The Ministry of Corporate Affairs (MCA) has notified the Companies (Indian Accounting Standards) Amendment Rules, 2026, introducing a wide-ranging set of changes to the Indian Accounting Standards framework, particularly in relation to financial instrument classification and measurement, electronic payment settlements, contracts linked to nature-dependent electricity, hedge accounting, financial statement disclosures and cash-flow reporting.
The amendments were notified under the powers conferred by Section 133 read with Section 469 of the Companies Act, 2013, after consultation with the National Financial Reporting Authority (NFRA). The notification states that the amended rules come into force from the date of their publication in the Official Gazette.
The substantive amendments largely prescribe application for annual reporting periods beginning on or after April 1, 2026, making them particularly relevant for companies preparing financial statements for FY 2026-27 and subsequent periods.
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Major Changes Focus on Ind AS 109 and Ind AS 107
The most significant portion of the notification concerns Ind AS 109, Financial Instruments, read with the corresponding disclosure amendments to Ind AS 107, Financial Instruments: Disclosures.
The amendments incorporate changes relating to the classification and measurement of financial instruments and introduce a dedicated accounting framework for certain contracts referencing nature-dependent electricity. They also address the treatment of financial liabilities settled through electronic payment systems and provide additional guidance for determining whether contractual cash flows represent solely payments of principal and interest.
The notification also introduces detailed transition provisions, including circumstances in which entities may avoid restating comparative periods and instead recognise the impact of the amendments in opening financial assets, financial liabilities and retained earnings.
New Accounting Framework for Nature-Dependent Electricity Contracts
One of the notable changes is the introduction of specific provisions for contracts referencing nature-dependent electricity.
Under the amended Ind AS 109, such contracts are those that expose an entity to variability in the underlying quantity of electricity because electricity generation depends on uncontrollable natural conditions, such as weather. The framework covers contracts to buy or sell such electricity as well as financial instruments referencing such electricity.
The amendments recognise the particular accounting difficulties associated with renewable electricity arrangements, where the actual quantity generated may fluctuate depending on natural conditions.
Entities are required to assess whether such contracts are entered into and continue to be held for the purpose of receiving electricity in accordance with their expected usage requirements. The new guidance also specifically provides that the assessment should take into account whether the entity has been, and expects to remain, a net purchaser of electricity.
The notification explains that an entity may be regarded as a net purchaser where it buys sufficient electricity to offset sales of unused electricity in the same market. The assessment must consider reasonable and supportable information concerning past, current and expected future electricity transactions. The relevant assessment period cannot exceed 12 months.
Special Hedge Accounting Relief for Renewable Electricity
The amended Ind AS 109 also creates specific provisions for hedge accounting involving nature-dependent electricity.
Where contracts referencing such electricity are designated as hedging instruments for forecast electricity transactions, an entity may designate as the hedged item a variable nominal amount of forecast electricity transactions aligned with the variable amount of electricity expected to be delivered by the generating facility.
The remaining hedge-accounting requirements continue to apply. Further, where the cash flows of the hedging instrument are conditional upon the occurrence of the forecast transaction, the forecast transaction is presumed to be highly probable for purposes of the relevant hedge-accounting requirement.
This change is particularly relevant to entities entering into long-term electricity purchase arrangements where generation depends on solar, wind or other natural conditions.
New Disclosure Requirements for Nature-Dependent Electricity Contracts
Ind AS 107 has been amended to require specific disclosures concerning such electricity contracts.
Companies must provide information in a single note enabling users of financial statements to understand the impact of these contracts on the amount, timing and uncertainty of future cash flows, as well as on financial performance.
The disclosures cover contractual features exposing an entity to variability in electricity generation and the risk that it may have to purchase electricity during a period when it cannot use that electricity.
Companies must also disclose estimated future cash flows from electricity purchases under these contracts and explain how they assess whether a contract could become onerous.
For the reporting period, the disclosures must include the cost of electricity purchased under the contracts, separately identifying electricity that was unused at delivery, proceeds from sales of unused electricity and costs incurred in purchasing electricity to offset such sales.
Financial Liabilities May Be Derecognised Before Settlement Date in Certain Electronic Payments
Another important change concerns the derecognition of financial liabilities settled through electronic payment systems.
Under the new guidance, although a financial liability would ordinarily be derecognised on the settlement date, an entity may deem the liability to have been discharged before the settlement date where payment is made through an electronic payment system and specified conditions are satisfied.
The entity must have initiated the payment instruction and must have no practical ability to withdraw, stop or cancel it. It must also have no practical ability to access the cash that will be used for settlement, while the settlement risk associated with the electronic payment system must be insignificant.
The notification further provides that an entity electing to apply this treatment must apply it to all settlements made through the same electronic payment system.
The amendment could therefore have practical implications for companies using electronic payment platforms extensively, particularly where there is a short time gap between initiation of payment and actual settlement.
Revised Guidance on the ‘Solely Payments of Principal and Interest’ Test
The amendments also provide additional guidance for assessing whether contractual cash flows are consistent with a basic lending arrangement.
Under the revised application guidance, an entity is required to consider the different elements of interest and focus on what the entity is being compensated for rather than merely the amount of compensation.
Contractual cash flows would generally be inconsistent with a basic lending arrangement if they are indexed to variables unrelated to basic lending risks or costs, such as the value of equity instruments or commodity prices, or if they represent a share of the debtor’s revenue or profit.
The amendments also provide detailed guidance for contractual terms that can change the timing or amount of cash flows, including prepayment, extension and contingent features.
Importantly, the notification addresses sustainability-linked features. It gives an example of a loan where the interest rate is adjusted if the debtor achieves a contractually specified reduction in carbon emissions. Such a feature can still result in cash flows that qualify as solely payments of principal and interest if, across all contractually possible scenarios, the cash flows are not significantly different from those of an otherwise identical instrument without the contingent feature.
By contrast, a loan whose interest rate is linked to a market-determined carbon price index would not satisfy the relevant test because the carbon price is not a basic lending risk or cost.
Clarification on Non-Recourse Financial Assets and Structured Transactions
The amended Ind AS 109 also provides further guidance for non-recourse financial assets and transactions involving multiple contractually linked instruments or tranches.
A financial asset has non-recourse features where the entity’s ultimate right to receive cash flows is contractually limited to cash flows generated by specified assets, meaning that the entity may be primarily exposed to the performance risk of those assets rather than the debtor’s credit risk.
The notification clarifies that the mere existence of non-recourse features does not automatically prevent an asset from satisfying the relevant classification requirements. The creditor must examine the relationship between the underlying assets or cash flows and the contractual cash flows of the financial asset.
The amendments also deal with structured transactions involving senior and junior tranches, waterfall payment structures and concentrations of credit risk. In certain arrangements that merely provide enhanced credit protection to a creditor, the accounting assessment may follow the guidance applicable to basic lending arrangements rather than the more complex contractually linked instrument provisions.
New Disclosure Requirements for Contingent Contractual Cash Flows
Ind AS 107 now requires entities to provide additional information where contractual terms can change the amount of contractual cash flows following the occurrence or non-occurrence of a contingent event that is not directly related to basic lending risks and costs.
The disclosures must include a qualitative description of the contingent event, quantitative information regarding possible changes to contractual cash flows and the gross carrying amount of relevant financial assets and amortised cost of relevant financial liabilities.
The notification specifically gives a carbon-emissions example, under which the contractual cash flows of a class of financial liabilities may change if the entity achieves a specified reduction in carbon emissions.
Additional Fair Value and OCI Disclosures for Investments
Changes to Ind AS 107 also expand disclosure requirements for certain investments.
The amended paragraph 11A requires disclosures for each class of investment, including the fair value at the end of the reporting period. It further requires disclosure of fair value gains or losses recognised in other comprehensive income, separately identifying gains or losses relating to investments derecognised during the reporting period and investments still held at the reporting date.
A further disclosure requirement concerns transfers of cumulative gains or losses within equity relating to investments derecognised during the reporting period.
The amendments also require disclosure of whether gains or losses arising on derecognition were attributable to differences between the fair values of the derecognised and retained interests and the fair value of the previously recognised asset as a whole. Where applicable, entities must also state whether significant unobservable inputs were used in fair value measurements.
Ind AS 101: Changes to First-Time Adoption and Hedge Accounting
The notification amends Ind AS 101, First-time Adoption of Indian Accounting Standards, particularly the transitional provisions dealing with hedge accounting.
The amended provisions state that an entity should not reflect in its opening Ind AS Balance Sheet a hedging relationship that does not qualify for hedge accounting under Ind AS 109.
However, where a net position had been designated as a hedged item under previous GAAP, the entity may designate an individual item within that net position, or the net position itself where the relevant Ind AS 109 requirements are satisfied, provided the designation is made no later than the date of transition to Ind AS.
Where a transaction had previously been designated as a hedge but does not meet the qualifying criteria under Ind AS 109, the entity is required to apply the relevant provisions for discontinuing hedge accounting. Transactions entered into before the transition date cannot be retrospectively designated as hedges.
Trade Receivables: Alignment With Ind AS 115
The amendments also modify Ind AS 109’s treatment of trade receivables.
At initial recognition, trade receivables that do not contain a significant financing component under Ind AS 115 are to be measured at the amount determined by applying Ind AS 115. The same treatment applies where the entity uses the practical expedient under paragraph 63 of Ind AS 115.
This brings the relevant initial measurement provision more explicitly in line with the revenue recognition framework under Ind AS 115.
Transition Rules Provide Relief From Mandatory Restatement in Certain Cases
The amendments to the classification and measurement requirements are to be applied retrospectively in accordance with Ind AS 8, subject to specified transition provisions.
Entities are not required to restate prior periods merely to reflect the amendments. They may restate prior periods only where this can be done without the use of hindsight.
Where prior periods are not restated, the initial effect of the amendments is recognised through adjustments to the opening balances of financial assets and financial liabilities, with any cumulative effect appropriately reflected in opening retained earnings or another component of equity.
Entities must also disclose, for each class of financial assets whose measurement category changes because of the amendments, the measurement category and carrying amount immediately before and immediately after application of the amendments.
For nature-dependent electricity contracts, similar retrospective application applies using the facts and circumstances existing at the date of initial application. Prior periods need not be restated unless restatement can be performed without hindsight.
Ind AS 110: Clarification on De Facto Agents
The amendment package also modifies Ind AS 110, Consolidated Financial Statements, by revising paragraph B74 concerning de facto agents.
The amended provision clarifies that a de facto agent relationship does not necessarily require a contractual arrangement. A party can be a de facto agent where the investor has the ability to direct that party to act on its behalf, or where persons directing the investor’s activities have the ability to direct that party.
In assessing control, the investor must consider the de facto agent’s decision-making rights and the investor’s indirect exposure, or rights, to variable returns through the de facto agent together with its own rights and exposures.
The change is part of the Annual Improvements to Ind AS (2024) and applies for annual reporting periods beginning on or after April 1, 2026.
Ind AS 7: Change in Cash Flow Reporting for Investments
The notification also amends Ind AS 7, Statement of Cash Flows.
The revised paragraph 37 provides that when accounting for an investment in an associate, joint venture or subsidiary accounted for at cost, an investor restricts its reporting in the statement of cash flows to cash flows between itself and the investee, such as dividends and advances.
The notification specifically notes that the reference to the equity method contained in the corresponding IAS 7 provision has been deleted in Ind AS 7 because the equity method is not an available option for accounting for investments in associates, joint ventures or subsidiaries in separate financial statements under Ind AS 27.
Annual Improvements to Ind AS (2024) Incorporated
A substantial part of the notification incorporates the Annual Improvements to Ind AS (2024).
For Ind AS 101, paragraphs B5-B6 have been amended. For Ind AS 110, paragraph B74 has been revised. Ind AS 7 paragraph 37 has also been amended, while Ind AS 109 contains amendments concerning, among other matters, lease liabilities, trade receivables and financial instrument classification and measurement.
The notification consistently provides April 1, 2026 as the commencement date for annual reporting periods to which these annual improvements apply.
Indian Context Retained Where IFRS Amendments Are Not Yet Applicable
The notification also makes several India-specific adjustments to maintain consistency with the Indian accounting framework.
For example, the amendments state that certain IFRS provisions connected with IFRS 18, Presentation and Disclosure in Financial Statements, have not been incorporated into Ind AS because the corresponding Ind AS 118 is still under formulation. The relevant paragraph numbers have nevertheless been retained to maintain consistency with the corresponding IFRS standards.
Similarly, references connected with IFRS 19 have been modified in the Indian context because the corresponding Ind AS 119 is under formulation.
Effective Date and Compliance Implications
The Companies (Indian Accounting Standards) Amendment Rules, 2026 formally came into force upon publication in the Official Gazette on August 12, 2026. However, the individual accounting amendments prescribe application for annual reporting periods beginning on or after April 1, 2026.
The amendments therefore require Ind AS-compliant companies to review their accounting policies, financial instrument portfolios, renewable electricity arrangements, hedge relationships, electronic payment settlement practices and financial statement disclosures.
Particular attention will be required for companies with renewable power purchase arrangements, sustainability-linked financial instruments, structured or non-recourse financing, extensive electronic payment systems and investments measured through other comprehensive income.
Overall, the notification represents a significant update to India’s financial reporting framework, bringing a number of developments in international financial instrument accounting into the Ind AS regime while retaining India-specific modifications relating to the effective date, transition provisions and standards that are still under formulation.
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