Govt to form panel to align tax, accounting rules and cut India Inc compliance burden

New Delhi: The corporate affairs ministry and Central Board of Direct Taxes (CBDT) will jointly set up a panel by March-end to pursue aligning tax computation rules with accounting standards and lessen India Inc’s compliance burden, officials said.

The move, proposed by finance and corporate affairs minister Nirmala Sitharaman in the budget last week, is also aimed at reducing litigation caused by any perceived divergence between the accounting and tax frameworks.

Apart from senior officials from the corporate affairs ministry and CBDT, the panel will also comprise industry representatives and members of the Institute of Chartered Accountants of India (ICAI), the officials told ET.

Sitharaman had proposed incorporating requirements of Income Computation and Disclosure Standards (ICDS) in the Indian Accounting Standards (IndAS) itself. “Separate accounting requirements based on ICDS will be done away with from the tax year 2027-28,” she said in her budget speech.

Currently, companies effectively maintain two sets of numbers-firstly, for statutory reporting under the Companies Act and Ind AS, and another for determining taxable income under the Income-tax Act using ICDS. This parallel system has led to extensive year-end reconciliations, higher compliance and advisory costs, and frequent disputes with tax authorities. ICAI president Charanjot Singh Nanda told ET that the formation of the panel is “aimed at aligning financial reporting and tax computation frameworks more closely”.

ICDS are a set of 10 tax-specific standards issued by the government under the income tax law to govern how income is computed for tax purposes. Ind AS are financial reporting standards applied in the preparation and presentation of general-purpose financial statements, said Nanda.
The ICAI is evaluating the budget proposal and will soon engage with the relevant stakeholders, he added.Tax experts said a major share of direct tax disputes stem not from aggressive tax planning but from interpretational gaps between Ind AS and ICDS. Differences in areas such as revenue recognition, provisions, foreign exchange treatment and long-term contracts often result in adjustments that are complex to compute and defend, prolonging litigation. The officials cited earlier said the decision to form the panel emerged during consultations of Parliament’s joint committee on income tax, after repeated stakeholder representations on simplifying book-tax differences and reducing litigation.

“A simplified and well-executed unified system can materially reduce the time, effort and cost of compliance,” said Kinjal Bhutta, treasurer at the Bombay Chartered Accountants Society (BCAS).

If executed well, such convergence could reduce duplication of effort, improve certainty for taxpayers, and streamline administration for the tax department.