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Tax Accounting Standards Recommendations

The Accounting Standard Committee (Committee), constituted by the Central Board of Direct Taxes (CBDT) in December 2010, has submitted its final report and recommended the adoption of 14 'Tax Accounting Standards' (TAS) for computing income under the Income Tax Act (Act).

These will introduce a change away from the old Accounting Standard. Taxand India explores the scope of 8 of these TAS.

TAS (Construction Contracts)
This would be applied in determination of income from a construction contract of a contractor including contract for rendering of services which are directly related to the construction of the asset, contract for destruction or restoration of assets, and the restoration of the environment following the demolition of assets.

TAS (The Effects of Changes in Foreign Exchange Rates)
TAS (FE) deals with the effect of changes in foreign exchange rates.

TAS (Government Grants)
This deals with the treatment of Government grants. TAS (GG) does not deal with:

  • Government assistance other than in the form of grants.
  • Government participation in the ownership of the enterprise.

TAS (Securities)
This deals only with securities held as stock-in-trade and assessable to tax under the head PGBP.

TAS (Borrowing Costs)
TAS (BC) deals with tax treatment of borrowing costs incurred in relation to a 'qualifying asset'.

TAS (Leases)
TAS (Leases) would be applied for leases other than:

  • Agreements to explore for or use of natural resources.
  • License agreements.
  • Agreements to use lands.
  • Sale and lease back, for which specific provisions exist in the Act.

TAS (Intangible Assets)
TAS (IA) deals with the treatment of intangible assets, excluding assets such as deferred tax assets or financial assets.

TAS (Provisions, Contingent Liabilities and Contingent Assets)
TAS (PC) does not deal with provisions, contingent liabilities and contingent assets resulting from any financial instruments including derivatives.


Taxand's Take

The intentions of the Committee to introduce the TAS are noteworthy, ie to avoid the requirement for taxpayers to maintain two sets of accounts and to try, and to reduce litigation on certain issues which have divergent treatment under tax and financial statements. It should be noted that the TAS do not require any adjustments to the financial accounts and are meant for computing the taxable income of taxpayers.

Your Taxand contact for further queries is:
Shefali Goradia
T. +91 22 30 21 71 70

Taxand's Take Author