Tax Accounting Standards (TAS) - India

CBDT - Central Board of Direct Taxes has released a "Discussion paper on Tax Accounting Standards" and has requested comments / suggestions by 11th November, 2011.

Why Tax Accounting Standards

The income tax department is of the view that the accounting standards issued by ICAI are flexible which would enable an assessee to avoid payment of correct income tax.  Hence they felt that they should have seperate Tax Accounting Standards which will be notified under the Income Tax Act which ensures that correct income tax is assessed. 

Does this mean maintenance of two books of accounts

The discussion paper tries to clarify that there is no requirement to maintain two books of accounts.  Books of accounts can be maintained as per Accounting Standards of ICAI, only for purpose of tax calculation the "Tax Accounting Standards" should be referred to.  This means the profits as per books (maintained as per accounting standards of ICAI) and profit as per income tax calculation (Calculated as per Tax Accounting Standards) will be different, hence there needs to be a reconciliation presented in the financial statements between these two.

Conflict between Tax Accounting Standard & Income Tax Act

The discussion paper has expressly provided that in case of confict between Income Tax Act and provisions of Tax Accounting Standard then the provisions of Income Tax Act will apply

Currently Draft Tax Accouting Standards have been issued only for

1. Construction Contracts
2. Accounting for Government Grants

We can expect more to come

Full details of this discussion paper can be reached at
http://finmin.nic.in/reports/DiscussionPaper.pdf