The Government of India is working on a plan to bring together its separate tax and financial reporting regimes under a single framework, business publication Mint reported.
The goal of the exercise is to eliminate one of the most persistent compliance problems for companies.
The proposed reform would seek to align the Indian Accounting Standards (IndAS), which govern corporate financial statements for investors and shareholders, with the Income Accounting and Disclosure Standards (ICDS) used for tax purposes.
If implemented, this would mark the most far-reaching change in India’s accounting architecture since IndAS came into effect in 2016.
Currently, the two systems are based on different accounting philosophies.
Tax accounting standards, or ICDS, are issued by the Income Tax Department, while the Ministry of Corporate Affairs notifies IndAS.
The IndAS is designed to reflect the economic position of a company at a given date, based on measurements of the fair value of assets and liabilities.
Although ICDS does not alter accounting profits or increase total tax expenditure in the long run, it does restrict the scope for carrying forward tax payments to later years.
Under the IndAS, changes in market value (e.g. in financial instruments) are recognized in the accounts, while the ICDS generally relies on historical cost for asset valuation to contain fluctuations in taxable income.
The Ministry of Corporate Affairs and the Central Board of Direct Taxes are taking steps to constitute a committee to work on the integration of the two standards, as outlined in the Union Budget for the financial year 2027 (FY27).
The unified framework will apply starting in fiscal year 2027-28 and will cover revenue earned in fiscal years 26-27.
“India plans major revamp to align tax and financial reporting rules” was created and originally published by The Accountant, a brand owned by GlobalData.
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