NEW TAX ACCOUNTING STANDARDS ICAI finds move confusing, wants plan to be dropped

JOE C MATHEW New Delhi, 27 October THE apex accounting standards-setting body, Institute of Chartered Accountants of India (ICAI), will ask the finance ministry to drop plans for separate accounting standards for tax computation purposes.
The move comes in the backdrop of a recommendation made by an expert committee constituted by the ministry’s Central Board of Direct Taxes (CBDT) for a new set of ‘Tax Accounting Standards (TAS), which are distinct from the accounting standards issued by the ICAI or notified by the MCA for tax computation purpose.
ICAI feels a new set of standards could be confusing and unnecessary as the institute can make amends according to the CBDT recommendations to provide an uniform accounting system for all purposes.
“Most of the recommendations are similar to the changes we had proposed in the revised accounting standards. We will discuss the issue next week and provide our inputs to the ministry,” said G Ramaswamy, president ICAI.
Based on the CBDT recommendations, the ministry had issued a discussion paper on October 17, which includes suggestions for a new set of accounting standards under the Income Tax Act and draft TAS on Construction Contracts and Government Grants.
If the recommendations in the discussion paper are incorporated in the Act, taxable income would be computed based on provisions of the TAS, irrespective of the standards followed for the preparation of the financial statements.
“The proposal to issue separate TAS will represent a significant change for taxpayers. Tax payers would need to evaluate the requirements of the draft TAS proposed from timeto-time, and determine the specific areas of impact. The recommendations in the current discussion paper will partially address one of the key stated bottlenecks for implementation of the Indian accounting standards (the new accounting standard readied by ICAI), by requiring computation of taxable income using a uniform basis,” an explanatory note from global consultancy KPMG said.

Though the provisions of the Income Tax Act, 1961, and the Finance Act, 1995, empower the government to govern the computation of taxable profits and notify standards for such purposes, not many standards have been set by the finance ministry. In the absence of such notified accounting standards under the Income Tax Act, companies generally compute their taxable income following the ICAI accounting principles and policies followed for the preparation of financial statements, subject to specific provisions of the Act and after considering various judicial pronouncements.
Recently, ICAI has revised its accounting standards to converge Indian Standards with what is known as International Financial Reporting Standards (IFRS). However, the new standards were not made operational due to several mismatches with the views taken by the tax authorities.
Separate accounting standards to be notified under the I-T Act TAS should be made applicable only to the computation of taxable income. No need for separate books of account on the basis of TAS A reconciliation between the income according to the financial statements and income as computed under TAS will be required Should be applicable to only taxpayers who follow the mercantile system KEY SUGGESTIONS OF THE CBDT PANEL

Source: Business Standard