Income Computation and Disclosure Standards (ICDS) are Applicable on Income from Profits and Gains of Business and Profession and Income from other Source for Computation of Income, not for maintaining books of Accounts. Income Computation and Disclosure Standards are Applicable to all asseessee's who follow mercantile system of Accounting even in case of assessee covered under Presumptive Scheme of Taxation under sec 44AD, 44AE, 44ADA, 44BB, 44BBA of Income Tax Act except Individual and HUF who are not required to get their accounts audited. if there is contravention or conflict between Income Computation and Disclosure Standard and Act in such as case Act will prevail. Adoption of Accounting standards doesn't affect applicability of Income Computation and Disclosure Standards.

ICDS I: - Accounting Policies

As per Income Computation and Disclosure Standards 1 accounting policies can be changed if Reasonable cause to change Accounting Policies.

 Income Computation and Disclosure Standards doesn't recognise based on Prudence and Materiality.

 

ICDS II: - Valuation of Inventories

As per ICDS 2 of income tax act Valuation of Inventories should be done at cost or NRV whichever is lower. 

In case of dissolution of Firm/Association of Persons (AOP)/Body of Individuals (BOI) than stock should be Valued at Net Realisable Value (NRV) irrespective of fact that Business will not continued.

 

ICDS III: - Construction Contacts

ICDS 3 applied to determine the Income of Construction Contractor. 

Contract Revenue and Contract Cost of a Construction Contract should be recognised on Percentage of Completion Method (POCM). 

Retention Money is considered as part of Contract Revenue and should be recognised under Percentage of Completion Method however Penalties arising from delay of Completion of Contract shall not be recognised and reduced from Contract Revenue. 

Disclosure of Amount of Contract Revenue Recognised in Revenue Period and Methods used to determine stages of Contract Completion.

 

ICDS IV: - Revenue Recognition

Revenue from service shall be recognised on basis of percentage of Completion Method. Straight Line of Method of Recognition over a specific period of Time can be used if Service provided by person is combination of intermediate number of acts.  

Revenue from Service Contract for a period of more than 90 days shall be recognized service is rendered.

Interest shall be recognized on Timely basis and calculated on applicable rate and outstanding amount. Interest on Refund of any Tax or duty or cess shall be recognized on receipt basis.

Dividend Income shall be recognized as per provision of Income Tax Act.

 

ICDS V: - Tangible Fixed Assets 

Tangible Fixed Assets means any land, building, Machinery, Plant or Furniture held in Business with intension of using for purpose of producing goods or providing service but not held for sale in normal course of Business.

Fair Value of Assets means amount for which assets could be exchanged at arm length transaction.

Machinery spares shall be charged to the revenue when consumed. When such spares used only in connection with an item of tangible fixed asset and their use is expected to be irregular then spare parts shall be capitalized.

Actual cost of Acquired Tangible Fixed Assets includes Purchase Price,  Duties and Taxes on which Input is not available, any other Expenditure directly attributable to fixed assets.

Actual Cost of Self Constructed Fixed Assets includes Purchase Price, Duties and Taxes on which Input  is not available, any other Expenditure directly attributable to fixed assets, administration expenses attributable to fixed assets etc.

Computation of Income arising from Transfer of Fixed Assets should be Calculated as per Provisions of Income Tax Act.

Depreciation on Tangible Fixed Assets should be calculated as per Provisions of Income Tax Act.

ICDS VI The Effects of Changes in Foreign Exchange Rates

As per ICDS VI any Exchange Difference arising on Settlement of monetary items or conversion should be recognised as Income or Expenditure.

As per ICDS VI any Exchange Difference arising on Settlement of Non Monetary items or conversion should not be recognised as Income or Expenditure.

Monetary items shall be be converted into reporting Currency by applying Closing Rate as Last day of previous year.

Non Monetary items shall be converted into reporting Currency by applying Rate as on date of Transaction.

ICDS VII: -  Government Grants

Any Government or Subsidy both Revenue or Capital Nature  received shall be treated as Income except where any govt grant is granted for acquisition of any depreciable assets tha Value of Govt Grant received should be reduced from the cost of Acquisition.

Any Government received to acquire assets but it is not directly related to acquisition of assets then Govt Grant Received shall be reduced from the assets on pro rata basis i.e Percentage of Total assets to Percentage of Total Grant.

Any Govt Grant Received but Conditions attached to that Government Grant not fulfilled, in that case also Government Grant will Recognised as Income.

ICDS VIII: - Securities

As Income Computation and Disclosure Standards apply only on Income from Profits and Gains from business and Profession and Income from Other sources, therefore ICDS VIII is applicable on Securities held as Stock in Trade and not apply on Securities held for Capital Appreciation i.e ICDS VIII doesn't apply on Capital Gain

Valuation of Securities shall be done at Lower of Cost or Net Realisable Value (NRV) Category wise.

Valuation of Securities which is acquired in exchange for another assets then Fair Value of the Security acquired shall be actual cost.

ICDS IX: - Borrowing Cost

Borrowing Cost of Acquisition, Construction or Production of a qualifying assets shall capitalised as part of cost of asset. 

Qualifying assets Means any assets which requires substantial time period to complete.

ICDS X: - Provisions, Contingent Liability and Assets

ICDS X is applicable on any type Provisions, Contingent Liability, Assets excepts dard deals with provisions, contingent liabilities and contingent assets, except those:

Provision, Contingent Liabilities and Contingent Arising or  resulting from Financial instruments;

Provisions, Contizent resulting resultingcutory contracts;

Provision arising, Contingent Results and Member  in insurance business from contracts with policyholders; and

Provisiom arising, Contingent Results  covered by another Income Computation and Disclosure Standard.  

Income Computation and Disclosure Standards - ICDS

Income Computation and Disclosure Standards (ICDS) are Applicable on Income from Profits and Gains of Business and Profession and Income from other Source for Computation of Income, not for maintaining books of Accounts. Income Computation and Disclosure Standards are Applicable to all asseessee's who follow mercantile system of Accounting even in case of assessee covered under Presumptive Scheme of Taxation under sec 44AD, 44AE, 44ADA, 44BB, 44BBA of Income Tax Act except Individual and HUF who are not required to get their accounts audited. if there is contravention or conflict between Income Computation and Disclosure Standard and Act in such as case Act will prevail. Adoption of Accounting standards doesn't affect applicability of Income Computation and Disclosure Standards.

ICDS I: - Accounting Policies

As per Income Computation and Disclosure Standards 1 accounting policies can be changed if Reasonable cause to change Accounting Policies.

 Income Computation and Disclosure Standards doesn't recognise based on Prudence and Materiality.

 

ICDS II: - Valuation of Inventories

As per ICDS 2 of income tax act Valuation of Inventories should be done at cost or NRV whichever is lower. 

In case of dissolution of Firm/Association of Persons (AOP)/Body of Individuals (BOI) than stock should be Valued at Net Realisable Value (NRV) irrespective of fact that Business will not continued.

 

ICDS III: - Construction Contacts

ICDS 3 applied to determine the Income of Construction Contractor. 

Contract Revenue and Contract Cost of a Construction Contract should be recognised on Percentage of Completion Method (POCM). 

Retention Money is considered as part of Contract Revenue and should be recognised under Percentage of Completion Method however Penalties arising from delay of Completion of Contract shall not be recognised and reduced from Contract Revenue. 

Disclosure of Amount of Contract Revenue Recognised in Revenue Period and Methods used to determine stages of Contract Completion.

 

ICDS IV: - Revenue Recognition

Revenue from service shall be recognised on basis of percentage of Completion Method. Straight Line of Method of Recognition over a specific period of Time can be used if Service provided by person is combination of intermediate number of acts.  

Revenue from Service Contract for a period of more than 90 days shall be recognized service is rendered.

Interest shall be recognized on Timely basis and calculated on applicable rate and outstanding amount. Interest on Refund of any Tax or duty or cess shall be recognized on receipt basis.

Dividend Income shall be recognized as per provision of Income Tax Act.

 

ICDS V: - Tangible Fixed Assets 

Tangible Fixed Assets means any land, building, Machinery, Plant or Furniture held in Business with intension of using for purpose of producing goods or providing service but not held for sale in normal course of Business.

Fair Value of Assets means amount for which assets could be exchanged at arm length transaction.

Machinery spares shall be charged to the revenue when consumed. When such spares used only in connection with an item of tangible fixed asset and their use is expected to be irregular then spare parts shall be capitalized.

Actual cost of Acquired Tangible Fixed Assets includes Purchase Price,  Duties and Taxes on which Input is not available, any other Expenditure directly attributable to fixed assets.

Actual Cost of Self Constructed Fixed Assets includes Purchase Price, Duties and Taxes on which Input  is not available, any other Expenditure directly attributable to fixed assets, administration expenses attributable to fixed assets etc.

Computation of Income arising from Transfer of Fixed Assets should be Calculated as per Provisions of Income Tax Act.

Depreciation on Tangible Fixed Assets should be calculated as per Provisions of Income Tax Act.

ICDS VI The Effects of Changes in Foreign Exchange Rates

As per ICDS VI any Exchange Difference arising on Settlement of monetary items or conversion should be recognised as Income or Expenditure.

As per ICDS VI any Exchange Difference arising on Settlement of Non Monetary items or conversion should not be recognised as Income or Expenditure.

Monetary items shall be be converted into reporting Currency by applying Closing Rate as Last day of previous year.

Non Monetary items shall be converted into reporting Currency by applying Rate as on date of Transaction.

ICDS VII: -  Government Grants

Any Government or Subsidy both Revenue or Capital Nature  received shall be treated as Income except where any govt grant is granted for acquisition of any depreciable assets tha Value of Govt Grant received should be reduced from the cost of Acquisition.

Any Government received to acquire assets but it is not directly related to acquisition of assets then Govt Grant Received shall be reduced from the assets on pro rata basis i.e Percentage of Total assets to Percentage of Total Grant.

Any Govt Grant Received but Conditions attached to that Government Grant not fulfilled, in that case also Government Grant will Recognised as Income.

ICDS VIII: - Securities

As Income Computation and Disclosure Standards apply only on Income from Profits and Gains from business and Profession and Income from Other sources, therefore ICDS VIII is applicable on Securities held as Stock in Trade and not apply on Securities held for Capital Appreciation i.e ICDS VIII doesn't apply on Capital Gain

Valuation of Securities shall be done at Lower of Cost or Net Realisable Value (NRV) Category wise.

Valuation of Securities which is acquired in exchange for another assets then Fair Value of the Security acquired shall be actual cost.

ICDS IX: - Borrowing Cost

Borrowing Cost of Acquisition, Construction or Production of a qualifying assets shall capitalised as part of cost of asset. 

Qualifying assets Means any assets which requires substantial time period to complete.

ICDS X: - Provisions, Contingent Liability and Assets

ICDS X is applicable on any type Provisions, Contingent Liability, Assets excepts dard deals with provisions, contingent liabilities and contingent assets, except those:

Provision, Contingent Liabilities and Contingent Arising or  resulting from Financial instruments;

Provisions, Contizent resulting resultingcutory contracts;

Provision arising, Contingent Results and Member  in insurance business from contracts with policyholders; and

Provisiom arising, Contingent Results  covered by another Income Computation and Disclosure Standard.  

 

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