ICDS - 08 - VIII - Securities (w.e.f. AY 2017-18) - Accounting Standards U/s 145(2)

H. Income Computation and Disclosure Standard VIII relating to securities (Vide notification no. 87/2016 dated 29-9-2016 w.e.f. Assessment Year 2017-18) Preamble This Income Computation and Disclosure Standard is applicable for computation of income chargeable under the head Profits and gains of business or profession or Income from other sources and not for the purpose of maintenance of books of account. In the case of conflict between the provisions of the Income-tax Act, 1961 ('the Act') and this Income Computation and Disclosure Standard, the provisions of the Act shall prevail to that extent. Part A Scope 1. This part of Income Computation and Disclosure Standard deals with securities held as stock-in-trade. 2. This part of Income Computation and Disclosure Standard does not deal with: ( a ) the bases for recognition of interest and dividends on securities which are covered by the Income Computation and Disclosure Standard on revenue recognition; ( b ) securities held by a person engaged in the business of insurance; ( c ) securities held by mutual funds, venture capital funds, banks and public financial institutions formed under a Central or a State Act or so declared under the Companies Act, 1956 (1 of 1956) or the Companies Act, 2013 (18 of 2013). Definitions 3(1) The following terms are used in this part of Income Computation and Disclosure Standard with the meanings specified: ( a ) Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm's length transaction. ( b ) Securities shall have the meaning assigned to it in clause ( h ) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and shall include share of a company in which public are not substantially interested but shall not include derivatives referred to in sub-clause ( ia ) of that clause ( h ). 3(2) Words and expressions used and not defined in this part of Income Computation and Disclosure Standard but defined in the Act shall have the meaning respectively assigned to them in the Act. Recognition and Initial Measurement of Securities 4. A security on acquisition shall be recognised at actual cost. 5. The actual cost of a security shall comprise of its purchase price and include acquisition charges such as brokerage, fees, tax, duty or cess. 6. Where a security is acquired in exchange for other securities, the fair value of the security so acquired shall be its actual cost. 7. Where a security is acquired in exchange for another asset, the fair value of the security so acquired shall be its actual cost. 8. Where unpaid interest has accrued before the acquisition of an interest-bearing security and is included in the price paid for the security, the subsequent receipt of interest is allocated between pre-acquisition and post-acquisition periods; the pre-acquisition portion of the interest is deducted from the actual cost. Subsequent Measurement of Securities 9. At the end of any previous year, securities held as stock-in-trade shall be valued at actual cost initially recognised or net realisable value at the end of that previous year, whichever is lower. 10. For the purpose of para 9, the comparison of actual cost initially recognised and net realisable value shall be done categorywise and not for each individual security. For this purpose, securities shall be classified into the following categories, namely:- ( a ) shares; ( b ) debt securities; ( c ) convertible securities; and ( d ) any other securities not covered above. 11. The value of securities held as stock-in-trade of a business as on the beginning of the previous year shall be: ( a ) the cost of securities available, if any, on the day of the commencement of the business when the business has commenced during the previous year; and ( b ) the value of the securities of the business as on the close of the immediately preceding previous year, in any other case. 12. Notwithstanding anything contained in paras 9, 10 and 11, at the end of any previous year, securities not listed on a recognised stock exchange; or listed but not quoted on a recognised stock exchange with regularity from time to time, shall be valued at actual cost initially recognised. 13. For the purposes of paras 9, 10 and 11 where the actual cost initially recognised cannot be ascertained by reference to specific identification, the cost of such security shall be determined on the basis of first-in-first-out method or weighted average cost formula. Part B Scope 1. This part of Income Computation and Disclosure Standard deals with securities held by a scheduled bank or public financial institutions formed under a Central or a State Act or so declared under the Companies Act, 1956 (1 of 1956) or the Companies Act, 2013 (18 of 2013). Definitions 2(1) The following terms are used in this part of Income Computation and Disclosure Standard with the meanings specified: ( a ) Scheduled Bank shall have the meaning assigned to it in clause ( ii ) of the Explanation to clause ( viia ) of sub-section (1) of section 36 of the Act. ( b ) Securities shall have the meaning assigned to it in clause ( h ) of section 2 of the Securities Contract (Regulation) Act, 1956 (42 of 1956) and shall include share of a company in which public are not substantially interested; 2(2) Words and expressions used and not defined in this part of Income Computation and Disclosure Standard but defined in the Act shall have the meaning respectively assigned to them in the Act. Classification, Recognition and Measurement of Securities 3. Securities shall be classified, recognised and measured in accordance with the extant guidelines issued by the Reserve Bank of India in this regard and any claim for deduction in excess of the said guidelines shall not be taken into account. To this extent, the provisions of Income Computation and Disclosure Standard VI on the effect of changes in foreign exchange rates relating to forward exchange contracts shall not apply.