The CBDT clarification on the adoption of Ind-AS is likely to make the tax calculation of companies that follow a January to December financial year more cumbersome

If accounting professionals were starting to breathe easy with the implementation of the goods and services tax (GST) out of the way, they are likely to have their hands full again. At least some of them.

The Central Board of Direct Taxes (CBDT) has, on Tuesday, issued a clarification on the adoption of Indian accounting standards (Ind-AS) that is likely to make the tax calculation of companies that follow a January to December financial year more cumbersome.

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“In view of second proviso to section 115JB (2) of the act, companies will be required to follow Indian GAAP for the pre-convergence period and Ind-AS for the balance period. For example, a company following December ending will be required to prepare, accounts for MAT purposes under Indian GAAP for nine months up to December 2016 and under Ind-AS for 3 months thereafter. The transition amount will be calculated with reference to 1 January 2017,” the CBDT clarification reads.

While most Indian companies follow an April-to-March financial year, there’s a large list of companies, primarily multi-national corporations (MNCs) that have continued following a January-to-December cycle to help them consolidate their books with their parents. But while companies are free to choose their reporting cycles, they don’t have a choice when it comes to the tax cycle which is April to March.

“Many such companies, while having transitioned to Ind-AS from 1 January 2017, from a reporting perspective, had prepared their full financial year 2016-17 accounts as per the Indian GAAP for determination of taxable income for the year ended 31 March 2017. The CBDT clarification will now make them recalculate their tax outgo by taking into account Indian GAAP for the first nine months and Ind-AS for the last quarter of financial year 2016-17,” Sandip Khetan, partner in an Indian member firm of EY Global, said.

Khetan pointed out that if, for instance, a company that follows a January to December financial year had given a large interest-free loan to one its subsidiaries in the March quarter and accounted for no interest income, as was allowed under Indian GAAP, its tax outgo will now balloon significantly because the Ind-AS doesn’t allow for such loans.

ABB India Ltd., one of the several listed MNCs that follow a January-December financial year, however, welcomed the clarification claiming that it will eliminate duplication of work.

“This is a welcome move and something we have been waiting for as ABB India already follows a January to December year operationally in line with our global presence. This will result in greater synergies and eliminate duplicate working for compliance friendly MNCs like us. We look forward to a planned and phased implementation,” T.K. Sridhar, CFO, ABB India, said.

Khetan, on the other hand, added that while it appears that the CBDT clarification might require such companies to do just one time application of Ind-AS 101, it nonetheless will impact their tax calculation for 2016-17 and will require much more evaluation.