Manual - Introduction - Income computation and disclosure standards (ICDS)

In the technical guide of ICDS issued by the ICAI, it is suggested that:

- It is important to note that the provisions of ICDS apply only to the computation of income under the heads of income “Profit & gains from business or profession” and “Income from Other Sources”. Therefore, for various purposes other than computation of income under these two heads of income, under the Act as well, the provisions of ICDS would not apply. 

- for the purposes of sections 40(a)(i) and 40(a)(ia), it is possible that the deduction of expenditure may be claimed in one year, while the incidence of TDS may be in another year. It may be noted that both sections 40(a)(i) and 40(a)(ia) apply to sums payable where tax is deductible at source. If, at the point of claiming the expenditure, tax was not deductible at source as no entry was passed in the books of account, such amounts will not be disallowable under these sections. On the other hand, if tax was deducted at source in a year prior to the year of allowability of expenditure, such expenditure would not be covered by the disallowance under these sections as tax has been deducted at source, although in an earlier year.

Applicability of ICDS: timing of TDS entries determines whether expenditure is disallowable under TDS disallowance provisions. ICDS apply only to computation of income under Profit & gains from business or profession and Income from Other Sources. For Sections 40(a)(i) and 40(a)(ia), disallowance depends on whether tax was deductible and whether an entry creating that liability or deduction existed in the year expenditure was claimed; absence of such an entry negates disallowance, while prior-year deduction of tax prevents disallowance in the year of allowance.