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Manuals Income Tax
What is the impact of ICDS X containing transitional provisions.
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Transitional provisions for ICDS X ensure recognition of provisions and contingent items to prevent double taxation or omission.
Transitional recognition under ICDS X requires that provisions, contingent liabilities and contingent assets and related income be recognised for previous years commencing on or after 1 April 2016 in accordance with this standard, after taking into account any amount recognised for the same items for previous years ending on or before 31 March 2016; the rule aims to prevent double taxation or omission of income.
Manuals Income Tax
Under ICDS X, whether reversal of an asset and the related income would mean that the entry which wa...
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Supremacy of tax law: reversal of an ICDS-recognised asset must follow tax deduction rules, permitting write-off as bad debt.
Reversal of an asset and related income recognised under ICDS X must conform to the Income-tax Act where conflicts arise; the Act's tax-deduction treatment applies, allowing write-off as a bad debt rather than simply reversing the original accounting recognition entry.
Manuals Income Tax
Can any expenditure should set off against a provision recognised for another expendiure.
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Set-off of provisions: expenditures may be set off only against the original provision, not provisions for different purposes.
Under ICDS X, expenditures must be set off only against the original provision for which they were recognised; expenditures cannot be offset against provisions recognised for a different event or purpose, as that would conceal the separate financial effects of distinct events and undermine transparent disclosure of provisions, contingent liabilities and contingent assets.
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Employee post retirement benefit provisioning excluded from ICDS X, governed by specific statutory provisions for income computation.
Provisioning for employee post retirement benefits covered by AS 15 shall continue to be governed by specific provisions of the Act and are not dealt with by ICDS X; ICDS X does not apply to liabilities otherwise falling within AS 15.
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What is the manner of recording the borrowing costs.
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Borrowing costs capitalization requires capitalizing interest for qualifying assets; inventory only when production is prolonged.
Borrowing costs directly attributable to acquisition, construction or production of tangible and intangible assets must be capitalized as part of the asset cost. Inventory borrowing costs are capitalized only when the inventory requires an extended period to become saleable. Specific borrowings for a qualifying asset require capitalization of actual borrowing costs incurred during the qualifying period. For general borrowings, a formulaic allocation apportions borrowing costs to qualifying assets based on the ratio of qualifying assets to total assets.
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What are the activities necessary to prepare inventory for its intended sale as per ICDS IX.
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Inventory preparation processes define activities included in inventory cost when making goods fit and saleable under accounting standards.
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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.
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How to allocate borrowing costs relating to general borrowing as computed in accordance with formula...
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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.
Manuals Income Tax
Under ICDS IX does borrowing cost include exchange differences arising from foreign currency borrowi...
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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.
Manuals Income Tax
Whether bill discounting charges and other similar charges would fall under the definition of borrow...
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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.
Manuals Income Tax
Which are the borrowing costs covered by ICDS IX.
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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.
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What is the manner in which securities held as stock-in-trade are required to be valued.
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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.
Manuals Income Tax
Para 9 of ICDS-VIII on securities requires securities held as stock-in-trade shall be valued at actu...
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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.
Manuals Income Tax
Which ICDS would govern derivative instruments.
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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.
Manuals Income Tax
For subsidy received prior to 1st day of April 2016 but not recognised in the books pending satisfac...
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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.
Manuals Income Tax
How to deal with a situation where compensation is payable for the purposes of giving ‘immediate f...
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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.
Manuals Income Tax
Whether a grant which is not directly relatable to non-depreciable assets should be concluded as an ...
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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.
Manuals Income Tax
Where the grants are received for assets which are outside the block of assets, then what is the tre...
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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.
Manuals Income Tax
Whether grants should be recognised even in cases where there is no certainty that the conditions at...
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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.
Manuals Income Tax
How are Government grants to be recognized.
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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.

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Rationalisation of TCS rates

1 February, 2026

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Union Budget 2026-27 - Finance Bill, 2026

H. RATIONALISATION OF OTHER DIRECT TAX PROVISIONS

Section 394(1) of the Act provides multiple rates for collection of tax at source (TCS). It is proposed to rationalize the rates of TCS by providing uniform rates to the extent possible. It is also proposed to reduce some of the rates so as to provide relief to the collectees.

2. Table: Sl. No. 1 of the said section provides that TCS on sale of alcoholic liquor for human consumption be collected at the rate of 1%. It is proposed that the rate shall be increased to 2%.

3. Table: Sl. No. 2 of the said section requires that 5% TCS be collected on sale of tendu leaves. It is proposed that the rate shall be reduced to 2%.

4. Table: Sl. No. 4 of the said section requires for collection of tax at source by the seller at the rate of 1% on sale of scrap. It is proposed that the rate shall be increased to 2%.

5. Table: Sl. No. 5 of the said section requires that TCS be collected at the rate of 1% on sale of minerals, being coal or lignite or iron ore. It is proposed that the rate shall be increased to 2%.

6. Table: Sl. No. 7 of the said sub-section requires for TCS on remittances made under Reserve Bank of India’s Liberalised Remittance Scheme (LRS). At present, TCS at 5% is collected if remittance is for the purposes of education or medical treatment and the remittance amount is more than ten lakh rupees. It is proposed to reduce the rate of TCS to 2%

8. Table: Sl. No. 8 of the said sub-section requires TCS at the rate of 5% and 20% on sale of overseas tour programme package including expenses for travel or hotel stay or boarding or lodging or any such similar or related expenditure. It is proposed to reduce the rate of TCS to 2%. It is further proposed that threshold for applicability of the provision be removed and TCS on sale of overseas tour programme package be collected at 2% irrespective of the amount. This will address the concern of shifting of business from domestic tour operators to overseas tour operators.

9. Therefore, rationalisation of TCS rates is proposed as follows:—

Sl.No

Nature of receipt

Current Rate

Proposed Rate

1.

Sale of alcoholic liquor for human consumption.

1%.

2%.

2.

Sale of tendu leaves.

5%.

2%.

3.

Sale of scrap.

1%.

2%.

4.

Sale of minerals, being coal or lignite or iron ore.

1%.

2%.

5.

Remittance under the Liberalised Remittance Scheme of an amount or aggregate of the amounts exceeding ten lakh rupees—

(a) 5% for purposes of education or medical treatment;

(b) 20% for purposes other than education or medical treatment.

(a) 2% for purposes of education or medical treatment;

(b) 20% for purposes other than education or medical treatment.

6.

Sale of “overseas tour programme package” including expenses for travel or hotel stay or boarding or lodging or any such similar or related expenditure.

(a) 5% of amount or aggregate of amounts up to ten lakh rupees;

(b) 20% of amount or aggregate of amounts exceeding ten lakh rupees.

2%

9. The amendment will take effect from the 1st day of April, 2026.

[Clause 73]

 

Full Text:

Union Budget 2026-27 - Finance Bill, 2026

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Acts Income Tax
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