13 changes in I-T Act needed before IFRS convergence

Panel wants nod to keep two accounts in 1st yr.

The finance ministry will have to make 13 changes in the Income Tax Act of 1961 if it has to resolve all direct tax issues arising out of the convergence of Indian accounting standards with International Financial Reporting Standards (IFRS), an expert committee has said.

The group, set up by the country’s audit standard setting body — Institute of Chartered Accountants of India (ICAI) — may ask the ministry to either amend the rules or allow industry to maintain parallel books of accounts in the initial year of transition (2011-12).

The group, which comprises chartered accountants and Central Board of Direct Taxes officials, will submit its report to the ministries of corporate affairs and finance, is learnt.

Harmonisation of the provisions of minimum alternate tax, issues related to tax deducted at source, tax differences arising out of recognition of constructive liabilities or obligations as against the current practice of recognising only legally enforceable liabilities, goodwill depreciation or depreciation of intangible assets, mark-to-market treatment, etc, are some of the issues highlighted by the committee.

The committee discarded the idea of applying IFRS convergence only on consolidated financial statements and allowing companies to follow existing accounting standards for standalone statements. It stated that maintenance of parallel books of accounts would also require the same effort and would be a better option.

The move comes at a time when various sections of industry are seeking a deferment of the IFRS convergence deadline set by the ministry. The ministry has been consistent in its stand that a select group of companies, put in the Phase I group, will have to follow the new Indian Accounting Standards that converge with IFRS from April 1.

The Phase I group excludes banks, insurance companies and smaller companies and has companies that are part of the National Stock Exchange’s bellwether index Nifty, the Bombay Stock Exchange’s Sensex, companies whose shares or other securities are listed on foreign stock exchanges and companies, listed or not, which have a net worth in excess of Rs 1,000 crore.