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ICDS

ICDS. From Accounting Profit to Taxable Income. CA. Manish Dafria M. Com., M.A.(Eco.), F.C.A, DISA(ICAI ). iCDS - WhY ?. ICDS- The Central Idea. Let’s Take a Simple Example…. Let’s Take a Simple Example…. ICDS- What They Do…. ICDS Codifies treatment of specific business situations

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ICDS

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  1. ICDS From Accounting Profit to Taxable Income CA. Manish Dafria M. Com., M.A.(Eco.), F.C.A, DISA(ICAI)

  2. iCDS- WhY? ICDS- From Accounting Profit to Taxable Income

  3. ICDS- The Central Idea ICDS- From Accounting Profit to Taxable Income

  4. Let’s Take a Simple Example… ICDS- From Accounting Profit to Taxable Income

  5. Let’s Take a Simple Example… ICDS- From Accounting Profit to Taxable Income

  6. ICDS- What They Do… • ICDS • Codifies treatment of specific business situations • Booking of Interest Income ? • When a sale needs to be booked- only upon raising an invoice or otherwise? • Gives detail explanation about certain practices • Valuation of Inventory- What all is included in the “cost”? • Resolves divergent views on a matter • Treatment of Trial Run Exp.? ICDS- From Accounting Profit to Taxable Income

  7. List of Notified ICDS ICDS- From Accounting Profit to Taxable Income

  8. ICDS-Legal Background ICDS- From Accounting Profit to Taxable Income

  9. Applicability ICDS- From Accounting Profit to Taxable Income

  10. What if ICDS is not complied? • Section 145(3)-AO has the power to make best judgement assessment u/s. 144 if he is not satisfied about the :- • correctness or completeness of the accounts of the assessee ; or • method of accounting is not regularly followed ;or • Income not computed as per ICDS • Hence ICDS has to be mandatorily followed or else best judgement assessment can be done by Assessing Officer. ICDS- From Accounting Profit to Taxable Income

  11. Disclosures under ICDS • Disclosures required under ICDS (like accounting policy followed) and deviations from the ICDS, if any, needs to be disclosed in Tax Audit Report ICDS- From Accounting Profit to Taxable Income

  12. Understanding ICDS- 3 Point formula ICDS- From Accounting Profit to Taxable Income

  13. Terminology of ICDS ICDS- From Accounting Profit to Taxable Income

  14. Selection of Accounting Policies Disclosure Requirements Change In Accounting Policies ICDS 1: Accounting Policies ICDS- From Accounting Profit to Taxable Income

  15. Selection of Accounting Policies • Accounting policies adopted by a person shall be such so as to represent a true and fair view of the state of affairs and income of the business, profession or vocation. • Marked to market loss or an expected loss shall not be recognisedunless the recognition of such loss is in accordance with the provisions of any other Income Computation and Disclosure Standard. ICDS- From Accounting Profit to Taxable Income

  16. Change In Accounting Policies • An accounting policy shall not be changed without reasonable cause. • Any change in an accounting policy which has a material effect shall be disclosed. ICDS- From Accounting Profit to Taxable Income

  17. ICDS 1- Disclosure requirements ICDS- From Accounting Profit to Taxable Income

  18. ICDS 2 : Valuation of inventory ICDS- From Accounting Profit to Taxable Income

  19. Legal backing : Sec. 145A • For the purpose of determining the income chargeable under the head "Profits and gains of business or profession",— • the valuation of inventory shall be made at lower of actual cost or net realisable value computed in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145; • …………. ICDS- From Accounting Profit to Taxable Income

  20. Inventories : Definition ICDS- From Accounting Profit to Taxable Income

  21. Measurement ICDS- From Accounting Profit to Taxable Income

  22. Cost of Inventories ICDS- From Accounting Profit to Taxable Income

  23. Costs of Purchase • The costs of purchase shall consist of : • purchase price, • duties and taxes, • freight inwards and • other expenditure directly attributable to the acquisition. • Trade discounts, rebates and other similar items shall be deducted in determining the costs of purchase. ICDS- From Accounting Profit to Taxable Income

  24. Costs of Services • The costs of services shall consist of : • Labour and other costs of personnel directly engaged in providing the service including supervisory personnel • and attributable overheads. ICDS- From Accounting Profit to Taxable Income

  25. Costs of Conversion ICDS- From Accounting Profit to Taxable Income

  26. Other Costs ICDS- From Accounting Profit to Taxable Income

  27. Cost Formula : First-in First-out and Weighted Average ICDS- From Accounting Profit to Taxable Income

  28. Net realisable value ICDS- From Accounting Profit to Taxable Income

  29. Valuation of Inventory in Case of Certain Dissolutions ICDS- From Accounting Profit to Taxable Income

  30. ICDS 2- Disclosure requirements ICDS- From Accounting Profit to Taxable Income

  31. ICDS 2- Disclosure requirements ICDS- From Accounting Profit to Taxable Income

  32. Construction Contracts ICDS 3 ICDS- From Accounting Profit to Taxable Income

  33. ICDS 3 : Scope ICDS- From Accounting Profit to Taxable Income

  34. ICDS 3- Applicability and Revenue Recognition • Not applicable to real estate developers • Applies to a fixed price, cost plus, or to a hybrid of fixed & cost plus contract • Mandates recognition of revenue under POCM • Mandatory to recognize profit/loss on POCM basis beyond 25% • Components of revenue recognition on POCM basis • Contract revenue to be recognised if there is reasonable certainty of ultimate collection • Retention money to be included as part of contract revenue ICDS- From Accounting Profit to Taxable Income

  35. Contract Costs • Contract cost relatable to proportion of work completed are allowed • Contract cost to be reduced by incidental income if not in the nature of interest, dividends or capital gains. ICDS- From Accounting Profit to Taxable Income

  36. ICDS 3- Disclosure requirements ICDS- From Accounting Profit to Taxable Income

  37. ICDS 3- Disclosure requirements ICDS- From Accounting Profit to Taxable Income

  38. ICDS 3- Disclosure requirements ICDS- From Accounting Profit to Taxable Income

  39. Revenue Recognition ICDS IV ICDS- From Accounting Profit to Taxable Income

  40. Scope ICDS- From Accounting Profit to Taxable Income

  41. Revenue Recognition : Sale of Goods ICDS- From Accounting Profit to Taxable Income

  42. Case Study.. ICDS- From Accounting Profit to Taxable Income

  43. Revenue Recognition- Service Contract : Sec. 43CB ICDS- From Accounting Profit to Taxable Income

  44. Revenue recognition : Use of Resources by Others Yielding Interest, Royalties or Dividends • Interest shall accrue on the time basis determined by the amount outstanding and the rate applicable. • Interest on refund of any tax, duty or cess shall be deemed to be the income of the previous year in which such interest is received. ICDS- From Accounting Profit to Taxable Income

  45. ICDS 4- Disclosure requirements ICDS- From Accounting Profit to Taxable Income

  46. ICDS 4- Disclosure requirements ICDS- From Accounting Profit to Taxable Income

  47. ICDS 4- Disclosure requirements ICDS- From Accounting Profit to Taxable Income

  48. ICDS 4- Disclosure requirements ICDS- From Accounting Profit to Taxable Income

  49. Tangible Fixed Assets ICDS V ICDS- From Accounting Profit to Taxable Income

  50. Components of Actual Cost ICDS- From Accounting Profit to Taxable Income

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