‘Taxing’ returns

From time immemorial, taxes in India have been split into direct taxes (income tax) and indirect taxes (GST). The reason for this split was that both the taxes were very different in the nature and purpose of their levy. The difference between the two taxes has now trickled down to the forms that are used to file returns. While the government is doing all it can to simplify the GST returns into a simple single page form, the new set of income-tax returns released recently are becoming longer and contain information that can be found elsewhere in the tax documents.

The latest version of Form ITR-6 (to be filed by companies other than those claiming exemption as a trust) runs into 45 pages in PDF format. Fifteen pages are occupied by individual line items in the profit or loss account and balance sheet — the return form has taken the trouble of detailing separate financial statements for both Ind AS and non-Ind AS financial statements. This information is readily available from the audited financial statements of the entity.

Numerous schedules need to be filled in the return form. One of the schedules is christened ‘Schedule ICDS’ that mandates that taxpayers quantify the impact of the Income Computation and Disclosure Standards (ICDS) on, among others, accounting policies, valuation of inventories, construction contracts, revenue recognition, and tangible fixed assets.

Ind AS vs ICDS

The Ministry of Corporate Affairs (MCA) announced April 1, 2018, as the date from which the new Accounting Standard on Revenue Ind AS 115 (Revenue from Contracts with Customers) kicks in.

The new standard focusses on transfer of control as the trigger to recognise revenue and mandates recognising various performance obligations in a contract. Ind AS 115 replaces the existing standards on revenue as well as construction contracts. Being based on the erstwhile Accounting Standards, the ICDS on Revenue and Construction Contracts are vastly different from Ind AS 115.

Adopting Ind AS 115 could defer revenue recognition to later years — a concept that is not going to please the tax department. Adopting Ind AS 115 permits companies to capitalise specific costs such as sales commissions and amortise the capitalisation over the period of expected benefit.

A new ‘Standard on Leases’ turns the accounting for leases on its head — the lessee will have to account for large ticket leases beyond one year as an asset in the balance sheet and claim depreciation on the leased asset — a concept that the tax department is going to absolutely abhor.

The tax department does not seem to be in favour of amending any of the ICDS standards resulting in a situation wherein there would always be differences between accounting revenues and tax revenues. The concept of deferred taxes would balance the difference. Much of the information sought for in the tax returns find a place in the Tax Audit report that is mandated under the Income Tax Act.

A significant number of companies that have to file ITR-6 would also have to get their tax audits done — there would again be a repetition of information.

The new set of IT forms also require the salaried man to give a breakdown of his salary instead of a summary — this could well have arisen due to the recent claims for refund on fake documentation that surfaced recently.

Apart from data on their income/expenses, taxpayers will need more time and patience to file their income tax returns accurately.

The author is a chartered accountant.

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