ICDS: Brief on Income Computation and Disclosure Standards

ICDS: Brief on Income Computation and Disclosure Standards

As per Section 145(2) of income Tax Act, government has the power to notify the income computation and disclosure standards. Such standard to be followed by certain class of assesses in respect of any class of income. These 10 notified ICDS to be followed by all assessees who are following mercantile system of accounting, for the purposes of computation of income chargeable to income tax under the head “Profits and gains of business or profession” or “Income from other sources”. However such ICDS shall not apply to individual or HUF who is not required to get his accounts audited of the previous year u/s 44AB of the Income-tax Act, 1961. In case there is conflict between ICDS and Income Tax Act the provision of Income tax act shall prevail.

As per section 145 of income tax act, If Assessing officer (AO) believes that the books of accounts are correct and complete but the method employed could not be deduced proper income, The AO has the power to make computation of income on the basis and manner he may determine i.e. if assessee has not followed ICDS in income computation then AO has the power to make best judgement as per section 144 by applying the ICDS.

List of notified ICDS:

  1. Accounting policies
  2. Valuation of inventories
  3. Construction contracts
  4. Revenue recognition
  5. Tangible fixed assets
  6. Effects of changes in foreign exchange rates
  7. Government grants
  8. Securities
  9. Borrowing cost
  10. Provisions, contingent liabilities and contingent assets

For ensuring compliance of ICDS brief changes in ITR and form 3CD has been made by CBDT. Net effect on income (Gain/Loss) due to application of ICDS is to be disclosed in the return of income (ITR). For tax audit cases, the Form 3CD has also been modified which require further certification by tax auditor that the computation of taxable income is made in accordance with the provisions of ICDS.”

In tax audit report, new sub clause has been inserted in clause 13 which required disclosures of ICDS. The new sub-clauses are as under:

“(d) Whether any adjustment is required to be made to the profits or loss for complying with the provisions of income computation and disclosure standards notified under section 145(2)


 (e) If answer to (d) above is in the affirmative, give details of such adjustments:

ICDSName of ICDSIncrease

in Profit



in Profit





ICDS IAccounting Policies
ICDS IIValuation of Inventories
ICDS IIIConstruction Contracts
ICDS IVRevenue Recognition
ICDS VTangible Fixed Assets
ICDS VIChanges in Foreign

Exchange Rates

ICDS VIIGovernment Grants
ICDS VIIISecurities
ICDS IXBorrowing Costs
ICDS XProvisions, Contingent

Liabilities and

Contingent Assets

(f) Disclosure as per ICDS 

(i)ICDS I – Accounting Policies
(ii)ICDS II – Inventories
(iii)ICDS III – Construction Contracts
(iv)ICDS IV – Revenue Recognition
(v)ICDS V – Tangible Fixed Assets
(vi)ICDS VII- Government Grants
(vii)ICDS IX – Borrowing Costs
(viii)ICDS X –Provisions, Contingent Liabilities and Contingent


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