Ind AS vs IFRS: Convergence, Carve-Outs & Where They Diverge
Indian Accounting Standards (Ind AS) are converged with IFRS but they are not identical, and that distinction matters more than most foreign CFOs realise. The Ministry of Corporate Affairs (MCA) adopted Ind AS through a phased roadmap beginning in April 2016, starting with listed companies and unlisted companies with net worth exceeding INR 500 crore, then extending to companies with net worth above INR 250 crore. Today, Ind AS applies mandatorily to all listed companies, their subsidiaries, and unlisted companies meeting the prescribed net worth or turnover thresholds. The standards are numbered to mirror their IFRS equivalents (Ind AS 115 corresponds to IFRS 15, Ind AS 116 to IFRS 16, and so on), but the Institute of Chartered Accountants of India (ICAI) has introduced specific carve-outs and carve-ins that create material differences. The most significant carve-out is in Ind AS 109 (Financial Instruments): India does not permit the irrevocable election to classify equity instruments at fair value through other comprehensive income (FVOCI) without recycling, in the same manner as IFRS 9. Instead, Ind AS 109 allows this election but with different treatment of dividend income. Ind AS 17 (the predecessor leasing standard) included a carve-out that allowed operating lease classification for land leases, which IFRS 16 eliminated globally. Additionally, Ind AS 101 (First-time Adoption) includes India-specific exemptions not found in IFRS 1, such as the deemed cost exemption for property, plant, and equipment at the date of transition. For group reporting purposes, foreign parent companies must maintain a reconciliation between Ind AS numbers and the group's IFRS or US GAAP reporting framework, and the adjustments are non-trivial. Failure to identify these differences during the structuring phase leads to restatements, delayed consolidation, and strained relationships between the Indian subsidiary's finance team and group controllers.
- Ind AS 109 diverges from IFRS 9 on the treatment of expected credit loss (ECL) provisioning for trade receivables: Ind AS mandates a simplified approach using a provision matrix, which can produce materially different results from the general ECL model
- Ind AS 116 (Leases) aligns with IFRS 16 but retains an exemption for leases of low-value assets without specifying a quantitative threshold, leaving it to management judgement unlike IFRS 16's USD 5,000 guidance
- Ind AS 21 (Foreign Currency) includes a carve-in allowing capitalisation of exchange differences on long-term foreign currency monetary items related to acquisition of depreciable assets, a treatment not permitted under IAS 21
- Schedule III of the Companies Act, 2013 prescribes a mandatory format for financial statements that differs from the flexible presentation allowed under IAS 1, requiring additional reformatting for group reporting
- The ICAI issues Ind AS Transition Facilitation Group (ITFG) bulletins that provide interpretive guidance with no IFRS equivalent, creating India-specific accounting positions that parent company auditors may challenge
Do not assume your IFRS consolidation package can be mechanically applied to an Indian subsidiary. At minimum, build a standing reconciliation for Ind AS 109 ECL differences, Ind AS 21 forex capitalisation, and Schedule III presentation adjustments. Budget 40-60 hours of finance team time per quarter for this reconciliation in the first two years.
India's transition to Ind AS (converged with IFRS) creates both opportunities and challenges for foreign companies maintaining dual reporting standards.
The GST Filing Calendar: GSTR-1, GSTR-3B, GSTR-9 & the Monthly Grind
The Goods and Services Tax, implemented on 1 July 2017, replaced a cascade of indirect taxes (excise duty, service tax, VAT, CST, and multiple cesses) with a unified framework. In theory, it simplified compliance. In practice, it created one of the world's most filing-intensive indirect tax regimes. Every registered GST taxpayer must file GSTR-1 (outward supply details) by the 11th of the following month and GSTR-3B (summary return with tax payment) by the 20th of the following month. These deadlines are staggered for taxpayers in different states, but the core obligation is monthly for businesses with annual turnover exceeding INR 5 crore. Smaller businesses can opt for the Quarterly Return Filing and Monthly Payment (QRMP) scheme, filing GSTR-1 and GSTR-3B quarterly while making monthly tax payments through the PMT-06 challan. The annual return, GSTR-9, is due by 31 December of the following financial year and requires a detailed reconciliation of monthly returns with audited financial statements. For businesses with turnover exceeding INR 5 crore, GSTR-9C (a self-certified reconciliation statement, previously auditor-certified) must be filed alongside GSTR-9. The Input Tax Credit (ITC) mechanism is the backbone of GST, but claiming ITC requires that the supplier has actually filed their return and the invoice appears in the buyer's auto-populated GSTR-2B statement. The introduction of GSTR-2B as a static, system-generated ITC statement (replacing the troubled GSTR-2A matching process) has improved clarity but not eliminated mismatches. Rule 36(4) of the CGST Rules restricts ITC claims to the amount reflected in GSTR-2B plus a maximum of 5% (reduced from the original 20% and then 10%), meaning that vendor non-compliance directly hits your tax cost.
- GSTR-1 filing deadline is the 11th of the following month (or 13th for quarterly filers under QRMP); late filing attracts a penalty of INR 50 per day (INR 20 for nil returns) capped at 0.25% of turnover
- GSTR-3B tax payment deadline is the 20th of the following month, with interest at 18% per annum on late payment of net tax liability calculated from the due date
- GSTR-9 annual return requires reconciliation of turnover, tax paid, ITC claimed, and refunds across all twelve monthly/four quarterly returns with the audited financial statements
- ITC is restricted under Rule 36(4) to amounts appearing in GSTR-2B plus 5%, making vendor compliance monitoring a critical finance function rather than a nice-to-have
- E-invoicing is mandatory for businesses with aggregate turnover exceeding INR 5 crore (threshold reduced from INR 10 crore in August 2023), requiring real-time invoice registration on the Invoice Registration Portal (IRP) before issuing the invoice
India's GST network processes over 1.1 billion invoices per month, and the average large taxpayer files approximately 37 GST-related returns and statements per financial year across central and state registrations. Gross GST collections have consistently exceeded INR 1.5 lakh crore per month since mid-2024.
Statutory Audit Requirements: Timelines, Thresholds & Auditor Rotation
Every company registered under the Companies Act, 2013 must have its financial statements audited by a practicing Chartered Accountant or a firm of Chartered Accountants appointed as the statutory auditor. There are no exemptions based on size for private limited companies, unlike many Western jurisdictions where small companies can opt out of audit. The statutory auditor is appointed at the Annual General Meeting (AGM) for a term of five consecutive years (individual) or two terms of five consecutive years (audit firm), after which a mandatory rotation applies. For listed companies and specified classes of companies (including unlisted public companies with paid-up capital of INR 10 crore or more, or with outstanding loans or borrowings exceeding INR 50 crore), auditor rotation is compulsory: an individual auditor must rotate after one term of five years, and an audit firm after two consecutive terms of five years, with a cooling-off period of five years before reappointment. The Companies (Audit and Auditors) Rules also impose restrictions on the services that statutory auditors can provide, broadly mirroring (but not identical to) the non-audit services restrictions under EU regulations and SOX in the US. The audit report must follow the format prescribed by the ICAI's Standard on Auditing (SA) series, which is converged with International Standards on Auditing (ISAs) but includes India-specific reporting requirements under CARO 2020 (Companies Auditor's Report Order). CARO 2020 requires auditors to report on 21 specific matters including the existence and valuation of fixed assets, compliance with loan terms, related party transactions, and whether the company has been declared a wilful defaulter by any bank. The tax audit under Section 44AB of the Income Tax Act is a separate requirement for businesses with turnover exceeding INR 10 crore (INR 1 crore if cash transactions exceed 5% of total receipts and payments), requiring submission of Form 3CA/3CB and 3CD by 30 September of the assessment year.
- Statutory audit is mandatory for all companies registered under the Companies Act, 2013, regardless of turnover or employee count; there is no small company audit exemption in India
- Auditor rotation requires a cooling-off period of five years after the maximum term, and the incoming auditor must issue a consent letter confirming their eligibility and absence of disqualifications under Section 141
- CARO 2020 reporting covers 21 matters including physical verification of fixed assets, inventory valuation methodology, related party transaction compliance, and whether the company has been flagged as a wilful defaulter
- The tax audit report (Form 3CD) under Section 44AB requires detailed schedules covering all tax deductions claimed, TDS compliance status, GST reconciliation, and compliance with transfer pricing documentation requirements
- Board of Directors must approve audited financial statements and file them with the MCA within 30 days of the AGM, which itself must be held within six months of the financial year-end (by 30 September for March year-end companies)
Coordinate your statutory audit, tax audit, and transfer pricing audit timelines from the start of Q1. The statutory audit feeds into the tax audit (Form 3CD), which feeds into the income tax return (due 30 November for transfer pricing cases). Working backwards from filing deadlines, your books should be audit-ready by the first week of June.
Financial reporting for Indian subsidiaries must reconcile Ind AS requirements with parent company GAAP, transfer pricing documentation, and statutory audit standards.
India Accounting Standards Quick Reference
A practical reference covering Ind AS divergences from IFRS, the GST filing calendar, statutory and tax audit timelines, transfer pricing documentation, and the most common accounting mistakes foreign companies make in India.
Transfer Pricing Documentation: The Three-Tier Obligation
India has one of the most aggressive transfer pricing regimes in the world, both in terms of documentation requirements and enforcement. The Transfer Pricing Officer (TPO), a specialised role within the Income Tax Department, can be referred any international transaction or specified domestic transaction between associated enterprises for scrutiny. India adopted the OECD's three-tiered documentation structure through amendments effective from assessment year 2017-18: a Master File (providing an overview of the multinational group's global business, transfer pricing policies, and allocation of income and economic activity), a Local File (containing detailed transactional analysis for the Indian entity's international transactions with associated enterprises), and Country-by-Country Report (CbCR) filed by the ultimate parent entity in its jurisdiction and exchanged with Indian tax authorities under bilateral competent authority agreements. The Local File, documented through the Accountant's Report in Form 3CEB, must be filed by the due date of the income tax return (30 November for entities subject to transfer pricing). The Master File must be filed in Form 3CEAA within 12 months from the end of the reporting accounting year if the consolidated group revenue exceeds INR 500 crore. CbCR filing in Form 3CEAD is required if the parent entity's consolidated group revenue exceeds INR 5,500 crore (approximately EUR 750 million, aligned with the OECD threshold). India's safe harbour rules, notified under Section 92CB, provide predetermined margins for specified categories of international transactions, including IT-enabled services (where a markup of 17-18% on operating costs is accepted), contract R&D services (24% markup for software development, 24% for generic pharma), and intra-group loans (with interest rate bands linked to credit ratings). Opting for safe harbour provides certainty but at margins that often exceed what comparable uncontrolled transactions would produce, effectively requiring companies to choose between certainty and tax efficiency.
- Form 3CEB (Accountant's Report on international transactions) must be filed by 31 October of the assessment year, one month before the extended income tax return deadline for transfer pricing cases
- India applies the most appropriate method (MAM) approach rather than a strict hierarchy, but the Tax Department has historically favoured the Transactional Net Margin Method (TNMM) and is increasingly applying the Comparable Uncontrolled Price (CUP) method for commodity transactions and financial transactions
- Secondary adjustment provisions under Section 92CE require that if a primary transfer pricing adjustment exceeds INR 1 crore, the difference must be repatriated to India within a prescribed period, failing which it is deemed an advance to the associated enterprise and interest is imputed
- Advance Pricing Agreements (APAs) under Section 92CC provide certainty for up to five future years (and rollback for four prior years), with India having signed over 500 unilateral and bilateral APAs since the programme's inception in 2012
- Penalty for failure to maintain or furnish transfer pricing documentation is 2% of the value of each international transaction, in addition to any adjustment to income and consequent tax liability
India's transfer pricing adjustment rate in audit is among the highest globally. The CBDT's Annual Report consistently shows that over 50% of transfer pricing audits result in adjustments. Prepare contemporaneous documentation at the time of the transaction, not retrospectively during the audit. Retrospective benchmarking studies are heavily scrutinised and frequently rejected.
India's push toward digital accounting through e-invoicing, automated GST matching, and real-time reporting is transforming compliance from periodic to continuous.
Five Accounting Pitfalls That Cost Foreign Subsidiaries Real Money
After advising foreign subsidiaries in India for over a decade, certain accounting failures recur with uncomfortable regularity. They are preventable, but only if the parent company's finance leadership understands that Indian accounting compliance operates on a fundamentally different rhythm and rigour than what they are accustomed to in the US, EU, or East Asia. The first pitfall is treating TDS (Tax Deducted at Source) as someone else's problem. In India, the payer is responsible for deducting tax at the prescribed rate from virtually every category of payment, including salaries, professional fees, rent, interest, commissions, and payments to non-residents. Failure to deduct TDS results in disallowance of the expense under Section 40(a)(ia) of the Income Tax Act, meaning you pay tax on income you never earned. The second pitfall is ignoring the distinction between revenue and capital expenditure under Indian tax law, which does not always align with Ind AS treatment. Software license costs, for example, may be capitalised under Ind AS but treated as revenue expenditure for tax purposes, or vice versa, depending on the nature of the license. The third pitfall is failing to reconcile books of account maintained under Ind AS with the profit computed under the Income Tax Act: the Minimum Alternate Tax (MAT) provisions under Section 115JB apply when taxable income computed under normal provisions falls below 15% of book profit. Book profit under MAT follows Ind AS-based financial statements with specific adjustments prescribed in the section. The fourth pitfall is underestimating the volume and complexity of TDS/TCS return filing: Form 24Q (salary), Form 26Q (non-salary), Form 27Q (non-resident payments), and Form 27EQ (TCS) are filed quarterly, and every entry must match with the deductee's Form 26AS and Annual Information Statement. The fifth pitfall is neglecting to maintain documentation for the accumulated depreciation and deferred tax adjustments that arise from the difference between depreciation rates prescribed under the Companies Act (Schedule II) and the Income Tax Act (Section 32).
- TDS non-compliance leads to 30% disallowance of the gross payment under Section 40(a)(ia), plus interest at 1-1.5% per month from the date the tax was deductible to the date of actual deduction or payment
- MAT under Section 115JB requires separate computation of book profit starting from net profit per the Ind AS Statement of Profit and Loss, with prescribed add-backs and deductions, at an effective rate of approximately 17.47% (15% plus surcharge and cess)
- Depreciation rate differences between Companies Act Schedule II (useful life-based) and Income Tax Act Section 32 (WDV percentage-based) create deferred tax assets or liabilities that must be tracked at the individual asset level for accurate tax provisioning
- Foreign companies frequently overlook Equalisation Levy obligations: a 2% levy on e-commerce supply or services paid to non-residents creates a compliance obligation on the Indian subsidiary when making such payments on behalf of the group
- Related party transaction reporting under Schedule V of SEBI LODR and Section 188 of the Companies Act requires board and/or shareholder approval at prescribed thresholds, with material RPTs (exceeding INR 1,000 crore or 10% of turnover) requiring prior shareholder approval for listed companies
Set up a monthly India tax compliance calendar from day one. TDS payment is due by the 7th of the following month, advance tax instalments are due quarterly (15 June, 15 September, 15 December, 15 March), and GST payments are due by the 20th. Missing even one deadline triggers automatic interest and potential penalty proceedings.
India Accounting Standards Quick Reference
A practical reference covering Ind AS divergences from IFRS, the GST filing calendar, statutory and tax audit timelines, transfer pricing documentation, and the most common accounting mistakes foreign companies make in India.
