The ICDS (Income Computation and Disclosure Standards) are effective from this audit period

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The Central Government notified 10 Income Computation & Disclosure Standards (ICDS) effective financial year 2015–16 (Assessment year 2016-17). This will affect the compliance practice of all taxpayers following the mercantile system of accounting for computing income chargeable to income tax under the headings

  • Profits and gains of business or profession OR
  • Income from other sources.
Perceived Objective

It is stated by the Central Board of Direct Taxes (CBDT) that the introduction of ICDS will help bring increased consistency in computation and reporting of taxable income, reduce litigation and minimize the alternatives provided by the existing Accounting Standards issued by the Institute of Chartered Accountants of India. In one of the communications it is said that, in the light of Ind-AS becoming a reality,ICDS will help streamline the tax matters for the assessee and keep aside complication.


The ICDS draws its validity from the notification issued by CBDT under section 145(2) of the Income Tax Act 1961. If there is a conflict between the Income tax law and ICDS on any specific matter, the Income tax law will prevail. The reason is that a delegated legislation cannot override the law of the land.

  • Adjustments in respect of ICDS are to be made in computation of taxable income (Considering they are within the limits of what the Income tax Act of 1961 prescribes)
  • Related Changes to the return of taxable income, tax audit reports and schedules
  • Possible increase/decrease of tax related disputes and settlements

In one of the recent lecture meetings held by the Bombay Chartered Accountants Society on “practical issues in implementation of ICDS , the main question raised were regarding the effectiveness of such standards. For example ICDS 1 speaks about “accounting policies”, whereas ICDS in itself is not for the purpose of maintenance of books of account.

We have to expect more standards to come in and wait to see how the assessee community, who are most affected, and the tax practitioners cope up with the changes and react.