Central Board of Direct Taxes (CBDT) notified Income Computation and Discloser Standards (ICDS) for the computation of Income under head Profit and Gains from Business and Profession (PGBP) and Income from Other Sources. In case of any conflict between the Provisions of Income Tax Act, 1961 and ICDS, the Act will supersede the standards.
ICDS IV Revenue Recognition deals with basic revenue recognition in ordinary course of business and other aspects of revenue recognition which are covered in other ICDS are not dealt herewith.
Sale of Goods
If both the conditions are satisfied, then as per ICDS IV revenue from sale shall be recognised
- The significant risk and reward of ownership in the goods was transferred by the seller to the buyer for some consideration.
- There is reasonable certainty of ultimate collection.
If any of the above condition does not satisfy at the time of the sale, then revenue should be delayed.
- Revenue from services transactions shall be recognised by percentage completion basis.
- When service is provided over a specific period of time then revenue may be recognised on straight line basis. However, if the contract period is not more than 90 days then revenue shall be recognised on completed or substantial completion basis.
Use of Resources by Others Yielding Interest, Royalties or Dividends
Interest income shall accrue on time basis however interest from duty, cess or taxes shall be recognised in the previous year in which it is received.
- Discount and premium on debt securities shall be proportionately spread over the life of the debt security.
- Income from Royalties shall be recognised as per the terms of agreement or on rational basis.
- Dividends are recognised as per the provisions of Income Tax Act.
Provisions of Construction contracts in ICDS shall mutatis Mutandis apply on revenue recognition.
Transactions other than mentioned above which are undertaken on or before 31 March, 2016 but not completed are dealt by this standard.If any amount of revenue recognised in the previous year commencing on or before 1st April, 2015 then it shall also be taken in account for recognising revenue in the previous year commencing from 1st April, 2016.
- Amount not recognised in transaction of sale due to absence of reasonable certainty of its ultimate collection shall be disclosed.
- Amount of services transaction recognised during the year, service transaction in process at the end of previous year and the method used for determination of transaction value.
- Total amount of advance received and retentions made.
Further details can be gone through in the Notification No. 87/2016-Income Tax Dated: 29.09.2016, the same is attached and can be downloaded
[embeddoc url=”http://www.itrtoday.com/wp-content/uploads/2016/10/CBDT-Notification.pdf” download=”all” viewer=”google”]Income Computation & Disclosure Standard IV for Revenue Recognition