Income Tax Taxation

What are the Income Computation and Disclosure Standards (ICDS)?

Income Computation and Disclosure Standards

Recently, the Government of India has come up with the major change in the Indian taxation system by introducing Income Computation and Disclosure Standards (ICDS).  Currently, income which is chargeable under the head “Profit and gains of business or profession” or “Income from other sources” is calculated as per the cash or mercantile system of accounting. However, Section 145(2) of the Income Tax Act, 1961 provides the ICDS for any class of assesses or for any class of income. Hence, 10 ICDS were notified by the Central Government effective from the assessment year 2016-17.

In this blog, we will focus on these standards in detail;

Applicability of Income Computation and Disclosure Standards (ICDS)

ICDS was issued to bring uniformity and consistency in the accounting policies. These standards govern the computation of income in accordance with tax-related provisions. Further, it also reduces the irregularities amongst them. The ICDS were developed through Generally Accepted Accounting Principles (GAAPs) with the recommendation of the Institute of Chartered Accountants of India (ICAI).

Moreover, accounting books must be prepared and maintained according to the Accounting Standards and Indian Accounting Standards as prescribed under Companies Act, 2013

ICDS are applicable on:

  • All the taxpayers whether they are corporate, non-corporate, resident or non-resident
  • The turnover or income of a taxpayer is not relevant. Hence, irrespective of the turnover or income of a taxpayer, ICDS is applicable on all
  • ICDS will be only applicable for the computation of income chargeable under the head “Profit and Gains of business or profession” or “Income from other sources”.
  • ICDS is applicable to the computation of income and not for the maintenance of books
  • Individuals or Hindu Undivided Family are not covered under the provisions of Tax Audit.

How Income Computation and Disclosure Standards (ICDS) came into force?        

In 2012, The Central Board and Direct Taxes (CBDT) form an Accounting Standards Committee which issued the draft of 14 tax Accounting Standards. Further, on the suggestions and comments received from the stakeholders, CBDT[1] gone ahead and revised and issued a 12 draft ICDS for public opinion. Out of the 12 drafted ICDS, 10 were issued by the government on 31st March 2015.

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What are the major reasons for bringing Income Computation and Disclosure Standards (ICDS)?

ICDS have been introduced since accounting standards were continuously evolving and the taxation authorities were facing major difficulties in upgrading the various adjustments in the tax laws.

Now let’s get to know the major reasons for its introduction;


Also, Read: Section 145 of the Income Tax Act,1961.

List of notified Income Computation and Disclosure Standards (ICDS)

The following table contains a list of various standards:

However, please note that for the following proposed Income Computation and Disclosure Standards (ICDS), drafts have been circulated but they have not yet been notified:
  • Events occurring after the end of the previous year
  • Prior period expense
  • Leases
  • Intangible Assets

Notified Income Computation and Disclosure Standard (ICDS) in detail:

Now let’s discuss the various Income Computation and Disclosure Standard in brief:

  • ICDS I

It deals with various disclosures in case of changes in accounting policies such as going concern, consistency, and accrual that have no material effect in the current year but may have in future years.


It deals with the valuation of inventories. Further, it also defines inventories and what forms part of inventory and what shall not be included in the cost. Moreover, it specifies that inventory should be measured at lower of cost or Net Realizable Value (NRV).


It deals with Construction Contracts and determines income from the construction contracts. It applies to the construction of rendition of services which are related to the construction of an asset.

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It deals with the recognition of revenue which is arising in the course of the ordinary activities of a person. It can be from the sale of goods, rendering of services or use by others of the person’s resources which yields interest, royalties or dividends.

  • ICDS V

It deals with Tangible Fixed Assets. It provides the standard for determining whether an item is to be classified as a tangible fixed asset. Also what needs to be included in the cost of the asset. Depreciation on such assets shall be computed as per the Income Tax Act, 1961.


It deals with the effects of Changes in Foreign Exchange Rates. It deals with the treatment of foreign currency transactions, translation of financial statements of foreign operation and treatment of forwarding exchange contract.


It deals with government grants and provides conditions to be complied with to recognize government grant. However, it also provides treatment of government grant. And also how the refund of government grant affects income and depreciation (if government grant is related to the acquisition of a depreciable asset).


It deals with securities. Also, it provides recognition of securities that it should be initially recognized at cost.


It deals with Borrowing Costs. It provides guidance on which borrowing cost will be capitalized and when to start and stop capitalization. Once an asset is first put to use, the entity will stop capitalization.

  • ICDS X

It deals with Provisions, Contingent Liabilities, and Contingent Assets. It provides the conditions on the basis of which provisions are created and should not recognize contingent assets and contingent liabilities

Note: Except ICDS on securities, each ICDS contains transition provisions for their effective adoption.

Key Accounting assumptions under Income Computation and Disclosure Standards (ICDS) 

Some of the key accounting assumptions under Income Computation and Disclosure Standards (ICDS) are as follows:

  • Going Concern
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It intends that the person will continue his business or profession for the uncertain amount of time.

  • Accrual basis

In this, it will be assumed that all the revenues and the costs are recognized as they are earned and recorded for the previous year to which they relate

  • Consistency

Here, it will be assumed that the accounting policies are consistent from one period to another.

Wrapping up

Income Computation and Disclosure Standards (ICDS) are very important and have to be mandatorily followed by all the persons for computing their income. The main reason behind introducing ICDS is to ensure “certainty to issue” and “reduction of litigation”. However, various provisions of ICDS can bring dissatisfaction among assesses but in the long run, it will help in controlling the structure of income and losses.

Also, Read: All Types of Income Tax Return Filing In India.

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