Income Computation and Disclosure Standards

Section 145(2) empowers the Central Government to notify in the Official Gazette from time to
time, income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income. Accordingly, the Central Government has, in exercise of the powers conferred under section 145(2), notified ten income computation and disclosure standards (ICDSs) to be followed by all assessees, following the mercantile system of accounting, for the purposes of computation of income chargeable to
income-tax under the head “Profit and gains of business or profession” or “ Income from other sources”. This notification shall come into force with effect from 1st April, 2015, and shall accordingly apply to the A.Y. 2016-17 and subsequent assessment years. The ten
notified ICDSs are:

ICDS I : Accounting Policies

ICDS II : Valuation of Inventories

ICDS III : Construction Contracts

ICDS IV : Revenue Recognition

ICDS V : Tangible Fixed Assets

ICDS VI : The Effects of Changes in Foreign Exchange Rates

ICDS VII : Government Grants

ICDS VIII : Securities

ICDS IX : Borrowing Costs

ICDS X : Provisions, Contingent Liabilities and Contingent

Cardinal features of Notified ICDSs

(i) Applicability: All the notified ICDSs are 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. This is
stated in the Preamble at the beginning of each ICDS.

(ii) Position in case of conflict with the Income-tax Act, 1961: In the case of conflict
between the provisions of the Income‐tax Act, 1961 and the notified ICDSs, the
provisions of the Act shall prevail to that extent. This is also stated in the Preamble at the
beginning of each ICDS.

(iii) Scope Paragraph: Each of the ten notified ICDSs has a scope paragraph explaining
what exactly the ICDS deals with. In some standards, the scope paragraph also specifies
what the ICDS does not deal with.

(iv) Transitional Provisions: All ICDSs (except ICDS VIII on Securities) contain transitional
provisions to facilitate first time adoption and prevent any tax leakage or any double
taxation.

(v) Disclosure Requirements: All ICDSs (except ICDS VI on Effects of changes in foreign
exchange rates and ICDS VIII on Securities) contain specific disclosure requirements.
The last paragraph(s) of these ICDSs is on disclosure.
For a better understanding of ICDSs and their impact, the following are discussed in Chapter

12 on Inter-relationship between Accounting and Taxation –
I. Salient features
II. Text of ICDSs
III. ICDSs vis-à-vis AS and ICDSs vis-à-vis Judicial Rulings: Significant deviations impacting
computation of taxable income.