Ind AS Amendments 2026 Understanding Key Changes in Financial Instruments, Sustainability-linked Features and Nature-dependent Electricity Contracts
CA Prajwal Jha Associate - Research and Advisory, Taxmann
CA Bhawna Grover Manager - Research and Advisory, Taxmann
Ind AS Amendments 2026 Understanding Key Changes in Financial Instruments, Sustainability-linked Features and Nature-dependent Electricity Contracts
CA Prajwal Jha Associate - Research and Advisory, Taxmann
CA Bhawna Grover Manager - Research and Advisory, Taxmann
Contents 1.
Introduction
5
2.
Amendments to Ind AS 101 – First-time Adoption of Indian Accounting Standards
5
3.
Amendment to Ind AS 107 – Separate disclosure of FVOCI Investments Held and Derecognised
6
4.
Contingent Contractual Features – Enhanced Disclosures under Ind AS 107
7
5.
Amendments to Ind AS 109 - SPPI Assessment, Greater Clarity for Sustainability-linked Features
8
6.
Nature-dependent Electricity Contracts – A Major New Area
10
7.
What is the amendment?
11
8.
Derecognition of Financial Liabilities through Electronic Payment Systems
12
Conclusion
13
1.
Introduction
The Ministry of Corporate Affairs (MCA), in consultation with the National Financial Reporting Authority (NFRA), has notified the Companies (Indian Accounting Standards) Amendment Rules, 2026 vide Notification No. G.S.R. 725(E) dated 12th August 2026. The amendments modify several Indian Accounting Standards, including Ind AS 101, First time adoption of Ind AS, Ind AS 107, Financial Statements: Disclosures Ind AS 109, Financial Instruments Ind AS 110, Consolidated Financial Statements and Ind AS 7, Statement of Cash Flows. While some of the amendments are editorial or clarificatory in nature, others may have a direct impact on the accounting and disclosures of entities. In particular, entities entering into renewable electricity arrangements may need to reconsider whether such contracts fall within the scope of Ind AS 109, while entities with financial instruments containing sustainability-linked or other contingent features may need to revisit the assessment of contractual cash flows. The amendments are therefore relevant not merely from a compliance perspective but also from the perspective of classification, measurement, de-recognition, hedge accounting and financial statement disclosures.
2. Amendments to Ind AS 101 – First-time Adoption of Indian Accounting Standards The amendment to Ind AS 101 primarily relates to the accounting for hedging relationships existing at the date of transition to Ind AS. Paragraphs B5 and B6 of Ind AS 101 have been replaced to clarify how a first-time adopter should deal with hedge contracts that do not qualify for hedge accounting under Ind AS 109.
2.1. What has changed? A first-time adopter is not permitted to reflect in its opening Ind AS Balance Sheet a hedging relationship that would not qualify for hedge accounting under Ind AS 109. However, the amendment provides an important flexibility where the entity had previously designated a net position as the hedged item. The entity may, by the date of transition, designate an individual item within that net position, or a qualifying net position under Ind AS 109, as the hedged item.
Illustration Alpha Limited had entered into a derivative contract under previous GAAP and treated it as a hedge. On transition to Ind AS, the entity evaluates the arrangement under Ind AS 109 and finds that the hedge does not meet the qualifying criteria. The entity cannot simply continue the previous-GAAP hedge accounting in its opening Ind AS Balance Sheet. Ind AS Amendments 2026
Understanding Key Changes in Financial Instruments, Sustainability-linked Features and Nature-dependent Electricity Contracts
5
Illustration Alpha Limited had, under previous GAAP, designated a net foreign currency position of ₹100 crore as a hedged item. On transition to Ind AS, the entity determines that the previous hedge designation cannot simply be carried forward. However, the ₹100 crore net position consists of: a)
₹60 crore of foreign currency receivables; and
b)
₹40 crore of foreign currency payables.
If any of the receivables or payables satisfies the requirements of Ind AS 109, Alpha Limited may designate such individual item under Ind AS 109. The amendment therefore does not provide a blanket exemption from the requirements of Ind AS 109. Rather, it clarifies what a first-time adopter can and cannot carry forward from previous-GAAP hedge accounting.
3. Amendment to Ind AS 107 – Separate disclosure of FVOCI Investments Held and Derecognised Ind AS 109 permits an entity, on an irrevocable basis, to elect to present subsequent changes in the fair value of certain equity investments in Other Comprehensive Income (OCI) rather than in profit or loss. The amendment to paragraph 11A of Ind AS 107 enhances the disclosure requirements for such investments. The entity is required to provide information for each class of investment regarding the fair value at the reporting date and the fair value gain or loss recognised in OCI during the period. Importantly, the gain or loss recognised in OCI is required to be presented separately for investments that were derecognised during the reporting period and investments that continue to be held at the reporting date.
Illustration Suppose Alpha Limited has designated its equity investments in Company A and Company B at FVOCI. During the year, the following activities has taken place: Particulars
Company A
Company B
Fair value at beginning of year
₹ 80 Lakh
₹ 60 Lakh
Fair value at the end of reporting
₹ 100 Lakh
₹ 75 Lakh
Status at year end
Sold during year
Still held
Fair-value gain recognised in OCI
₹ 20 lakh
₹ 15 lakh
period
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Ind AS Amendments 2026
Understanding Key Changes in Financial Instruments, Sustainability-linked Features and Nature-dependent Electricity Contracts
Company A was sold during the year, whereas Company B continues to be held at the reporting date. Under the amended disclosure requirement, Alpha Limited should not merely disclose, «Fair value gain recognised in OCI – ₹ 35 lakh.” Instead, the disclosure should enable the user to distinguish between the gain relating to the investment derecognised during the year and the gain relating to the investment still held. Accordingly, the disclosure could be presented conceptually as follows: Particulars
Investments derecognised
Investments held at
during the year
reporting date
Fair value at reporting date
-
₹ 75 Lakh
Fair value gain recognised in OCI
₹ 20 lakh
₹ 15 lakh
For an investment that has been derecognised, there is obviously no closing fair value at the reporting date. The relevant disclosure would therefore focus on the applicable information relating to the derecognised investment.
4. Contingent Contractual Features – Enhanced Disclosures under Ind AS 107 Ind AS 107 has been amended to introduce paragraphs 20B–20D, which require additional disclosures for financial instruments containing contractual terms that can change the amount or timing of contractual cash flows depending on the occurrence or nonoccurrence of a specified contingent event. The requirement is particularly relevant where the contingent event is not directly related to basic lending risks and costs, such as in certain sustainability-linked or performance-based financing arrangements. Under the amended requirements, an entity is required to provide information that enables users to understand the nature and financial effect of such contractual features. Thus, an entity shall provide the following details: a)
a qualitative description of the contingent event;
b)
quantitative information regarding possible changes in contractual cash flows; and
c)
the gross carrying amount of financial assets and amortised cost of financial liabilities affected by such terms.
Illustration Green Limited has a ₹100 crore loan carrying interest at 9% per annum. Under the loan agreement, the interest rate will reduce to 8.5% if the company achieves a specified carbon-emission reduction target.
Ind AS Amendments 2026
Understanding Key Changes in Financial Instruments, Sustainability-linked Features and Nature-dependent Electricity Contracts
7
After the applicability of the aforesaid amendment, the Green Limited would need to explain the nature of the carbon-emission condition and how achievement of the target will affect its future interest payments. For example: Interest at 9% = ₹9 crore per year Interest at 8.5% = ₹8.5 crore per year Potential reduction in annual interest = ₹50 lakh The entity would also disclose the ₹100 crore amortised cost of the borrowing subject to the contingent feature. Thus, instead of merely stating that the company has a “sustainability-linked loan”, the disclosure should enable users to understand what condition is attached to the loan, how the condition can change future cash flows and the amount of the financial instrument affected by it. The amendment therefore seeks to provide users with more meaningful information about the amount, timing and uncertainty of future cash flows arising from contingent contractual features.
5. Amendments to Ind AS 109 - SPPI Assessment, Greater Clarity for Sustainability-linked Features SPPI stands for “Solely Payments of Principal and Interest”. It is one of the key conditions used to determine the classification of a financial asset under Ind AS 109. One of the significant amendments to the application guidance of Ind AS 109, relates to the assessment of whether the contractual cash flows of a financial asset satisfy the solely payments of principal and interest (SPPI) criterion. In simple terms, the SPPI test asks: Are the contractual cash flows of the financial asset limited to repayment of the amount lent and a return that represents basic lending economics? The fact that an instrument is described as a “loan” or carries an “interest rate” does not automatically mean that it satisfies SPPI. The entity has to examine the economic characteristics of the contractual cash flows. The amendment provides greater clarity in this regard by emphasising that an entity should consider what it is being compensated for, rather than merely looking at the amount of compensation it receives. Contractual cash flows would not be consistent with a basic lending arrangement if they are indexed to a variable that is not a basic lending risk or cost, such as the value of an equity instrument or the price of a commodity.
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Ind AS Amendments 2026
Understanding Key Changes in Financial Instruments, Sustainability-linked Features and Nature-dependent Electricity Contracts
The amendment also makes clear that the conclusion can be different where the contractual cash flows are linked to a variable that is not a basic lending risk or cost. Let us understand the amendment with the help of some illustrations.
Illustration- Satisfaction of SPPI Test Alpha Limited lends ₹50 crore to Beta Limited. The loan carries interest at 10%. The rate will be reduced by 25 basis points if Beta Limited achieves the specified carbon-reduction target. The first question is: Does the carbon-linked feature automatically cause the instrument to fail SPPI?
No. The entity must assess the contractual cash flows in all possible scenarios. If the maximum cumulative adjustment in the interest rate is insignificant and the resulting cash flows are not significantly different from those of an otherwise identical loan without the carbon-linked feature, the loan can still satisfy the SPPI criterion. The notification itself provides a corresponding example, describing a loan whose interest rate is adjusted by a fixed number of basis points when the debtor achieves a specified reduction in carbon emissions. The analysis concludes that the instrument can satisfy SPPI where the maximum possible cumulative adjustments do not significantly change the interest rate.
Illustration: Non-satisfaction of SPPI Test Consider a loan whose interest rate is adjusted based on a market-determined carbon price index. Here, the cash flows are indexed to the carbon price rather than to a basic lending risk or cost. Accordingly, the contractual cash flows are not solely payments of principal and interest. The notification’s example specifically concludes that such an instrument does not satisfy SPPI test. Illustration Suppose: Loan amount: ₹100 crore Base interest: 8%Interest adjustment: linked to movements in a carbon price index. If the carbon price rises significantly, the interest payable increases correspondingly. Unlike a limited sustainability-linked adjustment, the contractual cash flows are effectively linked to a market variable unrelated to basic lending risks and costs. Conclusion: The instrument would not satisfy the SPPI condition.
Ind AS Amendments 2026
Understanding Key Changes in Financial Instruments, Sustainability-linked Features and Nature-dependent Electricity Contracts
9
6. Nature-dependent Electricity Contracts – A Major New Area Perhaps the most distinctive amendment introduced through the notification relates to contracts referencing nature-dependent electricity. Ind AS 109 now specifically addresses contracts where the amount of electricity generated depends on uncontrollable natural conditions, such as weather conditions. Such contracts can include: a)
Contracts to purchase nature-dependent electricity;
b)
Contracts to sell such electricity; and
c)
Financial instruments referencing such electricity.
The amendment is particularly relevant to renewable energy arrangements such as solar and wind power purchase agreements.
6.1. When can a Renewable Electricity Contract remain outside Ind AS 109? Contracts for the purchase of electricity generated from renewable sources, such as solar or wind power, have a unique feature. The amount of electricity generated cannot always be controlled because it depends on natural conditions such as sunlight or wind. Consequently, an entity may sometimes be required to purchase electricity even when it does not need the entire quantity generated. In such a situation, the entity may have to sell the unused electricity in the electricity market. Ordinarily, frequent sales of electricity purchased under a contract could raise a question as to whether the contract is genuinely entered into for the entity’s expected usage requirements, or whether it is effectively being used for trading purposes. This distinction is important because a contract that fails the own-use requirements may fall within the scope of Ind AS 109 and be accounted for as a derivative, subject to the applicable requirements. The amendment provides specific guidance for contracts referencing nature-dependent electricity. It recognises that, because electricity generation depends on natural conditions, an entity may have no practical ability to avoid purchasing excess electricity or selling the unused portion. Therefore, the mere fact that an entity sells some unused electricity does not automatically mean that the contract ceases to be held for its expected usage requirements. The key test is whether the entity is a net purchaser of electricity over the contract period.
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Ind AS Amendments 2026
Understanding Key Changes in Financial Instruments, Sustainability-linked Features and Nature-dependent Electricity Contracts
Illustration Gamma Limited enters into a solar power purchase agreement. The agreement requires Gamma Limited to purchase all electricity generated by the solar facility. Because solar generation depends upon sunlight, the quantity generated varies. During one period: Electricity generated = 1,000 MWh Electricity required by XYZ Ltd. = 850 MWh Unused electricity sold = 150 MWh. Gamma Limited has historically purchased more electricity than it has sold and expects this pattern to continue. In determining whether the contract is held for its expected usage requirements, Gamma considers its electricity purchases and sales over a reasonable period, not exceeding 12 months. If Gamma Limited remains a net purchaser, the sale of unavoidable excess electricity does not, by itself, necessarily mean that the contract has ceased to be held for expected usage requirements. This is an important practical clarification for renewable electricity arrangements.
6.2. Hedge Accounting for Nature-dependent Electricity Contracts The amendment also introduces specific guidance for entities that use contracts referencing nature-dependent electricity as hedging instruments for forecast electricity transactions. This is particularly relevant for electricity generated from sources such as solar and wind, where the quantity of electricity generated cannot be determined with certainty because it depends on natural conditions. In a conventional hedge of forecast electricity purchases, the entity may be able to identify a relatively fixed quantity of electricity that it expects to purchase. However, in the case of nature-dependent electricity, the quantity generated and consequently the quantity delivered under the contract may vary significantly depending on sunlight, wind or other natural conditions. The amendment therefore provides a specific flexibility in identifying the hedged item.
7. What is the amendment? Where a contract referencing nature-dependent electricity is designated as a hedging instrument for forecast electricity transactions, the entity may designate as the hedged item a variable nominal amount of forecast electricity transactions. The variable amount designated as the hedged item should be aligned with the variable amount of nature-dependent electricity expected to be delivered by the generation facility referenced in the hedging instrument.
Ind AS Amendments 2026
Understanding Key Changes in Financial Instruments, Sustainability-linked Features and Nature-dependent Electricity Contracts
11
Illustration Theta Limited enters into a contract with a solar power generator. Theta Limited expects to purchase electricity generated by the solar facility and is exposed to fluctuations in electricity prices. To manage this price risk, Theta designates the contract referencing the nature-dependent electricity as a hedging instrument in a cash flow hedge of its forecast electricity transactions. However, the solar plant does not generate a fixed quantity of electricity every month. The expected generation is as follows: Month
Expected Solar Generation
April
900 MWh
May
1,200 MWh
June
1,500 MWh
July
1,100 MWh
August
800 MWh
Instead of designating a fixed quantity, say 1,000 MWh every month, as the hedged item, Theta Limited may designate a variable nominal amount of forecast electricity transactions that corresponds to the electricity expected to be delivered by the solar facility. Thus, the hedged item could be same as expected. The quantity of the hedged item therefore moves with the expected generation of the solar facility. This is important because fixing the hedged quantity at an amount that does not reflect the variable nature of renewable electricity generation could result in a mismatch between the hedging instrument and the underlying forecast transaction.
8. Derecognition of Financial Liabilities through Electronic Payment Systems The amendments introduce specific guidance on derecognition of financial liability, when payment is made through an electronic payment system. Normally, a financial liability is derecognised on the settlement date. However, after this amendment, an entity may deem the liability to have been discharged before the settlement date if the following specified conditions are met.
12
Ind AS Amendments 2026
Understanding Key Changes in Financial Instruments, Sustainability-linked Features and Nature-dependent Electricity Contracts
a)
The entity has initiated the payment instruction;
b)
The entity has no practical ability to withdraw, stop or cancel the instruction;
c)
The entity has no practical ability to access the cash being used for settlement; and
d)
Settlement risk associated with the electronic payment system is insignificant.
Conclusion The Companies (Indian Accounting Standards) Amendment Rules, 2026 represent an important development in the application of Ind AS to modern financial instruments and emerging commercial arrangements. While certain amendments merely improve consistency and clarity, the changes relating to sustainability-linked financial instruments and nature-dependent electricity contracts are likely to have a more visible practical impact. For preparers, the key message is that the assessment of a financial instrument cannot always be based solely on its legal form or conventional terminology. A loan linked to a carbon-emission target, a renewable electricity purchase arrangement or an electronic payment transaction may require a detailed assessment of its contractual cash flows, underlying economics and associated risks. Accordingly, entities should not wait until preparation of the financial statements to evaluate the effect of these amendments. Contracts containing contingent pricing mechanisms, ESG-linked terms, renewable electricity commitments, non-recourse structures or electronic settlement arrangements should be identified and assessed at an early stage so that any resulting changes in classification, measurement, derecognition, hedge accounting or disclosure can be appropriately reflected in the financial statements.
Ind AS Amendments 2026
Understanding Key Changes in Financial Instruments, Sustainability-linked Features and Nature-dependent Electricity Contracts
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