CBDT Mandates Reporing of Cash Deposits in New ITR Forms

In exercise of the powers conferred by section 139 read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1. (1) These rules may be called the Income-tax (Fourth Amendment) Rules, 2017.
(2) They shall come into force with effect from the 1st day of April, 2017.

2. In the Income-tax rules, 1962 (hereinafter referred to as the principal rules), in rule 12,− (a) in sub-rule (1),-

(I) in the opening portion, for the figures “2016”, the figures “2017” shall be substituted;
(II) in clause (a), in the proviso,-
(i) in sub-clause (II), the word “or” coming at the end shall be omitted;
(ii) after sub-clause (III), the following sub-clauses shall be inserted, namely:-
“(IV) has total income, exceeding fifty lakh rupees;
 (V) has income taxable under section 115BBDA; or
 (VI) has income of the nature referred to in section 115BBE;”;

(III) clause (b) and clause (ba) shall be omitted;

(IV) for clause (c), the following clause shall be substituted, namely:-
“(c) in the case of a person being an individual [not being an individual to whom clause (a) applies] or a Hindu undivided family where the total income does not include income derived from a proprietory business or profession, be in Form No.ITR-2 and be verified in the manner indicated
therein;”;

(V) in clause (ca),-
(i) in the opening portion, for the words, figures and letters “business income and such income is computed in accordance with special provisions referred to in section 44AD and section 44AE of the Act for computation of business income, be in Form SUGAM (ITR-4S)”, the words, figures and letters ‘income under the head “Profits or gains of business or profession” and such income is computed in accordance with special provisions referred to in section 44AD, section 44ADA and
section 44AE of the Act for computation of such income, be in Form SUGAM (ITR-4)’ shall be substituted;
CBDT Mandates Reporing of Cash Deposits in New ITR Forms

(ii) in the proviso,-
(A)in sub-clause (II), the word “or” coming at the end shall be omitted;

(B) after sub-clause (III), the following sub-clause shall be inserted, namely:-
“(IV) has income taxable under section 115BBDA; or
(V) has income of the nature referred to in section 115BBE;”;

(VI) in clause (d),-
(i) the words, brackets and letter “clause (b)” shall be omitted;
(ii) for the words, letters and number “Form No. ITR-4” the words, letters and number “Form No. ITR-3” shall be substituted;

(b) in sub-rule (2), for the words, letters, brackets and number “Form SUGAM (ITR-4S) or Form No. ITR-4” the words, letters, brackets and number “Form SUGAM (ITR-4)” shall be substituted;

(c) in sub-rule (3), in the Table,-
(A) for serial number 1 and entries relating thereto, the following serial number and entries thereto shall be substituted, namely:-
SI
Person
Condition
Manner of furnishing return of income
1
2
3
4
“1
Individual or Hindu undivided family
(a)    Accounts are required to be audited under section 44AB of the Act;

(b)   Where total income assessable under the Act during the previous year of a person,- (i) being an individual of the age of 80 years or more at any time during the previous year; or (ii) whose income does not exceed five lakh rupees and no refund is claimed in the return of income, and who furnishes the return in Form No. SAHAJ ITR-1 or Form No. SUGAM (ITR-4)


        (c) In any other case
Electronically under digital signature;


       (A)   ­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­Electronically under digital signature; or (B) Transmitting the data electronically in the return under electronic verification code; or (C) Transmitting the data in the return electronically and thereafter submitting the verification of the return in Form ITR-V; or (D) Paper form;







(A) Electronically under digital signature; or (B) Transmitting the data electronically in the return under electronic verification code; or (C) Transmitting the data in the return electronically and thereafter submitting the verification of the return in Form ITR-V;”;
 (d) in sub-rule (5), for the figures “2015”, the figures “2016” shall be substituted.
3. In the principal rules, in Appendix II,-

(a) for “Form Sahaj (ITR-1)”, the following Form shall be substituted, namely:- “Sahaj (ITR-1)”;

(b) for “Form ITR-2”, the following Form shall be substituted, namely:- “ITR-2”
(c) “Form ITR-2A” shall be omitted;
 (d) for “Form ITR-3” the following Form shall be substituted, namely:- “ITR-3”;
(e) for “Form ITR-4S”, the following Form shall be substituted, namely:- “Sugam (ITR-4)”;
(f) “Form ITR-4” shall be omitted;
(g) for “Form ITR-5”, the following Form shall be substituted, namely:- “ITR-5”;
(h) for “Form ITR-6”, the following Form shall be substituted, namely:- “ITR-6”;
(i) for “Form ITR-7”, the following Form shall be substituted, namely:- “ITR-7”;
(j) for “Form ITR-V”, the following Form shall be substituted, namely:- “ITR-V”.

[Notification No. 21/2017/ F.No.370142/5/2017-TPL]

CBDT Issue Clarification on PMGKY 2016

The Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016
(hereinafter ‘the Scheme’) has commenced on 17.12.2016 and is open for declarations upto
31.03.2017.

2. Representations have been received from various stakeholders regarding difficulties in
uploading of declaration in Form No.1 under the Scheme. Instances have been
communicated wherein despite making payment of tax, surcharge, penalty and deposit under the Scheme, Challan Identification Number / deposit reference number with respect to the payment of tax, surcharge, penalty and deposit under the Scheme has not been provided by the banks. Consequently, the assessees are unable to upload Form No.1.
CBDT Issue Clarification on PMGKY 2016

3. Considering the rush in banks during last days of financial year, which also happens to
be the last date of filing declaration under the Scheme, CBDT has decided that if an assessee has made payment of tax, surcharge, penalty and deposit under the Scheme, in the banks by the closing hours of 31st March, 2017, he shall be allowed to file declaration in Form No.1under the Scheme by the 10th of April, 2017.

(Dr. T. S. Mapwal)
Under Secretary to the Government of India

Doing Business will not Easy in GST

Since all four Bills relating to GST have been introduced in Lok Sabha on 27-3-2017, there are very good chance that GST will be effective from 1-7-2017.

GST as is coming seems to be like a movie. Often, the trailer of movie is good but picture is not so good. Something similar is happening with GST. The idea of GST was initiated to create a national market and avoid cascading effect of taxes.

However, the final shape of GST that is coming on 1-7-2017 is not so good. In fact, some of GST provisions are 'terrors'. Most certainly, the compliance costs are heavy and there is absolutely no 'ease of doing business'.

Some critical and obnoxious provisions are discussed here.

Avoidance of dual control
A taxable person should be under one authority - either Centre or State. Thus, principle of avoiding dual control is laudable.

However, how bifurcation of taxable persons will be made between State and Centre is not clear.

It seems such bifurcation will be done on random basis. If so, this will lead to chaos. In case of taxable persons having multi-state businesses, they may be assessed by State Government authorities in some States and by Central Government authorities in some other States. This will lead to different authorities taking different view on same transaction. Ideally, taxable persons having multi-state businesses (including telecom, insurance, banking) and those predominantly in export and import field should be under control of Central Government. Industries and businesses restricted to one State should be under control of State Government. This will ensure avoidance of conflicting views by tax authorities on same issue.

This will create problems for consultants also. Some of their clients may be under State Government Control while others may be under Central Government control. Thus, they will have to deal with two authorities or have separate partners dealing with different authorities.

System is master - not human being

In GST, system is master. Law will be what system decides. There is not likely to be much human touch in many aspects of GST.

This is particularly in case of input tax credit, payment of taxes and returns where human will be helpless against system. Examples - mismatches, adjustment of payments on FIFO basis.

Huge amount of data uploading and data crunching is required. If system fails, whole mechanism of input tax credit and adjustment of taxes fails.

Many taxable persons do not have capability to deal with the IT challenges under GST. Even infrastructure required for compliance is insufficient outside major cities and towns.

CGST/SGST paid when IGST was payable and vice versa

Interpretation of provisions of 'place of supply' and 'fixed establishment' are critical in determining whether IGST is payable or SGST/CGST are payable.

A taxable person who has paid CGST/SGST/UTGST (in SGST/UTGST Act) on a transaction considered by him to be an intra-state supply, but which is subsequently held to be an inter-state supply, shall be granted refund of CGST /SGST/UTGST (in SGST/UTGST Act). This means that he will have to pay IGST and then claim refund of SGST/UTGST/CGST paid.

There is similar mutatis mutandis provision in IGST Law also.

Really, there should be adjustment between State and Centre, instead of asking taxable person to pay ISGT (or CGST and UTGST/SGST) and then claim refund of SGST/UTGST and CGST paid (or IGST paid, as applicable). Even assuming there are some difficulties in adjusting SGST with IGST and vice versa, there should be no difficulty in adjusting CGST and IGST as both are paid to Central Government only.

If the receiver had availed input tax credit, refund will not be admissible. Thus, there will be double whammy to supplier.
Doing Business will not Easy in GST

Conflict of interest between Centre and State

State Government/Union Territory Authorities from where goods or services are supplied will try to interpret place of supply rules in favour of provision of payment of SGST/UTGST and CGST in their State. On the other hand, State Government/Union Territory authorities where goods and services are received will try to interpret the provision such that either IGST should have been paid or SGST/UTGST of their State should have been paid.

This will create conflicts. Only solace is that Appellate Tribunal is common for SGST, UTGST and CGST.

Valuation provisions copied from excise and service tax law

Some concepts of Valuation provisions as contained in section 15 of CGST Act have been copied from present service tax and excise law. Concepts in these provisions like 'related person' and 'price is sole consideration' are not in tune with concept of GST at all. Such valuation provisions will increase litigation and are really unworkable in GST regime where transaction value is the basic criteria. Artificial additions in transaction value will result in disallowances of legitimate input tax credit, as that input tax has been paid by some other person.

The term 'price is sole consideration' will bring issues in valuation like reimbursement of expenses, drawings, patterns, dies and tools supplied by recipient, free material supplied by recipient and many others.

Really provision relating to related buyer should be retained only when the related buyer is ultimate consumer and is not eligible for input tax credit.

'Value' for GST would include interest or late fee or penalty for delayed payment of any consideration for any supply. This would create havoc.

Artificial disallowances of input tax credit

Provision in section 17(5) of CGST Act for disallowing input tax credit on rent-a-cab service makes no sense, as in many cases, this service is used for legitimate business purposes. Some services like food and beverages and beauty treatment are legitimate business expenses for some kinds of businesses. In those cases, these should be allowable.

Input tax credit of legitimate expenditure like telecom towers and pipelines outside the factory is being denied.

Services relating to construction of office building or factory building are not eligible. Does it mean that we should work in open and building is waste of money?

Payment of GST on advances received

Receiving advance from customers is common. However, as per section 12(3) and 13(2) of CGST, tax will be payable when advance is received, even if supply of goods and services is to be made at a later stage. This will throw the business out of gear and increase compliance costs. Input Tax Credit will not be available to recipient when GST is paid by supplier on advance received.

Interestingly, if the amount is termed as 'adjustable deposit' in a separate account, GST is not payable, though Company Law issues will arise.

Reversal of input tax credit if payment not made to supplier within 180 days

As per second proviso to section 16(2) of CGST Act, If payment of bill and tax thereon is not made to supplier within 180 days, input tax credit is required to be reversed. The purpose seems to be to avoid bogus invoices. However, since tax has been received by Government, there is no loss to Government revenue.

It is not clear why Government is acting as recovery agent for supplier, when the tax part has been received by Government.

Some deductions from invoices are common in business. In construction industry, retention of 5%/10% amount for one or two years is common. In such cases, reversal of ITC will be required, increasing compliance costs substantially.

GST on fringe benefits to employees

Employer and employee have been defined as 'related persons', as per explanation (a)(iii) to section 15 of CGST Act. As per clause 2 of Schedule I of CGST Act, supply of goods or services or both between related persons will be 'supply' even if there is no consideration.

Thus, fringe benefits provided to employees will be subject to GST. It will be similar to fringe benefit tax, which will lead to tremendous litigation.

Gifts upto Rs 50,000 to employees may be exempted. However, reversal of input tax credit will be required.

Post supply discounts and price reductions after supply not eligible for deduction from value

Giving trade discounts and price reductions during negotiations after supply of goods and services is very common in business. However, if such post supply discounts were not anticipated at the time of supply, it is not allowed to be deducted from value, as per section 15(3)(b) of CGST Act. This provision completely ignores business reality. as post supply negotiations and price reductions are common in business.

Interestingly, there is provision of credit note in section 43 of CGST Act which allows adjustment of input tax credit on issue of credit note.

Intimation for sending goods for job work

Section 143(1) of CGST Act requires that inputs or capital goods can be sent to a job worker under intimation.

Job work is very common in industry. It is impractical to give intimation to department in every case. This is against concept of 'ease of doing business'. Let us hope that this impractical provision is dropped. In any case, 'intimation' by email should be sufficient. Otherwise, compliance costs and harassment will increase.

Reverse charge if supply received from unregistered person

There is provision in section 9(4) of CGST Act for payment of GST under reverse charge if procurement is from unregistered person. This will create tremendous accounting and record keeping challenges as such reverse charge would apply even to small purchases and petty services. It will result in increase in compliance costs and 'unease' of doing business.

Liability of GST on commission agent earning foreign exchange for India

As per provision of section 13(8)(b) of IGST Act. a commission agent in India providing service to Principal outside India and earning foreign exchange for India is made liable to pay GST, while Principal in India paying commission in foreign exchange to foreign commission agent is not required to pay GST. This is indeed an ironical situation.

Why continuation of concept of 'works contract'?

Presently, 'works contract' is one major source of harassment and litigation. This concept has been retained, possibly to ensure that advocates and consultants have sufficient business, and tax authorities have sufficient provisions for harassment. There is no reason to continue with concept of 'works contract'. Luckily it is now limited to immovable property only.

No centralised registration - registration in each State

Taxable persons doing business in different States would require separate registration in each State, adding considerably to compliance costs.

Tendency to reduce inventory on 1-7-2017

The Cenvat credit or Vat credit available with taxable persons as on 1-7-2017 will be transferred under GST. Thus, manufacturers and traders buying from manufacturers are not at a loss. However, taxable persons who are second or subsequent dealer sand traders do not have any excise invoice for taking input tax credit.

There will be attempt by such dealers to reduce inventory as on 1-7-2017 to minimise problems of carry forward of input tax credit of excise duty, CVD and State Vat paid on stock lying with him on 1-7-2017.If this happens all over India, we can imagine its cumulative effect. There will be lull in economy at least during transition period.

Conclusion

There is not likely to be 'ease of doing business' in GST. On the other hand, some provisions will increase compliance costs and will be easy source of harassment to tax authorities.

Of course, overall, the proposed GST is a vast improvement over present tax structure.

CBDT Issues Guidelines for Interest Weiver of Assessee in Default

 In exercise of the powers conferred under clause (a) of sub-section (2) of section 119 of Income-tax Act, 1961( the Act), Central Board of Direct Taxes (the Board), hereby directs that the Chief Commissioner of Income-tax and Director General of Income-tax may reduce or waive interest charged under section 201(1 A) (1) of the Act in the classes of cases specified in paragraph 2 of this Order for the period and to the extent the Chief Commissioner of Income-taxi Director General of Income-tax may deem fit. However, no reduction or waiver of such interest shall be ordered unless the principal demand under sections 200A, 201(1) or 234E, as the case may be, stands fully paid or satisfactory arrangements for payment of the principal demand under these sections have been made. The Chief Commissioner of Income-tax or Director General of Income-tax may also impose any other condition as deemed fit for the said reduction or waiver of interest. 

2. The class of cases in which the reduction or waiver of interest under section 201(1 A) (i) can be considered, are as follows: 

(i) Where during the course of proceedings for search and seizure under section 132 of the Income-tax Act, or otherwise, the books of account and other documents necessary for making deduction under Chapter XVIIB of the Act were seized and the assessee was not able to, within the time specified, deduct tax at source from any sum credited to any account (whether called "suspense account" or by any other name) in his books of accounts. 

(ii) Where any sum paid or payable was not liable for deduction of tax at source in the case of a deductor on the basis of any order passed by the jurisdictional High Court, and as a result, he did not deduct tax at source in relation to such sum, and subsequently, in consequence of any retrospective amendment of law or a decision of the Supreme Court of India or a decision of a Larger Bench of the jurisdictional High Court (which was not challenged before the Supreme Court and has become final) in any proceedings , as the case may be, tax was held to be deductible or the tax deducted by the deductor during such financial year was found to be less than the tax deductible on such sums paid or payable. 

(iii) Where the default under section 201 relates to non-deduction or a lower deduction of tax under section 195 of the Act in respect of a payment made to a non-resident (including a foreign company) being a resident of a country or specified territory outside India with whom India has entered into an agreement referred to in section 90 or 90A of the Act, and where — 

(e) a dispute regarding the tax payable in India in respect of the said payment had been referred to the Competent Authority in India mentioned in Rule 44H of the Income-tax Rules, 1962 under the said agreement under section 90 or 90A of the Act; 

(f) such reference had been received by the Competent Authority in India within a period of two years of the date on which the notice of demand determining the tax payable was received by the person in default under section 201;

(g) the dispute has been settled by way of a resolution arrived at under the Mutual Agreement Procedure (MAP) provided in the said agreement; and 

(h) the person in default under section 201 has given his acceptance to the resolution and has withdrawn his appeal(s) pending on the issue, within the meaning of sub-rule (4) of Rule 44H of the Income-tax Rules, within a period of one month of the date on which the resolution is communicated to him. 
CBDT Issues Guidelines for Interest Weiver of Assessee in Default

3. Even if the interest u/s 201(1A) (i) has already been paid by the deductor, the same can be considered for waiver, subject to the conditions above and a refund may be given to the deductor. If waiver is ordered. 

4. The Chief Commissioner of Income-tax or Director General of Income-tax examining an application for waiver of interest under this Order shall pass a speaking order after providing adequate opportunity of being heard to the applicant. 

5. The Board reserves the power to examine any grievance arising out of an order passed or not passed by Chief Commissioner of Income-tax or Director General of Income-tax, as the case may be, and issue suitable directions to these authorities for proper implementation of this Order. However, no review of or appeal against the orders passed on merits by such authorities would be entertained by the Board. 
Banks and Payment System will Normal Operate from March 25 to 1 April 2017

Banks and Payment System will Normal Operate from March 25 to 1 April 2017

 A reference is invited to the circulars DPSS.CO.CHD.No./2656/03.01.03/2016-17 dated March 23, 2017 on “Special Clearing operations on March 30 and 31, 2017” and DBR.No.Leg.BC.55/09.07.005/2016-17 dated March 24, 2017 on “All Agency Banks to remain open for public on all days from March 25, 2017 to April 1, 2017”.

2. With a view to facilitate accounting of all the Government transactions for the current financial year (2016-17) by March 31, 2017, it has been decided that all payment systems, including RTGS and NEFT would operate, as on a normal working day, during the period  March 25 to April 1, 2017 (including Saturday, Sunday and all holidays). Besides, the extended timings on March 30 & 31, 2017 for the centralised payment systems viz., RTGS & NEFT, have already been a advised to the member banks via a broadcast message.  

Yours faithfully
(Nanda S. Dave)
Chief General Manager-in-Charge

Third Protocol Amending India-Singapore DTAA comes into force

The Third Protocol amending India-Singapore Double Taxation Avoidance Agreement (DTAA) which was signed on 30th December, 2016 has entered into force on 27th February 2017. The same has been notified in the Official Gazette today.

The India-Singapore DTAA at present provides for residence based taxation of capital gains of shares in a company. The Third Protocol amends the DTAA with effect from 01st April, 2017 to provide for source based taxation of capital gains arising on sale of shares in a company. This will curb revenue loss, prevent double non-taxation and streamline the flow of investments. In order to provide certainty to investors, investments in shares made before 01st April, 2017 have been grandfathered subject to fulfillment of conditions in Limitation of Benefits clause as per 2005 Protocol. Further, a
two-year transition period from 1st April, 2017 to 31st March, 2019 has been provided during which capital gains on shares will be taxed in source country at half of normal tax rate, subject to fulfillment of conditions in Limitation of Benefits clause.
Third Protocol Amending India-Singapore DTAA comes into force

The Third Protocol also inserts Article 9(2) in the DTAA which would facilitate relieving of economic double taxation in transfer pricing cases. This is a taxpayer friendly measure and is in line with India’s commitments under Base Erosion and Profit Shifting (BEPS) Action Plan to meet the minimum standard of providing Mutual Agreement Procedure (MAP) access in transfer pricing cases. The Third Protocol also enables application of domestic law and measures concerning prevention of tax avoidance or tax evasion.

 (Meenakshi J Goswami)
Commissioner of Income Tax
 (Media & Technical Policy)
Official Spokesperson, CBDT.

CBDT Clarification on Income Computation and Disclosure Standerd ICDS

CBDT issued a circular no. 10/2017 dated 23 March 2017 about clarification on income computation and discloure standerd ICDS notified u/s 145(2) of income tax act 1961.

Sub-section (1) of section 145 of the Income-tax Act, 1961(`the Act') provides that the income chargeable under the head -Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Sub-section (2) of section 145 provides that the Central Government may notify Income Computation and Disclosure Standards (ICDS) for any class of assessecs or for any class of income. Accordingly, the Central Government notified 10 ICDS vide Notification No.S.0.892(E) dated 31st March, 2015 with effect from assessment year 2016-17.

After notification of ICDS, it has been brought to the notice of the Central Board of Direct Taxes (`the Board') by the stakeholders that certain provisions of ICDS may require amendment/clarification for proper implementation. The matter was referred to an expert committee. The Committee after duly consulting the stakeholders in this regard has recommended a wo-fold approach for the smooth implementation of ICLIS i.e. amendment to the provisions of ICDS in respect of certain issues and issuance of clarifications by way of FAQs for the rest of issues. Accordingly, vide Notification no 87. Dated 29th September, 2016 Central Government notified amended ICDS with effect from the assessment year 2017-18.

Further, the issues which require further clarification has been considered by Board and following clarifications are issued:

Question 1: Preamble of ICDS-I states that this ICDS is 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 purposes of maintenance of books of accounts. However, Para 1 of ICDS I states that it deals with significant accounting policies. Accounting policies are applied for maintenance of books of accounts and preparing financial statements. What is the interplay between ICDS-I and maintenance of books of accounts?

Answer: As stated in the Preamble, ICDS is not meant for maintenance of books of accounts or preparing financial statements. Persons are required to maintain books of accounts and prepare financial statements as per accounting policies applicable to them. For example. Companies are required to maintain books of account and prepare financial statements as per requirements of Companies Act 2013. The accounting policies mentioned in ICDS-I being fundamental in nature shall be applicable for computing income under the heads -Profits and gains of business or profession" or "Income from other sources".

Question 2: Certain ICDS provisions are inconsistent with judicial precedents. Whether these judicial precedents would prevail over ICDS?

The ICDS have been notified after due delibration and after examining judicial views for bringing certainty on the issues covered by it. Certain judicial pronouncements were pronounced in the absence of authoritative guidance on these issues under the Act for computing Income under the head "Profits and gains of business or profession" or Income from other sources. Since certainty is now provided by notifying ICDS under section 145(2), the provisions of ICDS shall be applicable to the transactional issues dealt therein in relation to assessment year 2017-18 and subsequent assessment years.

Question 3: Does ICDS apply to non-corporate taxpayers who are not required to maintain books of account and/or those who are covered by presumptive scheme of taxation like sections 44AD, 44AE, 44ADA, 4413, 441313, 4413BA, etc. of the Act?

Answer: ICDS is applicable to specified persons having income chargeable under the head Profits and gains of business or profession' or 'Income from other sources'. Therefore, the relevant provisions of ICDS shall also apply to the persons computing income under the relevant presumptive taxation scheme. For example, for computing presumptive income of a partnership firm under section 44AD of the Act, the provisions of ICDS on Construction Contract or Revenue recognition shall apply for determining the receipts or turnover, as the case may be. 9

Question 4: If there is conflict between ICDS and other specific provisions of the Income-tax rules, 1962(`the Rules') governing taxation of income like rules 9A, 9B etc. of the Rules, which provisions shall prevail?

Answer: ICDS provides general principles for computation of income. In case of conflict, if any, between the provisions of Rules and ICDS, the provisions of Rules, which deal with specific circumstances, shall prevail.

Question 5: ICDS is framed on the basis of accounting standards notified by Ministry of Corporate Affairs (MCA) vide Notification No. GSR 739(E) dated 7 December 2006 under section 211(3C) of erstwhile Companies Act 1956. However, MCA has notified in February 2015 a new set of standards called 'Indian Accounting Standards' (hid-AS). How will ICDS apply to companies which adopted Ind-AS?

Answer: ICDS shall apply for computation of taxable income under the head “Profit and gains of business or profession" or "Income from other sources" under the Income Tax Act. This is irrespective of the accounting standards adopted by companies i.e. either Accounting Standards or Ind-AS.

Question 6: Whether ICUS shall apply to computation of Minimum Alternate Tax MAT) under section 115.1I3 of the Act or Alternate Minimum Tax (AMT) under section 115.1C of the Act?

Answer: MAT under section 115JB of the Act is computed on 'book profit' that is net profit as shown in the Profit and Loss Account prepared under the Companies Act subject to certain specified adjustments. Since, the provisions of ICDS are applicable for computation of income under the regular provisions of the Act, the provisions of ICDS shall not apply for computation of MAT.
AMT under section 115JC of the Act is computed on adjusted total income which is derived by making specified adjustments to total income computed as per the regular provisions of the Act. Hence, the provisions of ICDS shall apply for computation of AMT.

Question 7: Whether the provisions of ICDS shall apply to Banks, Non-banking financial institutions, Insurance companies, Power sector, etc.?

Answer: The general provisions of ICDS shall apply to all persons unless there are sector specific provisions contained in the ICDS or the Act. For example, ICDS VIII contains specific provisions for banks and certain financial institutions and Schedule I of the Act contains specific provisions for Insurance business. •
CBDT Clarification on Income Computation and Disclosure Standerd ICDS 

Question 8: Para of ICDS-I provides that Market to Market (MTM) loss or an expected loss shall not be recognized unless the recognition is in accordance with the provisions of any other ICDS. Whether similar consideration applies to recognition of MTM gain or expected incomes? 

Answer: Same principle as contained in ICDS-I relating to MTM losses or an expected loss shall apply mutatis mutandis to MTM gains or an expected profit.

Question 9: ICDS-1 provides that an accounting policy shall not be changed without `reasonable cause'. The term 'reasonable cause' is not defined. What shall constitute `reasonable cause'?

Answer: Under the Act, 'reasonable cause' is an existing concept and has evolved well over a period of time conferring desired flexibility to the tax payer in deserving cases.

Question 10: Which ICDS would govern derivative instruments?

Answer: ICDS - VI (subject to Para 3 of ICDS-VIII) provides guidance on accounting for derivative contracts such as forward contracts and other similar contracts. For derivatives, not within the scope of ICDS-VI, provisions of ICDS-I would apply.

Question 11: Whether the recognition of retention money, receipt of which is contingent on the satisfaction of certain performance criterion is to be recognized as revenue on billing?

Answer: Retention money, being part of overall contract revenue, shall be recognised as revenue subject to reasonable certainty of its ultimate collection condition contained in para 9 of ICDS-III on Construction contracts.

Question 12: Since there is no specific scope exclusion for real estate developers and Build -Operate- Transfer (BOT) projects from ICDS IV on Revenue Recognition, please clarify whether ICDS-III and ICDS-IV should be applied by real estate developers and BOT operators. Also, whether ICDS is applicable for leases.

Answer: At present there is no specific ICDS notified for real estate developers, BOT projects and leases. Therefore, relevant provisions of the Act and ICDS shall apply to these transactions as may be applicable.

Question 13: The condition of reasonable certainty of ultimate collection is not laid down for taxation of interest, royalty and dividend. Whether the taxpayer is obliged to account for such income even when the collection thereof is uncertain?

Answer: As a principle, interest accrues on time basis and royalty accrues on the basis of contractual terms. Subsequent non recovery in either cases can be claimed as deduction in view of amendment to S.36 (I) (vii). Further, the provision of the Act (e.g. Section 43D) shall prevail over the provisions of ICDS.

Question 14: Whether ICDS is applicable to revenues which are liable to tax on gross basis like interest, royalty and fees for technical services for non-residents u/s. 115A of the Act.

Answer: Yes. The provisions of ICDS than also apply for computation of these incomes on gross basis for arriving at the amount chargeable to tax.

Question 15: Para S of ICDS-V states expenditure incurred on commissioning of project, including expenditure incurred on test runs and experimental production shall be capitalized. It also states that expenditure incurred after the plant has begun commercial production i.e., production intended for sale or captive consumption shall be treated as revenue expenditure. What shall be the treatment of expense incurred after the conduct of test runs and experimental production but before commencement of commercial production?

Answer: As clarified in Para 8 of ICDS-V, the expenditure incurred till the plant has begun commercial production, that is, production intended for sale or captive consumption, shall be treated as capital expenditure.

Question 16: What is the taxability of opening balance as on 1'` day of April 2016 of Foreign Currency Translation Reserve (FCTR) relating to non-integral foreign operation, if any, recognised as per Accounting Standards (AS) 11?

Answer: FCTR balance as on 1 April 2016 pertaining to exchange differences on monetary items for non-integral operations, shall be recognised in the previous year relevant for assessment year 2017-18 to the extent not recognised in the income computation in the past.

Question 17: For subsidy received prior to lst day of April 2016 but not recognised in the hooks pending satisfaction of related condition~ arid achieving reasonable certainty of receipt, how shall the same he recognised under IUDS on or after day of April 2016?

Answer: Para 4 of ICDS-VlI read with Para 5 to Para 9 of ICDS-VII provides for timing of recognition of government grant. The transitional provision in Para 13 of ICDS-VII provides that a government grant which meets the recognition criteria on or after 1st day of April 2016 shall be recognised in accordance with ICDS-VII. All government grants actually received prior to 1st day of April 2016 shall be deemed to have been recognised on its receipt in accordance with Para 4(2) of ICDS-VII and accordingly will be outside the transitional provision and therefore the government grants received on or after 1st day of April 2016 and for which recognition criteria provided in Para 5 to Para 9 of ICDS-VII is also satisfied thereafter, the same shall be recognised as per the provisions of ICDS-VII. The grants received prior to 1st day of April 2016 shall continue to be recognised as per the law prevailing prior to that date.

For example, if out of total subsidy entitlement of 10 Crore an amount of 6 Crore is recognised in the books of accounts till 31st day of March 2016 and recognition of balance 4 Crore is deferred pending satisfaction of related conditions and/or achieving reasonable certainty of receipt. The balance amount of 4 Crore will be taxed in the year in which related conditions are met and reasonable certainty is achieved. If these conditions are met over two years, the amount of 4 Crore shall be taxed over the period of two years. The amount of 6 Crore for which recognition criteria were met prior to 1 st day of April 2016 shall not be taxable post 1st day of April 2016.

But if the subsidy is already received prior to 1st day of April 2016, Para 13 of ICDS-VII shall not apply even if some of the related conditions are met on or after 1 April 2016. This is in view of Para 4(2) of ICDS-VII which provides that Government grant shall not be postponed beyond the date of actual receipt. Such grants shall continue to be governed by the provisions of law applicable prior to 1st day of April 2016. 

Question 18: If the taxpayer sells a security on the 30th day of April 2017. The interest payment dates are December and .1iine. The actual date of receipt of interest is on the 30'1' day of June 2017 but the interest on accrual basis has been accounted as income on the 31st day of March .2017. Whether the taxpayer shall he permitted to claim deduction of such interest i.e. offered to tax but not received while computing the capital gain?

Answer: Yes, the amount already taxed as interest income on accrual basis shall be taken into account for computation of income arising from such sale.

Question 19: Para 9 of ICDS-VIII on securities requires securities held as stuck-in-trade shall be valued at actual cost initially recognised or net realisable value (NRV) at the end of that previous year, whichever is tower. Para 10 of Part-A of ICDS-VIII requires the said exercise to be carried out category wise. How the same shall be computed?

Answer: For subsequent measurement of securities held as stock-in-trade, the securities are first aggregated category wise. The aggregate cost and NRV of each category of security are compared and the lower of the two is to be taken as carrying value as per ICDS-VIII. This is illustrated below 

Security
Catagory
Cost
NRV
Lower of Cost or NRV
ICDS Value
A
Share
100
75
75

B
Share
120
150
120

C
Share
140
120
120

D
Share
200
190
190


Total
560
535
505
535






E
Debt Security
150
160
150

F
Debt Security
105
90
90

G
Debt Security
125
135
125

H
Debt Security
220
230
220


Total
600
615
585
600
Securities total

1160
1150
1090
1135

Question 20: There are specific provisions in the Act read with Rules under which a portion of borrowing cost may get disallowed under sections like 14A, 438, 40(a)(i), 40(a)(ia), 40A(2)(b), etc. of the Act. Whether borrowing costs to be capitalized under ICDS-IX should exclude portion of borrowing costs which gets disallowed under such specific provisions?

Answer: Since specific provisions of the Act override the provisions of ICDS, it is clarified that borrowing costs to be considered for capitalization under ICDS IX shall exclude those borrowing costs which are disallowed under specific provisions of the Act. Capitalization of borrowing cost shall apply for that portion of the borrowing cost which is otherwise allowable as deduction under the Act.

Question 21: Whether bill discounting charges and other similar charges would fall under the definition of borrowing cost?

Answer: The definition of borrowing cost is an inclusive definition. Bill discounting charges and other similar charges are covered as borrowing cost.

Question 22: How to allocate borrow in costs relating to general borrowing as computed in accordance with formula provided under Para 6 of ICDS-IX to different qualifying assets?

Answer: The capitalization of general borrowing cost under ICDS-IX shall be done on asset-by-asset basis.

Question 23: What is the impact of Para 20 of ICDS X containing transitional provisions?

Answer: Para 20 of ICDS X provides that all the provisions or assets and related income shall be recognised for the previous year commencing on or after 1m day of April 2016 in accordance with the provisions of this standard after taking into account the amount recognised, i any, for the same for any previous year ending on or before 31 day of March, 2016.

The intent of transitional provision is that there is neither 'double taxation' of income due to application of ICDS nor there should be escape of any income due to application of ICDS from a particular date. This is explained as under -
  
Provision required as per ICDS on 31 March 2017 for items brought forward from 31st day of March 2016 ...(A)
INR 3 Crore
Provisions as per ICDS for FY 2016-17 ...(B)
INR 5 Crore
Total gross provision ...(C) = (A) + (B)
INR 8 Crore
Less: Provision already recognised for computation of taxable income in FY 20 I 6-17or earlier ...(D)
INR 2 Crore
Net irovisions as per ICDS in FY 2016-17 to be recognised ffls per transition provision ...(E) = (C) — (D)
INR 6 Crore
Question 24: Expenditure on most post-retirement benefits like provident fund, gratuity, etc. are covered by specific provisions. There are other post-retirement benefits offered by companies like medical benefits. Such benefits are covered by AS-15 for which no parallel ICDS has been notified. Whether provision for these liabilities are excluded from scope of ICDS X?

Answer: It is clarified that provisioning for employee benefit which are otherwise covered by AS 15 shall continue to be governed by specific provisions of the Act and are not dealt with by ICDS-X.

Question 25: ICDS-I requires disclosure of significant accounting policies and other ICDS requires specific disclosures. Where is the taxpayer required to make such disclosures specified in ICDS?
Answer: Net effect on the income due to application of ICDS is to be disclosed in the Return of income. The disclosures required under ICDS shall be made in the tax audit report in Form 3CD. However there shall not be any separate disclosure requirements for persons who are not laible to tax audit.
Loved Our Blog Posts? Subscribe To Get Updates Directly To Your Inbox
Get This Widget