Tax Accounting Standards - Discussion Paper
SECTION 145 of the Income-tax Act, 1961 (the Act) provides that the method of accounting for computation of income under the head “Profits and gains of business or profession” and “Income from other sources” can either be the cash or mercantile system of accounting. The Finance Act 1995 empowered the Central Government to notify Accounting Standards for any class of assessees or for any class of income. Explaining the reason for introduction of this provision, it was stated that there is flexibility in the standards issued by the Institute of Chartered Accountants of India (ICAI) which makes it possible for an assessee to avoid the payment of correct taxes by following a particular system and therefore, there is an urgent need to standardize one or more of the alternatives in various standards so that income for tax purpose can be computed precisely and objectively.
CBDT has published the draft of the Tax Accounting Standards on Construction Contracts and Government Grants. Draft of other TAS will be issued for comments/suggestions by all stakeholders in due course.