Bharatiya Nyaya Sanhita and Bharatiya Danda Sanhita have replaced the Code of Criminal Procedure and the Indian Penal Code.
During her 2025 Budget speech, the Finance Minister referenced the Sanhitas mentioned above and confirmed that the new Income Tax Bill would also be based on the concept of Nyaya.
The Finance Minister stated that the new Bill will be clear and direct in text with close to half of the present law, in terms of both chapters and words. It will be simple to understand for taxpayers and the tax administration, leading to tax certainty and reduced litigation, it was said. One was expecting a Bharatiya Aayakar Samhita but what we got was the Income Tax Bill of 2025 with 536 Sections and 16 Schedules. The general response to the Bill seems to be that it is good in parts, but it has not made income tax laws easier, simpler and better.
One of the provisions of the income tax law that could do with a lot of Nyaya are the provisions of Section 145(2) relating to Income Computation and Disclosure Standards ( ICDS). The Section states that the Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income. Through Notification No SO 3079E dated September 29, 2016, the Income Tax Department notified the same.
Cosmetic changes
These standards dealt with accounting matters, from disclosure of accounting policies to accounting for provisions. One would have thought that the Department would have reconsidered including ICDS in its present form in the Income Tax Bill 2025. However, we find that Section 145(2) of the present Income Tax Act has been replaced word for word by Section 276(2) in the Income Tax Bill.
There have been some cosmetic changes in the other provisos but the essence of ICDS has been retained. Section 145A, which detailed the method of accounting in certain specific circumstances, has been replaced by Section 277.
If those who worked on the new Income Tax Bill had thought through the provisions regarding ICDS, they would have observed that the provisions have not changed even a bit from 2016. Section 145(2) would probably hold the record for a Section in the Income Tax Act that has not been frequently amended. This is rather hard to understand.
The stated purpose of the ICDS provisions was to provide tax accounting standards — how accounting concepts would be addressed for tax purposes. The ICDS in the statute suffer from two major inconsistencies — they do not cover all the accounting standards nor do they cover the tax treatment for complex transactions.
There are 10 ICDS standards as compared to 27 Accounting Standards and 40 Ind AS Accounting Standards. The present ICDS are based on Accounting Standards and do not provide any guidance on the accounting for Ind AS.
The pandemic has proved that entities need to take impairment losses seriously — there is no guidance from ICDS on the tax allowability of significant impairment losses.
Revenue recognition under Ind AS can be deferred over a period of time but tax may have to be paid in advance if one considers the ICDS on revenue.
Accounting for real estate transactions can be complex — here again we do not have any visibility from ICDS.
Assessing officers do not understand the concepts of discounting and fair value under Ind AS since they do not form a part of ICDS. Ind AS tax assessments are resulting in arbitrary additions.
As the new Income Tax Bill undertakes its journey from concept to legislation, the Income Tax Department would do well to take a hard look at the necessity of Section 276(2). They would probably come to the conclusion that with 536 sections, income tax rules and tax audit, Section 276(2) is best done away with.
The writer is a chartered accountant
