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Navigating the triangle -Ind AS, Indian GAAP and ICDS

Grant Thornton’s latest Report - Navigating the triangle: IND AS, Indian GAAP and ICDS  provides a bird’s eye view of the differences in the requirements of three different accounting regulations prevailing in the country today. The new accounting standards, collectively known as Ind- AS, as notified by the Ministry of Corporate Affairs, is a step towards converging Indian accounting practices with the globally followed International Financial Reporting Standards (IFRS). While a voluntary adoption of these standards has been allowed from 01 April 2015 onwards, Indian companies are to formally migrate to these standards in phases from 01 April 2016 onwards.

The process for implementation of a separate set of accounting standards for tax purposes was started in 2010 when CBDT established a committee to evaluate the taxation related issues arising from implementation of Ind- AS. It was then that a roadmap for convergence with International Financial Reporting Standards (IFRS) was first announced by the regulators.

While Ind-AS are mandatory from accounting periods beginning on or after 01 April 2016, ICDS are effective from 01 April 2015 and shall accordingly apply for the purpose of computation of taxable income for the previous year 2015- 16 (assessment year 2016-17). Assessees following mercantile basis of accounting are required to follow ICDS to compute income chargeable to income-tax under the head “Profits and gains of business or profession” or “Income from other sources”. In case of conflict between the provisions of the Income Tax Act, 1961 (the “Act”) and the ICDS, the provisions of the Act prevail to that extent.

Further transitional provision contained in the respective ICDS ensures that same transactions do not get taxed twice.

The introduction of a separate set of accounting principles for tax purposes is expected to increase consistency in tax assessments and reduce interpretational ambiguity which is a major cause for litigation in India.

As ICDS changes the way taxable income will be computed, we present this publication to assist readers in assessing the impact of ICDS on their tax expense. This publication compares key accounting principles given in ICDS with the accounting principles generally accepted in India (“Indian GAAP”) and Ind-AS.

At Grant Thornton, we understand the importance of aligning financial reporting with regulatory changes and the need for accurate financial reporting. Our professionals have significant expertise in delivering bespoke solutions as they capitalise on their technical knowledge to help dynamic businesses transition to the new financial reporting framework in India as well as its corresponding tax implications.