s.145(2) — Income computation and disclosure standards
The Central Government may notify income computation and disclosure standards to be followed in computing business income and income from other sources, and income not computed under them can be assessed to best judgment.
The ten standards were notified by Notification 87 of 2016 dated 29 September 2016, applicable from assessment year 2017-18. No re-notification under section 276(2) of the Income-tax Act, 2025 or under the Income-tax Rules, 2026 was found; they continue through the savings clause in section 536(2)(j) of the 2025 Act.
Income-tax Act, 1961
s.145(2)
Income-tax Act, 2025
s.276(2)
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 145(2) of the Income-tax Act, 1961 empowers the Central Government to 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. Section 145(3) allows the Assessing Officer to make a best judgment assessment under section 144 where, among other things, income has not been computed in accordance with the notified standards. Notification 87 of 2016 dated 29 September 2016 notified ten standards to be followed by all assessees following the mercantile system, other than an individual or Hindu undivided family not liable to tax audit under section 44AB, for computing income under the heads business income and income from other sources, from assessment year 2017-18. Each standard applies for computing income and not for maintaining books, and the Act prevails where it conflicts with a standard. The Delhi High Court in Chamber of Tax Consultants v. Union of India on 8 November 2017 struck down parts of several standards, and the Finance Act, 2018 inserted section 43CB and, by section 47, substituted new sections 145A and 145B for section 145A, with effect from 1 April 2017. The Board's FAQs issued as Circular 10 of 2017 on 23 March 2017 state that no standard has been notified for real estate developers, BOT projects and leases, and that the relevant provisions of the Act and the standards apply as may be applicable. The counterpart in the Income-tax Act, 2025 is section 276(2), with the best judgment limb in section 276(3)(c).
What the provision does
Empowers the notification of standards that govern the computation of business income and income from other sources independently of the accounting standards used in the books, and makes non-compliance a ground for best judgment assessment. It does not govern the maintenance of books, does not override the Act, and has produced no standard specific to real estate developers.
Threshold questions
- Does the assessee follow the mercantile system, and is it outside the exclusion for an individual or Hindu undivided family not liable to tax audit
- Is the income chargeable under the head business income or income from other sources
- Does a notified standard cover the transaction, or is it one for which the Board has said no standard is notified
- Does the Act itself prescribe a different treatment, which prevails over the standard
- Is the year assessment year 2017-18 or later, and does a transitional provision preserve an earlier method
In practice
The recurring disputes.
What the Board's answer for real estate developers means
The Board's FAQ says that no standard is notified for real estate developers and that the relevant provisions of the Act and the standards shall apply as may be applicable. The developer's reading, adopted by the Chennai Tribunal in BSR Builders, is that ICDS III on construction contracts does not apply to a developer at all, so the method regularly followed under section 145(1) governs. The Kolkata Tribunal in Bengal Peerless read it as leaving recognition to the applicable accounting standards and Ind AS. The Revenue's reading is that the FAQ does not exclude anything and that ICDS IV on revenue recognition, which has no developer exclusion, applies to a developer's sales. The circular on the Department's site is a scanned image, and the text is taken from the Tribunal's quotation and published reproductions. No High Court has resolved the competing readings.
The effect of Chamber of Tax Consultants after the Finance Act, 2018
The Delhi High Court struck down parts of the standards as inconsistent with the Act and with decided law. The assessee's argument is that the parts struck down and not later given statutory force remain unenforceable, at least within the Delhi High Court's jurisdiction and persuasively elsewhere. The Revenue's argument is that the Finance Act, 2018 validated the substance of the standards by inserting provisions such as section 43CB with retrospective effect, so the decision has limited continuing effect. Which parts survive depends on whether a specific statutory provision now carries the rule, and the paragraph numbering of the judgment used in commentary is taken from published copies rather than the Court's own. The point has not been tested in a High Court since 2018.
Whether the standards continue under the Income-tax Act, 2025
Section 276(2) of the 2025 Act carries the power, and no fresh notification under it was found. The view taken here is that the 2016 notification continues under section 536(2)(j), which deems notifications under the repealed Act to have been issued under the corresponding provision so far as not inconsistent with the new Act. The contrary argument is that a computational standard affecting the charge should be notified afresh under the new Act and that inconsistencies, such as references to repealed sections, prevent the deeming from operating in part. The Board's FAQs on section 536 do not mention the standards, and the point has not been tested.