Income Computation and Disclosure Standards (ICDS) IV and ‘Real Income’ theory – a case of Constitutional conflict?

Income Tax_1The Basics

  • The Income Computation and Disclosure Standards (hereinafter ICDS) came into effect on 01 Apr 2015 for the computation of taxable income[1].
  • The ICDS is to be complied with by all ‘persons’ who follow the mercantile system of accounting, from the assessment year 2016-17
  • It is a set of ten standards that incorporates various Accounting Standards laid down in Ind-AS. The object is to harmonise the accounting requirements with taxability of an item.
  • It is applicable solely for the purpose of computation of income chargeable under the heads of “Profits and gains of business or profession” or “Income from other sources” referred to in Sec 145 of the Income Tax Act, 1961
  • In cases of conflict between ICDS and the Income Tax Act, 1961, the latter shall prevail
  • It incorporates the concept of ‘Accrual’ as a key element where an income is recognised as it is accrued or earned irrespective of the actual time of receipt of the same.
  • ICDS IV that deals with Revenue Recognition is the subject matter of the following discussion

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