[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART-II,
SECTION 3, SUB-SECTION (ii)]
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 31st March, 2015
INCOME-TAX
S.O. 892 (E) In exercise of the powers conferred by sub-section (2) of section 145 of the
Income-tax Act, 1961 (43 of 1961) and in supersession of the notification of the Government of
India in the Ministry of Finance, Department of Revenue, published in the Gazette of India, Part
II, Section 3, Sub-section (ii), vide number S.O 69(E) dated the 25th January, 1996, except as
respects things done or omitted to be done before such supersession, the Central Government
hereby notifies the income computation and disclosure standards as specified in the Annexure to
be followed by all assessees, following the mercantile system of accounting, for the purposes of
computation of income chargeable to income-tax under the head “Profit and gains of business or
profession” or “ Income from other sources”. This notification shall come into force with effect
from 1st day of April, 2015, and shall accordingly apply to the assessment year 2016-17 and
subsequent assessment years.
Annexure
ሾSee notification No.32/2015, F. No. 134/48/2010‐TPL, dated 31st March, 2015ሿ
A. Income Computation and Disclosure Standard I relating to accounting
policies
Preamble
This Income Computation and Disclosure Standard is applicable for computation of income
chargeable under the head “Profits and gains of business or profession” or “Income from
other sources” and not for the purpose of maintenance of books of accounts.
In the case of conflict between the provisions of the Income‐tax Act, 1961 ሺ‘the Act’ሻ and
this Income Computation and Disclosure Standard, the provisions of the Act shall prevail to
that extent.
Scope
1.
This Income Computation and Disclosure Standard deals with significant accounting
policies.
Fundamental Accounting Assumptions
2.
The following are fundamental accounting assumptions, namely:—
ሺaሻ Going Concern
“Going concern” refers to the assumption that the person has neither the intention
nor the necessity of liquidation or of curtailing materially the scale of the business,
profession or vocation and intends to continue his business, profession or vocation
for the foreseeable future.
ሺbሻ Consistency
“Consistency” refers to the assumption that accounting policies are consistent from
one period to another;
ሺcሻ Accrual
“Accrual” refers to the assumption that revenues and costs are accrued, that is,
recognised as they are earned or incurred ሺand not as money is received or paidሻ
and recorded in the previous year to which they relate.
Accounting Policies
3.
The accounting policies refer to the specific accounting principles and the methods
of applying those principles adopted by a person.
Considerations in the Selection and Change of Accounting Policies
4. Accounting policies adopted by a person shall be such so as to represent a true and fair
view of the state of affairs and income of the business, profession or vocation. For this
purpose,
ሺiሻ the treatment and presentation of transactions and events shall be governed by their
substance and not merely by the legal form; and
ሺiiሻ marked to market loss or an expected loss shall not be recognised unless the
recognition of such loss is in accordance with the provisions of any other Income
Computation and Disclosure Standard.
5. An accounting policy shall not be changed without reasonable cause.
Disclosure of Accounting Policies
6.
All significant accounting policies adopted by a person shall be disclosed.
7.
Any change in an accounting policy which has a material effect shall be disclosed.
The amount by which any item is affected by such change shall also be disclosed to the
extent ascertainable. Where such amount is not ascertainable, wholly or in part, the fact
shall be indicated. If a change is made in the accounting policies which has no material
effect for the current previous year but which is reasonably expected to have a material
effect in later previous years, the fact of such change shall be appropriately disclosed in the
previous year in which the change is adopted and also in the previous year in which such
change has material effect for the first time.
8.
Disclosure of accounting policies or of changes therein cannot remedy a wrong or
inappropriate treatment of the item.
9.
If the fundamental accounting assumptions of Going Concern, Consistency and
Accrual are followed, specific disclosure is not required. If a fundamental accounting
assumption is not followed, the fact shall be disclosed.
Transitional Provisions
10. All contract or transaction existing on the 1st day of April, 2015 or entered into on or
after the 1st day of April, 2015 shall be dealt with in accordance with the provisions of this
standard after taking into account the income, expense or loss, if any, recognised in respect
of the said contract or transaction for the previous year ending on or before the 31st March,
2015.
B. Income Computation and Disclosure Standard II relating to valuation of
inventories
Preamble
This Income Computation and Disclosure Standard is applicable for computation of income
chargeable under the head “Profits and gains of Business or profession” or “Income from
other sources” and not for the purpose of maintenance of books of accounts.
In the case of conflict between the provisions of Income Tax Act, 1961 ሺ‘the Act’ሻ and this
Income Computation and Disclosure Standard, the provisions of the Act shall prevail to that
extent.
Scope
1. This Income Computation and Disclosure Standard shall be applied for valuation of
inventories, except :
ሺaሻ
Work‐in‐progress arising under ‘construction contract’ including directly
related service contract which is dealt with by the Income Computation and
Disclosure Standard on construction contracts;
ሺbሻ
Work‐in‐progress which is dealt with by other Income Computation and
Disclosure Standard;
ሺcሻ
Shares, debentures and other financial instruments held as stock‐in‐trade
which are dealt with by the Income Computation and Disclosure Standard on
securities;
ሺdሻ
Producers’ inventories of livestock, agriculture and forest products, mineral
oils, ores and gases to the extent that they are measured at net realisable
value;
ሺeሻ
Machinery spares, which can be used only in connection with a tangible fixed
asset and their use is expected to be irregular, shall be dealt with in
accordance with the Income Computation and Disclosure Standard on
tangible fixed assets.
Definitions
2ሺ1ሻ
The following terms are used in this Income Computation and Disclosure Standard
with the meanings specified:
ሺaሻ
“Inventories” are assets:
ሺiሻ
held for sale in the ordinary course of business;
ሺiiሻ
in the process of production for such sale;
ሺiiiሻ
in the form of materials or supplies to be consumed in the production
process or in the rendering of services.
ሺbሻ
“Net realisable value” is the estimated selling price in the ordinary course of
business less the estimated costs of completion and the estimated costs
necessary to make the sale.
2ሺ2ሻ Words and expressions used and not defined in this Income Computation and
Disclosure Standard but defined in the Act shall have the meanings assigned to them in that
Act.
Measurement
3.
Inventories shall be valued at cost, or net realisable value, whichever is lower.
Cost of Inventories
4. Cost of inventories shall comprise of all costs of purchase, costs of services, costs of
conversion and other costs incurred in bringing the inventories to their present location
and condition.
