Recent amendments to Ind AS: An overview of key changes and financial reporting implications

The Ministry of Corporate Affairs (MCA), through Gazette Notification No. G.S.R. 725(E) dated 12 August 2026, has notified the companies (Indian Accounting Standards) Amendment Rules, 2026. The Rules include amendments to Ind AS 109 Financial Instruments and Ind AS 107 Financial Instruments: Disclosures, along with improvements to certain other Ind AS. These amendments are aligned with corresponding changes in IFRS and are applicable for the financial year beginning 1 April 2026. Companies preparing financial statements/ results on a quarterly basis need to apply these amendments:

• While preparing financial statements/results for the quarter ending 30 June 2026, if the financial statements/results are approved for issuance after the notification of these rules.
• While preparing financial statements/results for the quarter/half-year ending 30 September 2026, in other cases.

Once these changes become applicable as per the requirements stated above, any company going for an Initial Public Offering (IPO) will need to give effect to these changes in the restated financial information for all three years and stub-period, if any.

In this article, we provide an overview of key amendments and financial reporting implications.

Recognition and derecognition of financial assets and financial liabilities

While Ind AS 109 deals with recognition and derecognition of financial assets and financial liabilities, one may argue that except for regular way purchases or sales of financial assets, it does not explicitly specify the date on which financial asset or financial liabilities should be recognized or derecognized.

In case of regular way purchase or sale of financial assets, Ind AS 109 allows entities to recognize/ derecognize the asset using either trade date or settlement date accounting. The said principle will continue to apply for regular way purchases or sales of financial assets. For all other transactions involving financial assets/liabilities, it is clarified that they will be recognized or derecognized on the following date

Recognition

An entity will recognize a financial asset or a financial liability when it becomes a party to the contractual provisions of the instrument.

Derecognition

• Financial assets: Financial assets will be derecognized when contractual rights to cash flows expire or are transferred. The Basis for Conclusions to the Amendments in IFRS 9 clarifies that, in the absence of having access to the cash, a confirmation from a debtor that a payment instruction has been initiated does not lead to the expiry of the right to receive cash. It is only when the cash is received that such a right expires.
• Financial liabilities: Financial liabilities will be derecognized when the obligations specified in the contract are discharged, canceled or expired, or the liability otherwise qualifies for derecognition, which is the settlement date. However, an entity may be permitted to derecognize financial liabilities settled by an electronic payment system earlier than their settlement date, subject to certain criteria being met (refer below).

How we see it

Many entities receive payment for sale of goods or services through credit or debit cards, which are typically not settled as cash until a later date. The entities must carefully consider the classification of amounts receivable under such arrangements in their financial statements. It is expected that the judgment will be required to determine if these amounts qualify as trade receivables, cash and cash equivalents, or other financial assets. The amount can be classified as a trade receivable only if the entity has a contractual right to receive cash flows from its customer. Similarly, the amount may be classified as a cash equivalent if it meets the definition of cash equivalents under Ind AS 7, Statement of Cash Flows, namely, that it represents a short-term, highly liquid investment that is readily convertible into known amounts of cash, which is subject to an insignificant risk of changes in value and is held primarily to meet short-term cash commitments rather than for investment or other purposes. If these criteria are not met, the amount should be classified as other financial asset.

Derecognition exception for electronic payments:

The amendments introduce an accounting policy choice for a financial liability settled through an electronic payment system. An entity may deem the financial liability to have been discharged before the settlement date if, and only if:

• The entity has no practical ability to withdraw, stop or cancel the payment instruction.
• The entity has no practical ability to access the cash to be used for settlement as a result of the payment instruction.
• Settlement risk associated with the electronic payment system is insignificant. For settlement risk to be insignificant, completion of the payment needs to follow a standard administrative process, and the period between the entity losing access to the payment and cash being delivered to the counterparty needs to be short.

If an entity elects to apply this accounting policy, it must apply the policy to all settlements made through the same electronic payment system. This part of the amendment does not apply, and there is no accounting policy choice to derecognize financial liability settled by other means, such as payments by cheque, debit card or credit card. A similar accounting policy election is not available for financial assets, whether settled through an electronic payment system or otherwise.

How we see it

An entity needs to determine what recognition/derecognition date it currently applies to each of its financial assets and financial liabilities, and to what extent this date conforms to the amendments. The assessment should include all settlement methods such as cheques, debit cards and credit cards, as well as electronic transfer systems. This assessment requires a thorough understanding of various cash settlement mechanisms, including when a receivable or payable is settled via each mechanism.

The amendments make it clear that adjustments to an entity’s reported cash balance at the reporting date for payments and receipts that are in-transit should not be made. This may be a change for most of the entities, especially for those with a long-established practice of such adjustments.

Contracts referencing nature-dependent electricity

Many entities enter into long-term power purchase agreements (PPA) to purchase electricity from renewable energy sources such as wind or solar power plants, where the timing and volume of power generated is purely nature dependent. In many cases, the purpose of these PPAs is to secure electricity for own use; however, due to the unique characteristics of electricity, including difficulty to store it, and its market structure, i.e., if a purchasing entity is not able to use the electricity within a short period, the electricity may need to be sold back to the market within a specified time. Although these sales occur because of the market structure and not to generate profit from short-term price fluctuations, an issue arises whether the purchasing entity can treat these PPA as normal power purchase contract or it needs to treat the entire PPA as a derivative under Ind AS 109. It is obvious that the application of derivative accounting will create unwarranted volatility in the statement of profit and loss (P&L).

The amendment is aimed at addressing such practical issues. It primarily addresses two principal issues:

• Application of the own-use exception to contracts for nature-dependent electricity.
• Application of hedge accounting where electricity volumes vary because of uncontrollable natural conditions.

Ind AS 107 has also been amended to introduce related disclosure requirements.

Scope of the amendment

The amendment is applicable to contracts referencing nature-dependent electricity that expose an entity to variability in the underlying amount of electricity because generation depends on uncontrollable natural conditions. Wind and solar generation are typical examples. These amendments are narrow in scope and cannot be applied by analogy to other contracts.

Amendments to the own-use exception

These amendments provide that an entity will be eligible for applying own-use exception to PPA (and, therefore, not required to apply derivative accounting) if it has been, and expects to be, a ‘net purchaser’ of electricity over the contract period. An entity will be a net purchaser of electricity if it buys sufficient electricity to offset the sale of any unused electricity in the same market in which it sells the electricity. An entity must make this net purchase assessment based on reasonable and supportable information (that is available without undue cost or effort) about its past, current and expected future electricity transactions over ‘a reasonable amount of time’. When identifying ‘a reasonable amount of time’, an entity must consider variability in electricity generated due to the seasonal cycle of natural conditions, and variability in the entity’s demand for electricity due to its operating cycle. However, a reasonable amount of time must not exceed 12 months.

For example, in a contract where the purchaser is required to take delivery of 100% of electricity generated from a wind or solar plant, which is in line with the entity’s expected usage per day, the delivery may happen at certain intervals during the day. The risk, in such a case, is that the delivered volumes at a particular hour may exceed the entity’s electricity needs at that time, resulting in sales of excess electricity. Such contracts will be eligible for the own-use exception, provided that the other requirements are met.

It may be noted that if the market offers an entity alternatives to selling its unused electricity, for example, making electricity storage facilities available, then the entity is not permitted to use the amendments.

How we see it

In India, many entities have entered into long-term PPAs to purchase electricity from wind/solar plants for their own usage requirements. Our experience is that these entities generally do not sell surplus electricity in the market; rather, they use the ‘banking mechanism’ to store and manage any surplus electricity at any particular point in time. The ‘banked electricity’ can be withdrawn and used within the time frame allowed by the applicable regulations. Considering this, these amendments may not apply and/or may have no or negligible impact on entities using the banking facility to store surplus power.

Hedge accounting requirements

Nature-dependent electricity contracts may also be used to manage electricity price risk. Historically, the application of hedge accounting was challenging because the hedged item generally needed to be designated as a specified nominal amount or volume, whereas the volume generated by a wind or solar facility varies with natural conditions.

The amendments permit an entity designating a contract referencing nature-dependent electricity as the hedging instrument in a hedge of forecast electricity transactions to designate a variable nominal amount of forecast electricity transactions as the hedged item. The designated amount needs to be aligned with the variable amount of nature-dependent electricity expected to be delivered by the generation facility referenced in the hedging instrument.

These amendments also state that if the cash flows of an in-scope contract designated as a hedging instrument are conditional on the occurrence of the forecast transaction which is designated as the hedged item in accordance with the amendments, this forecast transaction is presumed to be highly probable. The other hedge accounting requirements of Ind AS 109 continue to apply unchanged.

Disclosure requirements for nature-dependent electricity contracts

Ind AS 107 has been amended to require disclosures relating to qualifying contracts excluded from Ind AS 109 under the amended own-use requirements. Among other information, an entity is required to disclose:

• Contractual features exposing the entity to variability in electricity volumes and the risk of purchasing electricity that cannot be used when delivered.
• Estimated future cash flows from purchasing electricity under the contracts.
• Qualitative information regarding the assessment of whether a contract may become onerous.
• Qualitative and quantitative information about the effect of the contracts on financial performance, including relevant costs and proceeds from purchases and sales of electricity.

For contracts designated in cash flow hedging relationships, information regarding the terms and conditions is also disaggregated by risk category.

Classification of financial assets with contingent features

Under Ind AS 109, a financial asset can be measured at amortized cost or fair value through other comprehensive income (FVOCI), subject to the relevant business model, only when its contractual cash flows are solely payments of principal and interest on the principal amount outstanding (SPPI). Questions have arisen in applying the SPPI requirements to financial assets containing contractual terms under which the amount or timing of cash flows changes on the occurrence or non-occurrence of a contingent event. This has become particularly relevant with the increasing use of financing arrangements containing ESG-linked features. For example, the interest rate on a loan may reduce if the borrower achieves a specified reduction in carbon emissions. The contingent event in such an arrangement does not necessarily represent a change in credit risk or another basic lending risk or cost. The question therefore arises whether the existence of such a feature causes the financial asset to fail the SPPI requirement.

These amendments provide additional application guidance to address this assessment. Importantly, the requirements are not restricted to ESG-linked instruments and apply to other financial assets containing contingent features.

The amendments clarify that the assessment continues to be based on whether the contractual cash flows are consistent with a basic lending arrangement. Contractual cash flows are inconsistent with a basic lending arrangement if, for example, they are indexed to a variable that is not a basic lending risk or cost, such as an equity price or a commodity price, or represent a share of the debtor’s revenue or profit. This remains the case even if such contractual terms are commonly used in the market. Where contractual cash flows change because of a contingent event, an entity considers the nature of the contingent event and the resulting cash flows.

If the contingent event relates directly to changes in basic lending risks or costs and the contractual cash flows change in the same direction as those risks or costs, the feature may be consistent with a basic lending arrangement. An example is an increase in the interest rate following specified payment defaults, where the increase compensates the lender for increased credit risk.

A more significant clarification relates to contingent events that do not relate directly to changes in basic lending risks or costs. Such a feature does not automatically result in failure of the SPPI test. The financial asset may still meet SPPI if:

• The contractual cash flows before and after the contingent event are themselves consistent with a basic lending arrangement.
• The cash flows arising from the contingent feature are not significantly different from those of an otherwise identical financial asset without that feature.

The assessment considers all contractually possible cash flows irrespective of the probability that the contingent event will occur, unless the contractual term is not genuine.

These amended requirements include examples illustrating the distinction. One instrument has an interest rate that is reduced by a fixed number of basis points if the borrower achieves a contractually specified reduction in carbon emissions. The maximum possible cumulative adjustment does not significantly change the interest rate on the loan. Consequently, although the carbon-emission target itself is not a basic lending risk or cost, the instrument may meet SPPI. In contrast, another instrument has an interest rate that changes based on movements in a carbon-price index. Since the cash flows are directly indexed to a variable that is not a basic lending risk or cost, the instrument is inconsistent with a basic lending arrangement and does not meet SPPI.

How we see it

The amendment should not be regarded as an exemption for ESG-linked financial assets. The accounting outcome will depend on how the contractual feature affects the cash flows.

The amendment does not prescribe a numerical threshold for determining what is “significantly different”. Entities will need to exercise judgment and develop an appropriate accounting policy for applying this requirement. A qualitative assessment may be sufficient for relatively simple features, whereas quantitative analysis may be necessary where interest-rate adjustments are larger or multiple contingent features exist.

Other amendments to Ind AS 109 include:

a. A financial asset has non-recourse features when an entity’s contractual right to receive cash flows is limited to the cash flows generated by specified assets. Consequently, the creditor is primarily exposed to the performance of those specified assets rather than the general credit risk of the debtor. This is different from a financial asset that is merely secured by collateral. A financial asset with a non-recourse feature may potentially fail the SPPI test. The amendment clarifies that having a non-recourse feature does not, by itself, mean that the financial asset fails the SPPI. An entity needs to look through the underlying assets and assess the relationship between the cash flows from those assets and the contractual cash flows of the financial asset being classified.

b. The amendment provides guidance for assessing the contractual cash flow characteristics of a financial asset with contractually linked instruments (CLIs) features. CLIs are a subset of transactions with non-recourse features. Such arrangements contain a contractual waterfall that creates concentrations of credit risk and results in a disproportionate allocation of cash shortfalls from the underlying pool between different tranches. The amendments clarify that CLIs are not created where multiple debt instruments of differing seniority are issued to facilitate lending with enhanced credit protection to a creditor (or a group of creditors). This is the case, for example, if the structured entity issues senior and junior notes and the entity sponsoring the structured entity that holds the junior debt instrument has no practical ability to sell the junior instrument without the senior debt instrument becoming payable. In this case non-recourse guidance is to be applied. The amendment also clarifies that the underlying pool must comprise financial instruments only for the transaction to qualify as a CLI. However, this can include certain financial instruments outside the scope of the classification requirements of Ind AS 109, such as some lease receivables. Nevertheless, lease receivables must have cash flows that are equivalent to SPPI (i.e., not subject to residual value risk nor indexed to a variable that is not a basic lending risk or cost, such as a market rental rate). CLI structures that include non-financial assets are to be assessed under the non-recourse guidance.

Amendments to Ind AS 107

The amendments to Ind AS 107 introduce certain additional disclosures for (a) financial assets/liabilities containing contractual terms which could change the amount of contractual cash flows based on a contingent event not relating directly to changes in basic lending risks/ costs, and (b) Equity instruments for which an entity has elected to present fair value changes in the Other Comprehensive Income (OCI).

Annual improvements to Ind AS

The notification also incorporates Annual Improvements to Ind AS. These amendments are generally narrow in scope and primarily intended to remove inconsistencies or clarify requirements.

Initial measurement of trade receivables

Ind AS 109 has been amended to clarify that trade receivables not containing a significant financing component are initially measured at the amount determined by applying Ind AS 115 Revenue from Contracts with Customers. The amendment removes a potential inconsistency between Ind AS 109 and Ind AS 115.

Derecognition of lease liabilities

The amendment clarifies that when a lessee has determined that a lease liability has been extinguished in accordance with Ind AS 109, any resulting gain or loss arising from the derecognition of that liability is recognized in profit or loss. However, in case of lease modification, the accounting remains under Ind AS 116 Leases. However, the amendment does not address how a lessee distinguishes between a lease modification as defined in Ind AS 116 Leases and an extinguishment of a lease liability in accordance with Ind AS 109.

Other annual improvements

The notification also makes certain narrow-scope amendments to:

• Ind AS 101, First-time Adoption of Indian Accounting Standards: To remove an inconsistency relating to hedge accounting requirements applicable to first-time adopters.
• Ind AS 107, Financial Instruments: Disclosures: To update certain references and clarify aspects of disclosure guidance, including guidance relating to derecognition.
• Ind AS 110, Consolidated Financial Statements: Ind AS 110 is amended to clarify that the relationship described in paragraph B74 is just one example of a circumstance in which judgment is required to determine whether a party is acting as a de facto agent.
• Ind AS 7, Statement of Cash Flows: To remove outdated terminology relating to the “cost method” when referring to investments in subsidiaries, associates and joint ventures. The standard now uses the words ‘at cost.’

These amendments are largely clarificatory and are not expected, by themselves, to result in changes to existing accounting practices.

Way forward

Entities should promptly assess the amendments’ impact on their financial statements and/or results to ensure immediate application. Appropriate operational and system information should be available to support the related accounting conclusions and their implementation.