costs that
are otherwise not allowable under the specific provisions
of the Act.
Yes, as the definition of “borrowing cost” is an inclusive
definition.
On asset-by-asset basis.
Para 20 of ICDS-X provides that provisions or assets and
related income shall be recognized for the year
commencing on or after 1 April, 2016 in accordance with
this ICDS after taking into account amount recognized, if
any, for the same in any previous year ending on or before
March 2016.
Whether provisions for employee benefits such as Provisions for employee benefits that are otherwise
provident fund, gratuity etc., are excluded from the covered by AS 15 shall continue to be governed by specific
scope of ICDS-X?
provisions of the Act and are not dealt with by ICDS-X.
Where is the taxpayer required to make disclosures Disclosures shall be made in the tax audit report in Form
specified in ICDS?
3CD. However, there shall not be any separate disclosure
requirement for persons that are not liable to tax audit.