Companies will have to change the way they compute their income, say, from construction services or accounting for mark-to-market losses (writing down assets in line with current valuations) for tax purposes as the Central Board of Direct Taxes (CBDT) has come out with standards for this purpose.
The Income Computation Disclosure Standards (ICDS), effective from the current financial year, are based on current accounting standards and not new standards (Ind AS). This could lead to further divergence between accounting standards and tax standards after Ind AS becomes applicable for companies from 2016-17 in a phased manner.
The government has asked all companies, listed and unlisted, with a net worth of above Rs 500 crore, to start following Ind AS for accounting periods beginning April 1, 2016.
ICDS does not recognise expected losses or mark-to-market losses, unless specifically provided by any of the ICDS. This is in sharp divergence with accounting standard (AS 1), which allows recognition of expected losses. However, AS 1 does not recognise anticipated profits.
An earlier CBDT committee had recommended doing away with mark-to-market losses as well since the accounting standard amounts to differential treatment for recognition of income and losses.
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