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    ManualsIncome Tax
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    ManualsIncome Tax
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    Taxability of foreign currency translation reserve: opening FCTR to be included in income unless previously recognised, requiring professional judgment.
    The opening balance of the Foreign Currency Translation Reserve (FCTR) as on 1 April 2016 relating to exchange differences on monetary items for non integral foreign operations shall be recognised in the relevant previous year as income to the extent not previously included in income computation; the correctness of this recognition is debatable and requires appropriate professional judgment because conversion does not create real income and ICDS treatment may not apply to earlier years.
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    Foreign currency liabilities treatment: exchange differences on monetary items hit profit or loss; non monetary differences not taxable or deductible.
    Section 43A does not apply to foreign currency liabilities for purchase of assets in India; such liabilities are governed by ICDS VI. Per ICDS VI para 5(i), exchange differences on monetary items are recognised in the profit and loss account, whereas exchange differences on non monetary items are neither taxable nor deductible.
    ManualsIncome Tax
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    Exchange difference recognition requires periodic recognition until final settlement, treated as income or expense for monetary items.
    Exchange differences on monetary transactions settled after the end of the previous year must be recognised in each intervening period up to final settlement, with exchange gain or loss on settlement treated as income or expense, except for items relating to nonintegral foreign operations.
    ManualsIncome Tax
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    Foreign exchange differences: monetary item gains and losses recognised as income or expense, non-monetary conversion differences excluded.
    Exchange differences on monetary items (cash and assets or liabilities receivable or payable in fixed or determinate amounts of money) arising on settlement or on the last day of the financial year must be recognised as income or expense of that year. Exchange differences on non-monetary items arising on conversion at the last day of the year are not to be recorded as income or expense for that year.
    ManualsIncome Tax
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    Foreign currency transaction recording: use transaction-date exchange rate or a stable weekly/monthly average when fluctuations are insignificant.
    Under ICDS VI, a foreign currency transaction must be initially recorded in the reporting currency using the exchange rate on the transaction date; if rates do not fluctuate significantly from actuals, a weekly or monthly average rate may be used instead.
    ManualsIncome Tax
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    Capitalization of test-run and commissioning expenditure: pre-commercial costs capitalized, post-commercial costs treated as revenue excluding general overheads.
    Expenditure on start-up and commissioning, including test runs and experimental production, must be capitalized as part of the cost of the tangible fixed asset until commercial production begins; expenditure after commercial production is revenue expenditure. Administration and general overheads not relating to a specific tangible fixed asset are excluded from asset cost and treated as revenue expenditure.
    ManualsIncome Tax
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    Valuation of tangible fixed assets requires recording at actual cost including nonrecoverable taxes and directly attributable expenditures.
    Valuation of tangible fixed assets under ICDS V requires recording assets at actual cost, comprising purchase price, duties and taxes that are not recoverable, and other directly attributable expenditure necessary to bring the asset to its intended use; recoverable taxes are excluded.
    ManualsIncome Tax
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    Accrual basis interest recognition: interest taxed on accrual must be included when computing capital gain from subsequent sale.
    Where interest has been accounted as income on an accrual basis before the sale of a security, the amount already taxed as interest income on accrual basis shall be taken into account for computation of income arising from such sale.
    ManualsIncome Tax
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    Interest on compensation taxed as Income from Other Sources when received; accounting standard ICDS does not displace the statute.
    Interest received on compensation or enhanced compensation is taxable in the year of receipt and must be reported under Income from Other Sources, regardless of whether the assessee uses mercantile or cash accounting; where ICDS IV conflicts with the Act the statute prevails.
    ManualsIncome Tax
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    ICDS applicability to gross-basis incomes confirms ICDS governs computation of taxable interest, royalty and fees for technical services.
    ICDS IV (Revenue Recognition) applies to incomes taxed on a gross basis, including interest, royalty and fees for technical services payable to non-residents, and such receipts must be computed and recognized under ICDS principles for determining the amount chargeable to tax.
    ManualsIncome Tax
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    Accrual-based revenue recognition: interest and royalty must be recognised despite collection uncertainty; statutory provisions prevail.
    Interest is recognised on a time basis and royalty according to contractual terms; later non recovery may be claimed as a deduction under the amended deduction provisions, and applicable statutory provisions prevail over ICDS IV.
    ManualsIncome Tax
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    Revenue recognition for leases: lease treated as income not sale; lessor taxed on rent and entitled to depreciation.
    ICDS IV recognises revenue when risk and rewards transfer, so leases are not sales: lease rent is taxable income and the lessor may claim depreciation. Under hire purchase, both parties cannot claim depreciation on the same asset; substance-over-form principles indicate the owner giving the asset on hire should recognise sale while the hirer is entitled to depreciation.
    ManualsIncome Tax
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    Revenue recognition under ICDS IV applies to real estate developers and BOT operators absent a specific exclusion.
    In the absence of any specific ICDS notified for real estate developers, BOT projects and leases, the relevant provisions of the Income tax Act and applicable ICDS (including ICDS III and ICDS IV) apply to revenue recognition, income computation and disclosure for those transactions.
    ManualsIncome Tax
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    Work-in-progress treatment: costs to secure construction contracts must be capitalised and not deducted until related work is performed.
    Precontract costs to secure construction contracts must be treated as an asset and characterised as work-in-progress, representing amounts due from customers, and therefore should not be claimed as a deduction in the year of incurrence but carried forward and recognised when the related construction or installation work is performed.
    ManualsIncome Tax
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    Incidental income in construction contracts: deduct from contract costs; investment returns taxed separately under income provisions.
    Incidental incomes arising from construction contracts are not part of contract revenue and must be reduced from contract costs; examples include sale of surplus materials and disposal of plant and equipment. Income in the nature of interest, dividends and capital gains is excluded from incidental income and is taxed separately under applicable law.
    ManualsIncome Tax
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    Proviso to section 36(1)(iii) inapplicable to construction contracts; interest on contract borrowings is deductible for execution purposes.
    Proviso to section 36(1)(iii) does not apply to borrowings by contractors for executing construction contracts because such borrowings are not for acquisition of an asset; therefore interest on capital borrowed attributable to a construction contract is not barred by the proviso and is allowable as a deduction under ICDS III.
    ManualsIncome Tax
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    Retention money recognition: recognise as revenue only when reasonable certainty of ultimate collection exists under ICDS construction rules.
    Retention money within a construction contract is part of contract revenue and should be recognised as revenue on billing only when there is reasonable certainty of its ultimate collection, based on the contract's performance criteria and para 9 of ICDS on construction contracts.
    ManualsIncome Tax
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    Contract revenue recognition: recognize only costs incurred when outcome is not reliably estimable; early-stage limit applies.
    When the outcome of a construction contract cannot be estimated reliably, revenue is recognized only to the extent of costs incurred, subject to an early-stage completion limit specified in the Income Computation and Disclosure Standard on Construction Contracts.
    ManualsIncome Tax
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    Percentage of completion method recognizes construction contract revenue, expenses and profit by proportion of work completed.
    Recognition of revenue and expenses for construction contracts under ICDS III is governed by the percentage of completion method, whereby revenue, costs and profit are recognized by reference to the stage of completion of contract activity on the reporting date and reported in proportion to work completed.
    ManualsIncome Tax
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    Bad debt deduction available without book write off when previously taxed income becomes irrecoverable under the statutory proviso.
    If contract revenue was offered to tax under ICDS but not recorded in the books and later becomes irrecoverable, it cannot be written off in the absence of a book entry; instead, deduction may be claimed under the statutory proviso allowing bad debt deduction without book write off where the amount was taken into account in computing income in the previous year in which it became irrecoverable or an earlier year.

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      Review of Customs duty Exemptions

      1 February, 2025

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      Union Budget 2025-26 (Full) + Finance Bill, 2025

      VII. Review of Customs duty Exemptions

      A. Review of conditional exemption rates of BCD prescribed in notification No. 50/2017- Customs dated 30.6.2017:

      A comprehensive review has been undertaken in respect of 25 conditional exemptions/concessional rate entries in Notification No. 50/2017-Customs dated 30th June, 2017 whose validity is expiring by 31.3.2025. After review, 24 entries are being continued for varying periods with modification in few entries and 1 entry is being lapsed.

      (1) The details of exemptions/concessional rates being extended with or without modifications:

      S.No

      Description

      Entry No

      End date

      1

      Ships and vessel for breaking up

      S. No. 555A

      31.3.2035

      2

      Raw materials, components, consumables or parts, for use in the manufacture of ships/vessels

      S. No. 559

      31.3.2035

      3

      Bulk drugs for manufacture of drugs or medicines [A separate entry is being created for Drugs, medicines, diagnostic kits specified in List 3 with modifications in the list]

      S. No. 166

      31.3.2029

      4

      Bulk drugs used in the manufacture of polio vaccine and Monocomponent insulins

      S. No. 166A

      31.3.2029

      5

      Bulk drugs used in the manufacture of life saving drugs or medicines [A separate entry is being created for Drugs, medicines, diagnostic kits specified in List 4 with modifications in the list]

      S. No. 167

      31.3.2029

      6

      Drugs, Medicines or Food for Special Medical Purposes (FSMP) used for treatment of rare disease

      S. No. 167A S. No. 607B

      31.3.2029

      7

      Good specified in List 36 imported by testing agencies specified in List 37, for the purpose of testing and/or certification

      S. No. 532A

      31.3.2029

      8

      Crude Glycerin for use in manufacture of Epichlorohydrin

      S. No. 81A

      31.3.2027

      9

      Denatured ethyl alcohol for use in manufacture of industrial chemicals

      S. No. 104B

      31.3.2027

      10

      Fish meal for use in manufacture of aquatic feed S. No. 104C 31.3.2027

       

       

      11

      Goods for the manufacture of telecommunication grade optical fibres or optical fibre cables

      S. No. 168, S. No. 341, S. No. 341A

      31.3.2027

      12

      Textile machinery (with addition of two new machinery)

      S. No. 460 S. No. 460A S. No. 460B S. No. 460C S. No. 460D

      31.3.2027

      13

      Parts and components for use in manufacturing of textile machineries

      S. No. 460E

      31.3.2027

      14

       Goods for use in the manufacture of Open cell of LCD and LED TV panel

      S. No. 515B

      31.3.2027

      15

      Seeds for use in manufacturing of rough Lab- Grown Diamonds [IGCR condition removed]

      S. No. 345B

      31.3.2026

      16

      Parts of wind operated electricity generators, for the manufacture or the maintenance of wind operated electricity generators [The entry has also been modified]

      S. No. 405

      31.3.2026

      17

      Permanent magnets for manufacture of PM synchronous generators above 500KW for use in wind operated electricity generators

      S. No. 406

      31.3.2026

      Note: Description of entries is indicative. Notification may be referred to for complete description.

      (2) The following entry is being allowed to lapse with effect from 01.04.2025:

      S. No.

      S. No. of 50/2017- Customs

      Description

      1.

      489AA

      Heat Coil for use in the manufacture of Electric Kitchen Chimneys falling under tariff item 84146000

      (3) Other Changes in notification No. 50/2017 -Customs dated 30.6.2017

      Certain entries are being modified as under:

      S. No.

      S. No. of 50/17-Cus

      Brief Description

      1.

      257A

      9 new groups of items such as sea shell, adhesive etc are being added to the list of duty free items for use in manufacture of handicrafts for export. The time period for export of the handicraft items is also being increased from 6 months to 1 year, further extended by another three months.

      2.

      539

      BCD exemption is being extended to imports of ground installations for satellites and payloads and its spares and consumables of such installations.

      3.

      539A

      BCD exemption is being provided on goods for use in the building of launch vehicles and launching of satellites

      Note: Description of entries is indicative. Notification may be referred to for complete description.

      B. Amendment of Notifications Nos. 16/2017-Customs dated 20.04.2017 and 153/94-Customs dated 13.07.1994

      Notification No.

      Brief Description

      16/2017-customs dated 20.04.2017

      The notification exempts specified drugs and medicines from the whole of the duty of customs leviable thereon subject to their being supplied free to cost to patients under Patient Assistance Programme (PAP) run by the pharmaceutical companies.

       

      37 new drugs and 13 patient assistance programmes are being added to the list

      153/94-customs dated 13.07.1994

      Currently, articles of foreign origin can be imported into India for maintenance, repair and overhauling subject to their export within six months extendable to 1 year. The duration for export in the case of railway goods imported for such purpose has been increased from 6 months to 1 year further extendable by 1 year

      Note: Description of entries is indicative. Notification may be referred to for complete description.

       


      Full Text:

      Union Budget 2025-26 (Full) + Finance Bill, 2025

      Topics

      ActsIncome Tax