A S BANKA ADVISORS

If your company prepares financial statements under Indian Accounting Standards, the most consequential accounting change of the year has just landed, and it lands squarely on the FY 2026-27 accounts you are about to build. The Ministry of Corporate Affairs notified the Companies (Indian Accounting Standards) Amendment Rules, 2026 through G.S.R. 725(E) dated 12 August 2026, issued under sections 133 and 469 of the Companies Act, 2013 in consultation with the National Financial Reporting Authority (NFRA). The rules mirror the International Accounting Standards Board amendments to IFRS 9 and IFRS 7 that followed its post-implementation review of classification and measurement.

This is not a cosmetic re-write. Two of the four themes, sustainability-linked lending and renewable power contracts, are exactly the instruments Indian corporates have been signing at speed for the last three years, often without a settled accounting answer. The amendments now supply that answer. Here is our advisory reading of what changed and, more importantly, what you should do about it before audit season.

ESG-linked loans: the SPPI test just got teeth

The heart of the change sits in Ind AS 109, through new paragraphs B4.1.8A, B4.1.10A, B4.1.16A and B4.1.20A, with matching disclosures in Ind AS 107 (new paragraphs 20B to 20D). The Solely Payments of Principal and Interest test, the SPPI test, decides whether a financial asset can sit at amortised cost or is instead pushed to fair value through profit or loss.

Paragraph B4.1.8A confirms the test is about what the lender is compensated for, not merely how much. Cash flows indexed to equity values, commodity prices or a share of the borrower’s revenue break the basic lending pattern. Paragraph B4.1.10A then addresses the sustainability-linked loan head-on: where a contingent trigger such as a carbon-reduction target does not relate to credit risk, the asset can stay at amortised cost only if, in all contractually possible scenarios, its cash flows would not be significantly different from an otherwise identical loan without the feature.

The practical consequence is sharp. A modest margin step-up or step-down that passes the “not significantly different” screen leaves amortised cost intact. A large contingent swing tied to equity, commodity or revenue-share economics is likely to push the whole instrument to fair value through profit or loss, with the earnings volatility that follows. For borrowers, this means the margin ratchet you negotiate today decides your lender’s accounting, and therefore your pricing, tomorrow.

Electronic payment settlement: an early-derecognition option

Ind AS 109 gains a new paragraph B3.3.8 that resolves a question every treasury team has faced. When a payment is initiated electronically but settles on a later date, you may now derecognise the financial liability before the settlement date, provided all three conditions are met: you have no practical ability to withdraw, stop or cancel the payment instruction; you have no practical ability to access the cash earmarked for settlement; and the settlement risk of the payment system is insignificant. Paragraph B3.3.9 treats settlement risk as insignificant where completion follows a standard administrative process with a short window. Crucially, paragraph B3.3.10 makes this an accounting-policy choice that must be applied uniformly to every settlement through the same payment system. You cannot cherry-pick the quarters where it flatters your numbers.

Renewable power purchase agreements: the relief buyers were waiting for

New paragraph 2.3A of Ind AS 109 defines contracts referencing nature-dependent electricity, where the volume you receive varies because generation depends on wind, sun or water. Two reliefs follow, and both matter to any company signing a solar or wind PPA. The own-use scope exception (paragraphs B2.7 to B2.8) lets a renewable purchase contract sit outside the fair value net as an executory contract, where the entity is a net purchaser of that electricity over a period not exceeding 12 months. The hedge accounting relief (paragraph 6.10.1) lets you designate a variable nominal amount of forecast electricity as the hedged item, finally allowing the hedge to match the physics of intermittent generation. Disclosure is consolidated into new Ind AS 107 paragraphs 30A to 30C.

Annual improvements that quietly change consolidation

Three further amendments deserve attention. Ind AS 101 clarifies hedge accounting on first-time adoption. Ind AS 7 confirms that where associates, joint ventures or subsidiaries are held at cost, only the cash flows between the investor and the investee are reported. The one to watch is Ind AS 110, paragraph B74: the de facto agent relationship need not be contractual, and an investor must weigh a de facto agent’s decision rights and variable-return exposure alongside its own when testing control. For founders and promoters running layered group and investment structures, this can change who consolidates whom.

Effective date: FY 2026-27 is the first year

Most amendments apply for annual reporting periods beginning on or after 1 April 2026, so the financial statements for the year ending 31 March 2027 are the first statutory Ind AS accounts that must carry them. The classification and measurement changes apply retrospectively with defined exceptions, with no restatement where hindsight would be needed and the opening equity adjusted. The nature-dependent electricity rules apply retrospectively using the facts at the date of initial application, and comparatives need not be restated.

What we would do now

• CFOs and controllers: inventory every financial instrument with a contingent or ESG-linked feature and run the sharpened SPPI test on each; flag anything that migrates to fair value. Document the electronic-payment derecognition policy as a uniform choice per payment system. Map each renewable PPA against the own-use exception. Quantify the opening-equity adjustment and brief the audit committee before the year closes, not after.
• Auditors: update the disclosure checklist for the new Ind AS 107 paragraphs, test the SPPI conclusions and net-purchaser judgments, and reconcile fair value swings with the tax computation, because book-to-tax differences flow straight into the tax audit.
• Borrowers and treasury: model the accounting before you sign. The structure of the loan and the PPA, decided at the negotiating table, is what fixes the accounting outcome.

The through-line is simple: the accounting for ESG-linked debt and renewable power is no longer decided in the year-end close. It is decided when you structure the instrument. Bringing the accounting view into the negotiation is now part of good deal-making.

Need help navigating this? If you want a clear read on how the Companies (Ind AS) Amendment Rules 2026 affect your FY 2026-27 statements, your SPPI conclusions or your hedge documentation, book a call with A S Banka Advisors Private Limited: https://calendly.com/asbanka-info/30min

Download the full carousel PDF: Companies (Ind AS) Amendment Rules 2026

Disclaimer: This article is for general information only and does not constitute accounting, tax or legal advice. Ind AS application is judgment-intensive and fact-specific. Verify the operative text of G.S.R. 725(E) dated 12 August 2026 and the amended standards, and consult a qualified professional before acting.