Finance ministry has notified draft accounting standards which would be used to compute the taxable income of businesses from April 1, 2015 irrespective of their declared book profits.
The only tax purpose for which book profits would be used from next fiscal onwards would be to determine whether a company that is claiming tax exemptions is liable to pay the 18.5% minimum alternate tax (MAT). Companies that do not pay the 30% corporate tax are liable to pay MAT if their tax liability when tax breaks are excluded, falls below 18.5% of their book profit.
The new accounting standards cover valuation of inventory, construction contracts, revenue recognition , tangible fixed assets, effects of changes in foreign exchange rates, government grants, securities, borrowing costs, leases, intangible assets, provisions, contingent liabilities and contingent assets, says the draft standards released by the Central Board of Direct Taxes.
Sources said the new standards seeks to reduce the accounting alternatives allowed to tax payers by the accounting rule maker ICAI in some of the 28 standards. The proposed Income Tax Computation and Disclosure Standards (ITCD) 2015 make it compulsory for tax payers to follow it while calculating their income tax liability, which could be quite different from the profit or loss reported in the Profit and Loss Account prepared as per the Companies Act.
Companies, however, do not have to maintain two sets of accounts for stakeholders and the tax authorities. Introduction of ITCD will necessitate some changes in the tax return forms.