ICDS VIII deals with the accounting treatment for securities held as stock-in-trade and by scheduled banks and public financial institutions. For securities held as stock-in-trade, the actual cost or net realizable value, whichever is lower, is used for valuation at the end of the previous year. Premium or discount on acquisition of securities is adjusted with the actual cost. Unlisted or non-regularly quoted securities are valued at actual cost. Part B provides valuation guidance for securities held by scheduled banks and public financial institutions.

1. Income Computation and Disclosure
Standards (ICDS) – VI to X
CA. Divakar Vijayasarathy

2. Credits and Acknowledgments
Bharathi Priya R D
CA. Jugal Gala

3. Legends Used in the Presentation
AO Assessing Officer
AS Accounting Standards
AY Assessment Year
BJA Best Judgment Assessment
CG Central Government
CBDT Central Board of Direct Taxes
FASB Financial Accounting Standards Board
FC Foreign Currency
FEC Forward Exchange Contract
HUF Hindu Undivided Family
ICDS Income Computation and Disclosure Standards
IFOS Income From Other Sources
IFRS International Financial Reporting Standards
NRV Net Realisable Value
PGBP Profits and Gains from Business or Profession
P&L Profit & Loss
PY Previous Year
WDV Written Down Value

4. Presentation Schema
Background Rationale
Method of
Accounting
ICDS Applicability
& Non-
Applicability
Notified ICDS ICDS VI ICDS VII ICDS VIII
ICDS IX ICDS X
Disclosure in Tax
Audit Report

5. Background
ICDS – Income Computation and Disclosure Standard
CG has power to notify ICDS – Sec 145(2)
CBDT notified ICDS on 31st March, 2015 which shall apply for AY 2016-
17
CBDT notified another ICDS on 29th September, 2016 which shall
replace the earlier notification and shall apply from AY 2017-18 and
subsequent AY

6. Rationale
To bring transparency in computation of total income in respect of “PGBP” and “IFOS”
Therefore, ICDS has been introduced to bring uniformity in computation of income for income tax purposes
Different companies follow different accounting standards for preparation and presentation of financial
statements
Two sets of standards relating to accounting are applicable now – AS and Ind AS

7. Method of Accounting – Sec 145
Taxable income under the heads “PGBP” or “IFOS” has to be computed in accordance with cash or
mercantile system of accounting, being regularly employed
CG may notify ICDS to be followed by any class of assessee’s or in respect of any class of income
If the AO is not satisfied about the correctness or completeness of the accounts, or method of
accounting has not been regularly followed, or income has not been computed in accordance with
ICDS, the AO may make a Best Judgment Assessment (BJA) under Sec 144
At present there are 10 ICDS notified by CBDT which shall be applicable in computing income under the head
“PGBP” or “IFOS”

8. ICDS Applicability & Non-Applicability
Applicability
All assessees following the mercantile system of accounting, for the purpose of
computation of income chargeable to tax under the head “PGBP” or “IFOS”
Non
Applicability
 Individual or a HUF who is not required to get his accounts of the PY audited as per
Sec 44AB
 Cash system of accounting is followed by the assessee
 When income is chargeable under other heads of income other than PGBP or IFOS
 Only for the purpose of maintenance of books of accounts
In the case of conflict between the provisions of the Income-tax Act, 1961 and ICDS, the provisions of the
Act shall prevail
Words and expressions used and not defined in ICDS but defined in the Act shall have the meanings
assigned to them in that Act

9. Sec 44AB - Audit of Accounts
Sec 44AD(4) – If an eligible assessee declares income on
presumptive basis in a AY & declares income on normal basis in
any of the 5 succeeding AY – cannot claim benefit under Sec
44AD for next 5 AYs
Every person
Carrying on
business
Carrying on
profession
If total sales, turnover or gross receipts > Rs. 1 Crore
Opting for presumptive taxation under sec 44AE or sec
44BB or sec 44BBB and has claimed income < profits or
gains prescribes under aforesaid sections
Where Sec 44AD(4) is applicable and Total
Income > basic exemption limit
If gross receipts > Rs. 50 Lakh
Opting for presumptive taxation under Sec 44ADA and has
claimed income < profits or gains prescribed under the section
Shall get their
accounts audited
and furnish audit
report duly signed
by accountant
within specified
date

10. Contd.
Sec 44AB shall not apply
To a person who derives income as per Sec
44BB (business of exploration, etc., of mineral
oils) or Sec 44BBA (business of operation of
aircraft in the case of non-residents)
• To a person who declares profits or gains
under Sec 44AD(1)–presumptive taxation
@ 6% or 8% of gross receipts, and
• his total sales, turnover or gross receipts
in the relevant PY <= Rs. 2 Crore
and furnishing a further report by an accountant according to this section shall suffice
Completing audit under such other law and furnishing audit report before due date
For a person who is required to get his accounts audited under any other law (Ex: Companies Act, 2013)

11. Notified ICDS
ICDS Description Relevant AS
I Accounting Policies AS 1
II Valuation of Inventories AS 2
III Construction Contracts AS 7
IV Revenue Recognition AS 9
V Tangible Fixed Assets AS 10
VI Effect of Changes in Foreign Exchange Rates AS 11
VII Government Grants AS 12
VIII Securities AS 13
IX Borrowing Costs AS 16
X Provisions, Contingent Liabilities and Contingent Assets AS 29
ICDS VI to ICDS X has been discussed and analysed in subsequent slides

12. ICDS VI - Effect of Changes in Foreign Exchange
Rates
ICDS VI deals with
Treatment of transactions
in foreign currencies
Treatment of foreign
currency transactions in the
nature of forward exchange
contracts
Translating the financial
statements of foreign
operations
ICDS VI deals with
Treatment of transactions
in foreign currencies
Treatment of foreign
currency transactions in the
nature of forward exchange
contracts
Translating the financial
statements of foreign
operations
Is a branch, by whatever name called, of that
person, the activities of which are based or
conducted in a country other than India
Foreign Operations
of a person
Includes a foreign currency option contract
or another financial instrument of a similar
nature
An agreement to exchange
different currencies at a
forward rate
Forward exchange
contract

13. Relevant Definitions
Transaction which is denominated
in or requires settlement in a
foreign currency
Foreign
currency
transaction
Buys or sells goods or
services whose price is
denominated in a foreign
currency
Borrows or lends funds
when the amounts
payable or receivable are
denominated in a foreign
currency
Becomes a party to
an unperformed
forward exchange
contract
Otherwise acquires or
disposes of assets, or
incurs or settles
liabilities, denominated
in a foreign currency
Includes transactions arising when a person
Money held and assets to be received or liabilities to be paid in
fixed or determinable amounts of money. Example: Cash,
receivables, and payables
Monetary items
Assets and liabilities other than monetary items. Example:
Fixed assets, inventories, and investments in equity shares
Non-monetary items

14. Forward Exchange Contracts (FEC)
• Any premium or discount shall be amortised as expense or income over the life of the contractInception
• Exchange rate on the date of inception of the contract (-) Forward rate specified in the contractPremium or discount
• Recognised as income or as expense in the previous year in which the exchange rates changeExchange Difference
• Any profit or loss arising shall be recognised as income or as expense for the previous yearCancellation or renewal
Applicability Non-Applicability
FEC not intended for trading or speculation purposes, and FEC that is entered into to hedge the foreign
currency risk of a firm commitment or a highly
probable forecast transaction
FEC entered into to establish the amount of the reporting currency required
or available at the settlement date of the transaction
FEC – for
trading/speculation
FEC – to hedge foreign currency risk
of a firm commitment or a highly
probable forecast transaction
Other FEC
1. Premium or discount on contracts is recognized at the time of
settlement
2. Exchange difference shall also be recognized at the time of
settlement
1. Premium or discount arising at inception shall be
amortized over the life of the contract
2. Exchange difference is recognised in the previous
year in which the exchange rates change
Treatment of Exchange Difference

15. ICDS VI vs AS 11
Particulars ICDS VI - Effect of Changes in
Foreign Exchange Rates
AS 11 - Effect of Changes in Foreign
Exchange Rates
Initial recognition Exchange rate on the date of the
transaction
Exchange rate on the date of the
transaction
Subsequent
measurement
Monetary Items Closing Rate Closing rate
Non monetary
items
Except inventory at NRV: Exchange
rate as at the date of the
transaction
Inventory at NRV: Exchange rate
that existed when that value was
determined
Carried at Historical cost: Exchange rate on
the date of the transaction
Fair value: Exchange rate on the date of
determination of fair values
Recognition of exchange difference Monetary items - To be recognised
in P&L
Non-monetary items – not to be
recognised in P&L
In P&L as income or expense as the case
may be
Option to capitalize exchange differences on
long term foreign currency monetary item
till 31st March 2020

16. ICDS VII - Government Grants
Scope ICDS VII deals with the treatment of government grants
ICDS VII does
not deal with
Government assistance other than in
the form of Government grants
Government participation in the
ownership of the enterprise
Government grants are sometimes called by other names such as subsidies, cash
incentives, duty drawbacks, waiver, concessions, reimbursements
Central Government, State Governments, agencies and
similar bodies, whether local, national or international
Government
For past or future compliance
with certain conditions
In cash or kind
to a person
assistance by
Government
Government Grants

17. ICDS VII vs AS 12
Points of Comparison ICDS VII – Government Grants AS 12 – Accounting for Government Grants
Recognition of Government
Grants
Government grants should not be
recognised until there is reasonable
assurance that
i. The person shall comply with the
conditions attached to them and
ii. The government grants shall be
received
Recognition shall not be postponed
beyond the date of actual receipt
Government grants should not be recognised
until there is reasonable assurance that
i. The enterprise will comply with the
conditions laid down and where such
benefits have been earned by the enterprise
Further, there is a reasonable certainty that the
ultimate collection will be made
Government grant related to a
depreciable fixed asset
Grant shall be deducted from the actual
cost of the assets or from the WDV of
block of assets to which concerned asset
belongs to. There is no option to
recognise the same as deferred income
over the useful life
Grant received shall either be shown as deduction
from the gross value of the asset concerned or it
is treated as deferred income which is recognised
in the P&L statement on the systematic and
rationale basis over the useful life of the asset
Government grant related to a
non depreciable fixed asset
and assets requiring
fulfillment of certain
obligation
Recognised as income over the same
period for which the cost of meeting such
obligation is charged to income
Non-depreciable asset: accounted at their
acquisition cost
Where no obligation is attached: creation of
capital reserve

18. ICDS VII vs AS 12
Points of Comparison ICDS VII – Government Grants AS 12 – Accounting for Government Grants
Government grant not directly
related to asset
Deducted from the actual cost of the asset
on pro rata basis
No such provision
Grant relating to
compensation for expenses or
loses incurred
Recognised as income of the period in
which it is receivable
Recognised in the income statement of the period
in which it becomes receivable, as an
extraordinary item if appropriate
Grants in the form of non-
monetary assets
Given at a concessional rate: accounted
for on the basis of their acquisition cost
Given free of cost: No such Provision
Given at a concessional rate: accounted for on the
basis of their acquisition cost
Given free of cost: recorded at nominal value
Refund of grant Refund shall be recorded by increasing the
actual cost or WDV of block of assets by
the amount refundable
Where the actual cost of the asset is
increased, depreciation on the revised
actual cost or WDV shall be provided
prospectively at the prescribed rate
Refund shall be recorded by increasing the book
value of the asset or by reducing the capital
reserve or the deferred income balance, as
appropriate, by the amount refundable
Where the book value of the asset is increased,
depreciation on the revised book value is
provided prospectively over the residual useful
life of the asset

19. ICDS VII - Disclosure
Nature and extent of Government grants recognised during the PY by way of deduction from the actual cost of
the asset or assets or from the WDV of block of assets during the PY
Nature and extent of Government grants recognised during the PY as income
Nature and extent of Government grants not recognised during the PY by way of deduction from the actual
cost of the asset or assets or from the WDV of block of assets and reasons thereof
Nature and extent of Government grants not recognised during the PY as income and reasons thereof

20. ICDS VIII - Securities
Scope ICDS VIII Part A deals with Securities held as stock-in-trade
Part A does not
deal with
The bases for recognition of interest and dividends
on securities which are covered by the ICDS IV –
Revenue recognition
Securities held by a person engaged in the business
of insurance
Securities held by mutual funds, venture capital
funds, banks and public financial institutions
formed under a Central or a State Act or so
declared under the Companies Act
ICDS VIII
Part A - Securities held as stock-in-trade
Part B - Securities held by a scheduled bank or public financial
institutions formed under a Central or a State Act or so declared
under the Companies Act
Part A

21. Relevant Definitions
Fair Value
the amount for which that
asset could be exchanged
between knowledgeable, willing
parties in an arm’s length transaction
ICDS VIII shall also apply to rights and interest in securities and
share of a company in which public are not substantially
interested
Securities – Sec 2(h) of Securities
Contract (Regulation) Act, 1956
Units or any other
such instrument
issued to the
investors under
any mutual fund
scheme
Security receipt
Units or any other
instrument issued by
any collective
investment scheme
to the investors in
such schemes
Derivative
Shares, scrips, stocks,
bonds, debentures,
debenture stock or other
marketable securities of a
like nature in or of any
incorporated company or
other body corporate
Government securities
Such other
instruments as
may be
declared by
the Central
Government
to be
securities
ICDS VIII
excludes
derivatives

22. Recognition and Initial Measurement of Securities
On Acquisition
At actual cost (Purchase price + acquisition charges
such as brokerage, fees, tax, duty or cess)
Acquired
In exchange for other securities
In exchange for another asset
Fair value of the security so
acquired shall be its actual cost
Where unpaid interest has accrued before the acquisition of an interest-bearing security and is
included in the price paid for the security, the subsequent receipt of interest is allocated between
pre-acquisition and post-acquisition periods; the pre-acquisition portion of the interest is
deducted from the actual cost

23. Subsequent Measurement of Securities
Measurement at
the end of PY
For Securities held as
Stock-in-trade
Actual cost initially recognised
NRV at the end of that previous year
whichever is lower
Comparison of actual cost initially recognised and net realisable value shall be done category wise and not for each individual security
Classification of securities into categories
Shares Debt securities Convertible securities Any other securities not covered
Measurement at the
beginning of PY
For Securities held as
Stock-in-trade
The cost of securities available, if any, on the day of the
commencement of the business when the business has
commenced during the previous year, and
The value of the securities of the business as on the close of
the immediately preceding previous year, in any other case
At the end of any previous year, securities not listed on a recognised stock exchange; or listed but not quoted on a recognised stock
exchange with regularity from time to time, shall be valued at actual cost initially recognised
Where the actual cost initially recognised cannot be ascertained by reference to specific identification, the cost
of such security shall be determined on the basis of first-in-first-out method or weighted average cost formula

24. Part B of ICDS VIII
Scope
ICDS VIII Part B deals with Securities held by a scheduled bank
or public financial institutions formed under a Central or a State
Act or so declared under the Companies Act
Part B
Scheduled Bank – Sec 36(1)(viia)
of Income Tax Act, 1961
Corresponding new bank
constituted under Sec 3 of
the Banking Companies
(Acquisition and Transfer of
Undertakings) Act, 1970 or
1980
Subsidiary bank as
defined in the State
Bank of India (Subsidiary
Banks) Act, 1959
State Bank of India
constituted under the
State Bank of India Act,
1955
Any other bank being a
bank included in the
Second Schedule to the
Reserve Bank of India
Act, 1934
Classification, Recognition
and Measurement of
Securities
Securities shall be classified, recognised and measured in
accordance with the extant guidelines issued by the RBI
Any claim for deduction in excess of the said guidelines shall not be
taken into account - ICDS VI shall not apply
Definition of securities similar
to Part A; however including
“derivatives”

25. ICDS VIII vs AS 13
Points of Comparison ICDS VIII - Securities AS 13 – Accounting for Investments
Scope ICDS VIII covers only securities AS 13 covers investments in securities,
properties, etc
Classification Classification of securities is done under
categories, as, shares, debt securities and
convertible securities
Classification of investments is done under
the categories as, shares, debentures, bonds,
Govt securities, investment properties
Stock-in trade Stock-in trade are covered in ICDS VIII Stock-in trade are out of the scope of AS13
Revenue Recognition Does not deal with revenue recognition
as it is covered in ICDS IV
Does not deal with revenue recognition as it
is covered in AS9
Unlisted shares Unlisted shares shall be valued at actual
cost initially recognized
Valuation of unlisted shares are not covered
under AS 13

26. ICDS IX - Borrowing Costs
Scope ICDS IX deals with treatment of borrowing costs
ICDS IX does not deal with the actual or imputed cost of owners’
equity and preference share capital
Interest and other costs incurred by a person in
connection with the borrowing of funds
Borrowing costs
Commitment
charges on
borrowings
Amortised amount
of discounts or
premiums relating
to borrowings
Amortised amount of
ancillary costs incurred in
connection with the
arrangement of borrowings
Finance charges in respect of
assets acquired under finance
leases or under other similar
arrangements
Includes

27. Qualifying Asset
Qualifying asset
Tangible assets
Land, building, machinery,
plant or furniture
Know-how, patents, copyrights,
trade marks, licences, franchises
or any other business or
commercial rights of similar nature
Intangible assets
Inventories
That require a period of twelve
months or more to bring them to
a saleable condition
Recognition
Borrowing costs that are directly
attributable to the acquisition, construction
or production of a qualifying asset shall be
capitalised as part of the cost of that asset
The amount of borrowing costs eligible for capitalisation shall be determined in ICDS IX
Other borrowing costs shall be recognised in accordance with the provisions of the Income Tax Act, 1961
Capitalisation
Means addition of borrowing
cost to the cost of inventory

28. ICDS IX vs AS 16
Points of Comparison ICDS IX – Borrowing Costs AS 16 – Borrowing Costs
Qualifying asset Qualifying assets are any tangible and
intangible asset and inventory which
require time of 12 months or more to
bring them in saleable condition
An asset that necessarily takes a substantial
period of time to get ready for its intended
use or sale
Exchange differences
from foreign currency
borrowings
Not included in Borrowing Costs Exchange differences are recognised and are
regarded as borrowing costs
Temporary
Investment Incomes
ICDS IX does not specify about the
treatment of income earned from
temporary investment made out of
borrowed funds
If borrowed funds are investments then the
income earned from it will be reduced from
the actual borrowing cost

29. ICDS IX vs AS 16
Points of Comparison ICDS IX – Borrowing Costs AS 16 – Borrowing Costs
Commencement of
Capitalization
Capitalization will commence from the
date when funds are utilized in case of
qualifying assets, otherwise, from the
date when funds are borrowed
Capitalization will commence when
acquisition cost or borrowing costs are being
incurred and activities, to prepare the asset
for sale, are in progress
Cessation of
capitalisation
In case of a qualifying assets other than
inventories - when such asset is first put
to use
In case of inventory - when substantially
all the activities necessary to prepare
such inventory for its intended sale are
complete
Capitalisation of borrowing costs should
cease when substantially all the activities
necessary to prepare the qualifying asset for
its intended use or sale are complete
Suspension of
capitalisation
There is no condition mentioned for
suspension of capitalization
Capitalisation of borrowing costs should be
suspended during extended periods in which
active development is interrupted

30. ICDS IX Disclosure
Accounting policy adopted for borrowing costs
Amount of borrowing costs capitalised during the PY

31. ICDS X - Provisions, Contingent Liabilities and
Contingent Assets
Scope
ICDS X deals with provisions, contingent liabilities and
contingent assets
ICDS X does not deal
with provisions,
contingent liabilities
and contingent assets
Resulting from financial instruments
Resulting from executory contracts
Arising in insurance business from
contracts with policyholders
Covered by another ICDS
ICDS X does not deal with the recognition of revenue which is dealt
in ICDS IV - Revenue Recognition

32. Provision, Liability and Contingent Assets
Provision Liability which can be measured only by using a substantial degree of estimation
Liability
Present obligation of the person arising from past events, the settlement of
which is expected to result in an outflow from the person of resources
embodying economic benefits.
Contingent
asset
Possible asset that arises from past events the existence of which will be
confirmed only by the occurrence or nonoccurrence of one or more uncertain
future events not wholly within the control of the person

33. Contingent Liability
A possible obligation that arises from past events and the existence of which will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the
person
A present obligation that arises from past events but is not recognised because:
• It is not reasonably certain that an outflow of resources embodying economic benefits will be required to
settle the obligation
• A reliable estimate of the amount of the obligation cannot be made

34. Recognition
A provision shall be
recognised only when
A person has a present obligation as a result of a past
event, and
It is reasonably certain that an outflow of resources
embodying economic benefits will be required to settle the
obligation, and
A reliable estimate can be made of the amount of the
obligation
No provision shall be recognised for costs that need to be incurred to operate in the future
Contingent Assets A person shall not recognise a contingent assets
Contingent Liabilities A person shall not recognise a contingent liability
Contingent assets are assessed continually and when it becomes reasonably certain that inflow of
economic benefit will arise, the asset and related income are recognised in the previous year in which the
change occurs

35. ICDS X vs AS 29
Points of Comparison ICDS X - Provision, Liability and Contingent
Assets
AS 29 - Provision, Liability and Contingent
Assets
Recognition of
provision
Provision shall be recognized when it
is reasonably certain that an outflow of
economic resources will not be required to
settle the obligation
Provision shall be recognized when it
is probable that an outflow of economic
resources will not be required to settle
the obligation
Recognition of
contingent asset
Contingent Asset is recognised when it
is reasonably certain that inflow of
economic benefit will arise
Contingent Asset is recognised when
inflow of economic benefit is virtually
certain
Reversal of provision If it is reasonably certain that an outflow of
economic resources will not be required to
settle the provision
If it is probable that an outflow of
economic resources will not be required
to settle the provision
As per IFRS, “probable” means event occurring or not occurring is greater than 50% whereas “virtually certain” means
95% or more
As per FASB, “reasonably certain” is defined as probability exceeding 75%-80%

36. ICDS X vs AS 29
Points of Comparison ICDS X - Provision, Liability and
Contingent Assets
AS 29 - Provision, Liability and Contingent
Assets
Reversal of
Contingent asset
If it is reasonably certain that an inflow of
economic benefits will not arise then
such asset and related income should be
reversed
If it is probable that an inflow of economic
benefits will not arise then such asset and
related income should be reversed
Onerous executory
contracts
No specific exclusion in ICDS Executory contracts are contracts under
which neither party has performed any of its
obligations or both parties have partially
performed their obligations to an equal
extent. This Standard does not apply to
executory contracts unless they are onerous
Restructuring
provisions
No provision Appropriate guidance is available in respect
of restructuring provisions

37. ICDS X - Disclosure
Following disclosure shall be made in respect of each class of provision
• A brief description of the nature of the obligation
• The carrying amount at the beginning and end of the PY
• Additional provisions made during the PY, including increases to existing provisions;
• Amounts used, that is incurred and charged against the provision, during the PY
• Unused amounts reversed during the PY
• The amount of any expected reimbursement, stating the amount of any asset that has been recognised for
that expected reimbursement
Following disclosure shall be made in respect of each class of asset and related income recognised
• A brief description of the nature of the asset and related income
• The carrying amount of asset at the beginning and end of the PY
• Additional amount of asset and related income recognised during the year, including increases to assets
and related income already recognised
• Amount of asset and related income reversed during the PY

38. Tax Audit Report
Examination or review of accounts of any business or profession
carried out by taxpayers
To ensure correctness of implementation and proper compliance
of tax provisions envisaged under the Act
Enables the tax authority for verification and assessments

39. Impact of ICDS on Tax Audit Report (Form 3CD)
Clause 13
Clause 14
• Method of accounting employed in the PY
• Whether there had been any change in the method of accounting employed
 If there is change, details of such change, and the effect thereof on the profit or loss
• Adjustment required for Income computation and disclosure standards (ICDS) notified
under Sec 145(2)
 Details of such adjustments
• Disclosures as per ICDS
• Method of valuation of closing stock employed in the PY
• In case of deviation from the method of valuation prescribed under Sec 145A (lower
of actual cost or net realisable value), the effect thereof on the profit or loss

40. Clause 13 of Form 3CD

41. Clause 13(f) of Form 3CD

42. Clause 14 of Form 3CD

43. Thank You
DVS Advisors LLP
India-Singapore-London-Dubai-Malaysia-Africa
www.dvsca.com
Copyrights © 2019 DVS Advisors LLP