New Delhi: A committee set up by the income-tax (I-T) department of the finance ministry for formulating accounting standards has recommended companies need to compute their taxable income in accordance with accounting standards to be notified under the I-T Act.
For all other purposes including maintaining books, they have to follow the standards set by the Institute of Chartered Accountants in India (ICAI).
The committee, however, clarified that taxpayers do not need to maintain two sets of account books.
“The accounting standards notified under the Act should be made applicable only to the computation of taxable income and a taxpayer should not be required to maintain books of account on the basis of accounting standards to be notified under the Act,” it added.
The committee examined all the 31 accounting standards (AS) issued by ICAI and recommended notifications on 14 issues under the Act. It formulated drafts of accounting standards on these issues. The committee has termed them tax accounting standards (TAS) to distinguish from the accounting standards issued by ICAI and notified under the Companies Act.
The report maintained that TAS is intended to be in harmony with the provisions of the Act. However, the committee has recommended that the provisions of the Act will prevail over TAS.
A past president of ICAI who spoke on condition of anonymity said having two sets of accounting standards may create confusion for tax payers. “There is no specific provision in the income tax act for bringing out specific accounting standards for computing income,” he added.
The Central Board of Direct Taxes constituted the committee comprising departmental officers and professionals in December 2010. The committee submitted its first interim report in August 2011. A discussion paper containing the main recommendations of the committee was issued in October 2011 for inviting suggestions from all stakeholders. Comments and suggestions on the final report have been invited till 26 November.