Manual - Introduction

ICDS would apply to every person following mercantile system of accounting, irrespective of the level of income. It would not apply to a person following cash system of accounting. It would not also apply to individuals and HUFs whose books of account for the year are not required to be audited under section 44AB. Audit under section 44AB is required only if a person is carrying on business or profession. Accordingly in case of an Individual or HUF, ICDS would apply only if such person is carrying on business or profession. ICDS would not apply if such individual or HUF has no income under the head “Profits and Gains of Business or Profession”, but has income under the head “Income from Other Sources”, though he/it follows mercantile system of accounting for income falling under such head of income.

 

ICDS applicability limited to mercantile accounting; excludes cash-accounting and individuals/HUFs not subject to tax audit. ICDS applies to persons following the mercantile system of accounting and does not apply to those following the cash system. For individuals and HUFs, ICDS is applicable only if they carry on business or profession and their books are required to be audited under the tax audit provisions; it does not apply where there is no business or professional income even if mercantile accounting is followed for other heads.