Income Computation and Disclosure Standards

Income Computation and Disclosure Standards (ICDS) have been notified u / s 145 (2) of the Income Tax Act, 1961 vide Notification No. S.O. 3079 (E) dated September 29
th
2016. On 23
rd
March, 2017, certain clarifications were issued by CBDT by way of FAQs.
Below mentioned are the 10 ICDS that are notified up to the date:

1. Accounting Policies
2. Valuation of Inventories
3. Construction Contracts
4. Revenue Recognition
5. Tangible Fixed Assets
6. Effect of Changes in Foreign Exchange Rates
7. Government Grants
8. Securities
9. Borrowing Costs
10. Provisions, Contingent Liabilities & Contingent Assets

Applicability of ICDS:-
ICDS is applicable to all assesses having Income under the head Business or Profession or Income under the head Other Sources and following mercantile system of accounting.

1. ICDS is not applicable to any of the following assesses:Person not having Income under the head Business or Profession or Income under the head Other SourcesPerson following cash system of accountingIndividual who is not required to get his accounts audited u / s 44ABHUF who is not required to get his accounts audited u / s 44AB
2. ICDS shall be applicable irrespective of accounting standards adopted by the companies i.e. AS or Ind-AS, and it shall not apply for computation of MAT but shall apply for computation of AMT.
3. Tax officer has power for best judgment assessment in case of non-compliance with ICDS.

A Gist of Income Computation and Disclosure Standard V (ICDS V) relating to Tangible Fixed Assets
ICDS deals with the treatment i.e. recognition and valuation of tangible fixed assets.

1. Various terms used in ICDS V:
   Tangible fixed asset is an asset being land, building, machinery, plant or furniture held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business (concept is same as that of AS-10, but wordings are somewhat different).Fair value of an asset is the amount at that asset could be exchanged between knowledgeable, willing parties in case of an arm’s length transaction (arm’s length price is defined under section 92F (ii) of Income Tax Act, 1961).
2. Identification of tangible fixed assets:
   The definition of tangible fixed assets given above provides criteria for determining whether an item is to be classified as tangible fixed asset. Stand‐by equipment and servicing equipment are to be capitalized. Machinery spares shall be charged to revenue as and when consumed. When such spares can be used only in connection with an item of tangible fixed asset and their use is expected to be irregular, they shall be capitalized (this is in line with AS 10).
3. Components of actual costs:

• The actual cost of an acquired tangible fixed asset shall comprise its purchase price, import duties and other taxes, and any directly attributable expenditure on making the asset ready for its intended use. Any trade discounts and rebates shall be deducted in arriving at the actual cost.
• The cost of a tangible fixed asset may undergo changes subsequent to its acquisition or construction on account of:price adjustment, changes in duties; orexchange fluctuation as specified in ICDS on the effects of changes in foreign exchange rates.
• Administration and other general overhead expenses shall be deducted from the cost of tangible fixed assets. Expenses which are specifically attributable to construction of a project or to the acquisition of a tangible fixed asset or bringing it to its working condition, shall be included as a part of the cost of the project or as a part of the cost of the tangible fixed asset.
• The expenditure incurred on start‐up and commissioning of the project, including the expenditure incurred on test runs and experimental production, shall be capitalized. The expenditure incurred after the plant has started commercial production, i.e., production intended for the purpose of sale or captive consumption, shall be treated as revenue expenditure.
  (Above mentioned components of actual costs are in line with AS 10)

1. Self-constructed tangible fixed assets:
   In arriving at the actual cost of self‐constructed tangible fixed assets, the same principles shall apply as mentioned above. Any internal profits shall be eliminated in arriving at such costs.
2. Non-monetary consideration:
   As per ICDS-V, when a tangible fixed asset is acquired in exchange for another asset, the fair value of the tangible fixed asset so acquired shall be its actual cost. When a tangible fixed asset is acquired in exchange for shares or other securities, the fair value of the tangible fixed asset so acquired shall be its actual cost.
3. Repairs and improvements
   Any expenditure that increases the future benefits from the existing asset beyond its earlier assessed standard of performance needs to be added to the actual cost.The cost of an addition or extension to an existing tangible fixed asset in the nature of capital expenditure and which becomes an integral part of the existing tangible fixed asset needs to be added to its actual cost. Any addition or extension, which has a separate identity and is capable of being used after the existing tangible fixed asset is disposed of, shall be treated as separate asset.
4. Depreciation:
   Depreciation on a tangible fixed asset shall be computed in accordance with the provisions of the Act.
5. Transfers:
   Income arising on transfer of a tangible fixed asset shall be computed in accordance with the provisions of the Act (which may depend on whether the asset is depreciable or not).
   AS-10 says that items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realizable value and are shown separately in the financial statements. Any expected loss is recognized immediately in the profit and loss statement (it should be noted that ICDS does not allow any expected loss).
6. Disclosures:
   Following disclosure shall be made in respect of tangible fixed assets, namely:

• Description of assets or block of assets;
• Depreciation rate;
• Written down value or Actual cost;
• Additions or deductions during the year;
• Allowable depreciation; and
• WDV (Written down value) at the end of year.

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Advance Ruling under GST

A letter ruling is a written statement issued to a taxpayer by tax authorities that interprets and applies the tax law to a specific set of facts and an advance ruling is the written statement for interpretation of tax laws. It is issued to applicants when the tax payer is in doubt with regards to provisions of laws.
As per section 95 of CGST / SGST Law and section 12 of UTGST law, ‘advance ruling’ means a decision provided by the authority or the appellate authority to an applicant on matters or on questions specified in section 97(2) or 100(1) of CGST / SGST Act in relation to the supply of goods and / or services proposed to be undertaken or being undertaken by the applicant.

Advantages of Advance Ruling
Below mentioned are some advantages of advance ruling:

• Reduced litigation cost
• Provides clarity regarding the provisions of law
• Attracts foreign investment

When can a Taxpayer make an application for Advance Ruling?
As per Section 97(2) of CGST / SGST Act or 100(1), the application for advance ruling can be made for following:

• Classification of goods or services or both;
• Admissibility of input of tax paid or deemed to be paid;
• Determination of the liability to pay tax on goods or services or both;
• Whether applicant is required to be registered;
• Applicability of a notification issued under the provisions of this Act;
• Determination of time and value of supply of goods or services or both; and
• Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.

Whether a person desirous of making application for advance ruling needs to be registered?
Any person registered under the GST Act(s) or is in a process of or desirous of obtaining registration can be an applicant. Since the portal offers this facility without any requirement of regular logins (As per Section 95(b)).

Restriction on making advance ruling application
The only restriction for making an advance ruling is that the question being raised shall not be pending or has been decided in any proceedings of the case.

Authority for Advance Ruling
Authority for advance ruling’ (AAR) shall comprise one member CGST and one member SGST / UTGST. They will be appointed by the Central and State government respectively.

Time Limit to Pronounce the Advance Ruling
As per Section 98(6) of CGST / SGST Act, within 90 days from the date of receipt of application, the Authority shall pronounce its ruling in writing.

Appellate Authority for Advance Ruling
Appellate authority for advance ruling (AAAR) shall be constituted under the SGST Act or UTGST Act and such AAAR shall be deemed to be the Appellate Authority under the CGST Act in respect of the respective state or Union Territory. An applicant or the jurisdictional officer, if aggrieved by any advance ruling, may appeal to the Appellate Authority.

How many AAR and AAAR will be constituted?
There will be one AAR and AAAR for each State.

Applicability of Advance Ruling
Section 103 provides that an advance ruling pronounced by AAR or AAAR shall be binding only on the applicant who sought it in respect of any matter referred to in 97(2) and on the respective jurisdictional tax authority. Thus, this clearly states that an advance ruling is not applicable to similarly placed taxable persons in the State, and is only limited to the person who has applied for an advance ruling.

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New GST return system – Transition plan

The GST Council in its 31st meeting decided that a new GST return system will be initiated to facilitate taxpayers. Government introduced a transition plan for all the taxpayers under the goods and services tax switching to new simpler return Forms. In order to ease the transition to the new return system, a transition plan has been worked out. This mechanism allows taxpayers to try the new return filing Forms during July-September and it will become mandatory only from October. The new return mechanism will have 3 Forms – one main return Form (Form GST RET-1) and two annexures (Form GST ANX-1 that will capture details of outward supplies and Form GST ANX-2 that will be the purchase Form). The new mechanism comes with some offline tools as well.

From July 2019, the users can upload invoices using the Form GST ANX-1 offline tool on trial basis. Form GST ANX-2 offline tool will include viewing and downloading the inward supply of invoices under this trial program. They would also be able to import their purchase register in the offline tool and match it with the downloaded inward supply invoices to find mismatches from August 2019.The summary would also be available for view on the common portal online.

For a period of three months i.e. July to September, the new return system (ANX-1 & ANX-2) would be available as trial which would have no impact at the back end on the tax liability or input credit of the taxpayer. Taxpayers shall continue fulfilling their compliances by filing Form GSTR-1 as monthly or quarterly basis and Form GSTR-3B on monthly basis. Non-filing of these returns shall attract penal provisions under the GST Act.

From October 2019, Form GST ANX-1 shall be compulsory and Form GSTR-1 would be replaced by Form GST ANX-1 for all large taxpayers. Large taxpayers with aggregate annual turnover over INR 5 crore in the previous financial year would upload their monthly Form GST ANX-1. However, small taxpayers whose turnover is up to INR 5 crore will file the first compulsory quarterly Form GST ANX-1 in January 2020 for the quarter October to December of 2019. Invoices can be uploaded in Form GST ANX-1 on a continuous basis both by large and small taxpayers from October 2019.
In addition to the above, small taxpayers would stop filing Form GSTR-3B and start filing Form GST PMT-08 from October 2019 onwards. They would file their first Form GST-RET-01 for the quarter October 2019 to December 2019 from January, 20, 2020. From January 2020, all taxpayers shall be filing Form GST RET-01 and Form GSTR-3B shall be completely phased out.

Also, separate instructions shall be issued for filing and processing of refund applications between October and December 2019.
If you are looking to keep yourself updated about the recent compliances or requires assistance in filing of GST returns, GST assessments and GST audits, our team of experts can assist you in complying with the GST regime.

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