Tax accounting standard

CA RAHUL AGRAWAL (Assistant Manager-Service Tax)   (1733 Points)

17 December 2012  

Tax Accounting Standards (TAS)

Companies may soon have to file their income tax return as per the standards laid down by the Income Tax department.

The tax accounting standards (TAS), recommended by a panel of Central Board of Direct Taxes, are different from accounting standards formulated by ICAI in a number of ways.

Tax Accounting Standards provide an independent framework for computation of taxable profits, making the accounting framework redundant. However, there is no word on calculation of minimum alternate tax.

The Central Government is empowered under Section 145(2) of the Income-tax Act to notify accounting standards. However, only two standards relating to disclosures have been notified till date. As a result, there is uncertainty and litigation over various issues where the tax authority’s views may not be consistent with the guidance in the Accounting Standards issued by the Institute of Chartered Accountants of India and the Ministry of Corporate Affairs.

To address some of these issues, the Central Board of Direct Taxes constituted the Accounting Standard Committee, whose final report last month was issued for public comment. The report also contains drafts of 14 Tax Accounting Standards. Some of the significant recommendations include:

Provisions of the Act would prevail over TAS when there is conflict between the two. TAS would apply only to the computation of income and, thus, a taxpayer need not maintain separate books of account based on TAS.TAS would apply to all taxpayers, and appropriate modifications would be made to return of income and tax audit forms. The Act is to be amended to provide clarity on the treatment of goodwill depreciation arising from amalgamation, and on provision made for payment of pension in case of retirement or termination of services of an employee.

As TAS is based on the mercantile system of accounting, it will apply only to taxpayers who follow that system. Though TAS is in harmony with the respective accounting standards, there are modifications that may significantly impact taxable income of several companies.