From 2012-2013 onwards, companies may have to file their income-tax
return as per the standards laid down by the Central Board of Direct
Taxes (CBDT). The new standards will reduce the discretion which is
currently available with the taxpayers under the standards prescribed by
the Institute of Chartered Accountants of India (ICAI), thus bringing
down chances of litigation with the tax department.
The Tax
Accounting Standards, however, will be applicable only to computation of
taxable income under the Income Tax Act. A CBDT committee, in its draft
report submitted recently, has suggested that separate books of account
are not required to be maintained under the Tax Accounting Standards,
thus reducing the compliance burden on businesses.
"Some
changes have been introduced in the accounting standards. There will be
a system of computing income by providing for specific treatments. ICAI
standards provide for certain options. Now we are saying you will have
to do it in a particular manner for computation of income," a finance
ministry official, who did not wish to be identified, told Business
Standard.
The official clarified the new standards would not put
extra burden on taxpayers as they merely addressed the issue of too many
alternatives under the ICAI standards.For example, there is lot of
litigation about treatment of government grant. The CBDT panel has
proposed that it should be treated as income and if it is treated as
capital than one should account for depreciable asset.
The
committee has adopted as many as seven out of 28 standards issued by
ICAI. Its report is likely to be released soon for inviting public
comments. After receiving the feedback from all stakeholders, the
finance ministry may notify the standards to make them applicable from
the next financial year.
Computation of income is a major area
of disputes between the tax department and the taxpayers. About 2 lakh
crore of the amount is locked up in appeals. The tax accounting
standards are expected to bring certainty in treatment of various items.
The standards may affect sectors such as real estate, construction, and
treatment of contracts, government grants, and foreign exchange
treatment.
A committee of experts from the government and
professionals was constituted by the CBDT in December 2010 to suggest
accounting standards for tax purposes that could be notified under
section 145 of the Income Tax Act 1961. The Committee had submitted its
interim report in August 2011.
At present, Section 145 of the
Income Tax Act provides that the method of accounting for computation of
income under the head "Profits and gains of business or profession" and
"Income from other sources" can either be the cash or mercantile system
of accounting. Since tax accounting standards are based on the
mercantile system of accounting, they will not be applicable to the
taxpayers following cash system of accounting. They standards may also
provide that in case of a conflict between the Income Tax Act and the
tax accounting standards, the law would prevail.