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02 August, 2015

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ICDS Can Increase Litigation and Tax Demands

ICDS – Income Tax Accounting Standard may increase litigation and Tax Demands feels India Inc. Companies put aside funds for potential penalties

Indian companies are expecting litigations and increased tax demands this year due to confusion around computing their income under the new accounting standards the government has introduced.

According to chief financial officers and taxation experts, the income computation and accounting standards (ICDS) contradict with some provisions of the existent Income Tax Act, putting them in a catch-22 situation and prompting many to put aside some funds for potential tax penalties.

"Some of the examples (areas of contradictions) include taxation of interest income on time basis, revenue recognition of services under percentage completion method, taxation of retention money before it accrues, deduction for expenses incurred on fixed assets after startup phase, exchange fluctuation on loan taken for buying local assets and gain/loss on commodity hedging," said Rajesh H Gandhi, partner, tax, at Deloitte Haskins & Sells.

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