Borrowing cost capitalization must exclude portions disallowed by specific statutory provisions, only allowable amounts may be capitalised. Borrowing costs capitalised under ICDS IX must exclude amounts disallowed by specific provisions of the Act; only the portion of borrowing cost that remains allowable under the Act may be capitalised, because specific statutory disallowances override ICDS treatment.
Capitalization of borrowing costs: general borrowing must be allocated to qualifying assets and capitalized on an asset-by-asset basis. General borrowing costs computed under the ICDS-IX formula must be apportioned among qualifying assets and capitalized on an asset-by-asset basis, so that each qualifying asset's capitalized borrowing cost reflects its proportionate share of general borrowing under the standard.
Exchange differences excluded from borrowing costs under ICDS IX; foreign exchange effects governed by ICDS VI. Exchange differences from foreign currency borrowings that are treated as adjustments to interest are excluded from borrowing costs under ICDS IX; the effects of changes in foreign exchange rates, including those relating to interest, are governed by ICDS VI.
Borrowing cost: bill discounting and similar charges treated as borrowing cost, except when not tied to borrowed funds. The definition of borrowing cost is inclusive and generally covers bill discounting charges and similar charges as borrowing cost for income computation and disclosure; however, discounting charges that do not arise from borrowing funds are excluded from that definition.
Borrowing costs include interest and related charges such as commitment charges, amortised discount and finance lease charges. Borrowing costs under ICDS IX comprise interest and other costs incurred in connection with borrowing funds, including commitment charges, amortised discount or premium, amortised ancillary costs in arranging borrowings, and finance charges for assets taken on finance lease.
Valuation of securities as stock-in-trade: mandatorily at lower of actual cost and net realizable value. Securities held as stock-in-trade must be valued at the lower of actual cost initially recognized and net realizable value at year-end. Unlisted or unquoted securities held as stock-in-trade are to be measured at actual cost as initially recognized, under the income computation and disclosure standards framework.
Valuation of securities: aggregate category wise cost compared with net realisable value, lower amount taken as carrying value. For subsequent measurement under ICDS VIII, securities held as stock in trade are aggregated category wise; for each category the aggregate cost and aggregate net realisable value are compared, and the lower of the two is taken as the carrying value.
Derivatives accounting: ICDS VI governs typical derivatives, ICDS I applies residually, capital-asset derivatives are excluded. ICDS VI supplies guidance for derivative contracts such as forward contracts; derivatives outside ICDS VI's scope fall under ICDS I. Derivative instruments that qualify as capital assets are excluded from ICDS and thus not governed by those standards.
Recognition of government grants: pre-existing grants deemed recognised on receipt while later grants follow ICDS recognition criteria. Grants actually received before the ICDS effective date are deemed recognised on receipt under Para 4(2) of ICDS VII and remain governed by pre-ICDS law; grants received on or after the effective date must be recognised only when the ICDS VII recognition criteria in Paras 5-9 are satisfied, with recognition then following ICDS VII.
Government grant for immediate financial support must be recognised when receivable, irrespective of actual receipt. Government grants given as immediate financial support and not tied to specific expenditure must be recognised when the grantee is entitled and sums become receivable; actual receipt is immaterial. If the grant is confined to an individual enterprise and grant-related conditions are met, recognition occurs in the period of receivability, governing timing of income inclusion and disclosure under the income computation framework.
Government grants treatment: grants not directly relatable to nondepreciable assets treated as taxable income rather than reduction in asset cost. Grants not directly relatable to nondepreciable assets are to be recognised as taxable income under the Act rather than deducted from asset cost; the ICDS preamble confirms the Act prevails over ICDS, and paragraph 7 of ICDS VII applies solely to depreciable assets where reduction of asset cost is appropriate.
Recognition of government grants: generally recognized as income on receipt unless reasonable certainty permits spreading with related costs. Grants for assets outside the block of depreciable assets are to be recognized as income; statutory tax provisions control and preclude spreading recognition beyond the year of receipt, except where there is reasonable certainty of receipt permitting deferral and matching with costs incurred for obligations related to the non-depreciable assets.
Recognition of government grants: must occur on receipt; potential reversals are applied against unamortized deferred credit balances. ICDS VII requires government grants to be recognised on the date of receipt and prohibits deferral beyond receipt; where grants become refundable because attached conditions are unmet, reversal of initial recognition must first be applied to the unamortized deferred credit arising from the grant, so income recognition must reflect both receipt and the certainty of meeting conditions.
Recognition of government grants requires reasonable certainty of compliance and receipt; disclose in income computation accordingly. Under ICDS VII, government grants are to be recognized when there is reasonable certainty that the related conditions will be complied with and that the grants will be received; such grants should not be postponed beyond the actual receipt date for income computation and disclosure purposes.
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.
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.
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.
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.
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.
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.
Comparison of SCHEDULE V "INCOME NOT TO BE INCLUDED IN TOTAL INCOME OF CERTAIN ELIGIBLE PERSONS INCLUDING INVESTMENT FUNDS, BUSINESS TRUSTS AND THEIR UNIT HOLDERS" between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)
18 September, 2025
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Tax exclusion for institutional investment vehicles: conditional non inclusion of specified income subject to regulatory compliance and clawback. Schedule V excludes specified income from total income for defined eligible persons-investment funds, business trusts (including REITs/InvITs), venture ... Summary
Tax exclusion for institutional investment vehicles: conditional non inclusion of specified income subject to regulatory compliance and clawback.
Schedule V excludes specified income from total income for defined eligible persons-investment funds, business trusts (including REITs/InvITs), venture capital vehicles and certain foreign public investors-operating as a negative list subject to conditions and Notes. Exclusions include non business dividend and interest for investment funds, SPV interest/dividend exemptions for business trusts, REIT rental income exclusions for directly owned assets, and a layered specified person exemption with holding period, investment type, proportional computation, carve outs and clawback rules; implementation relies on cross references to SEBI/RBI/IFSC rules and Board guidelines.
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