Ind AS Applicability: Net Worth Thresholds and Voluntary Adoption#
Every finance head of a growing company eventually asks the same question: are we required to move to Ind AS, and when? The answer sits in Rules 3, 4 and 5 of the Companies (Indian Accounting Standards) Rules, 2015 ("the Ind AS Rules"). This article reads those provisions closely and then works through what happens in practice. It is general information, not advice on your facts.
1. The basic split: Ind AS or Accounting Standards#
Rule 3 divides companies into two groups. Companies in the classes listed in Rule 4 follow the Indian Accounting Standards (Ind AS). Every other company follows the Accounting Standards specified in the Companies (Accounting Standards) Rules, which are now the 2021 Rules. Rule 3 also says a company follows one set only, never a mix.
2. The roadmap in words#
Rule 4(1) is written as a timetable, and it still defines who is in:
- Voluntary first. Any company could comply with Ind AS for accounting periods beginning on or after 1 April 2015, with comparatives. A 2016 amendment extended this to a company's holding, subsidiary, joint venture or associate company.
- First mandatory phase. Accounting periods beginning on or after 1 April 2016: listed (or about-to-be-listed) companies with net worth of Rs 500 crore or more, other companies with net worth of Rs 500 crore or more, and the holding, subsidiary, joint venture and associate companies of those.
- Second mandatory phase. Accounting periods beginning on or after 1 April 2017: listed (or about-to-be-listed) companies with net worth below Rs 500 crore, unlisted companies with net worth of Rs 250 crore or more but below Rs 500 crore, and the holding, subsidiary, joint venture and associate companies of those.
We did not find any further net worth test for unlisted companies below Rs 250 crore in the text, so they are outside these tests unless they are group entities of a covered company or choose Ind AS. The text we read is the compiled version of the Rules published in the Gazette; please check the current consolidated Rules before relying on it.
3. What counts as "net worth" and when it is tested#
Rule 2 borrows the definition in section 2(57) of the Companies Act, 2013. As we read it, net worth is paid-up share capital plus reserves created out of profits and the securities premium account, less accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet. Reserves created out of revaluation of assets, write-back of depreciation and amalgamation are excluded.
Rule 4(2) adds the test date and basis:
- Net worth is worked out from the stand-alone financial statements, not the consolidated ones.
- For a company that meets a threshold for the first time, the test uses the first audited financial statements ending after that date in which it meets the threshold.
- Meeting the threshold at the end of a year means Ind AS applies from the immediately next accounting year. The Rules illustrate this: crossing at 31 March 2017 means Ind AS for 2017-18 onwards.
4. Group entities and overseas links#
The holding, subsidiary, joint venture and associate limbs mean a small company can be pulled into Ind AS by its parent or investee, even with net worth far below the thresholds. Two further sub-rules matter for groups:
- Rule 4(5): an overseas subsidiary, associate or joint venture of an Indian company may prepare its own stand-alone statements under its local rules, but the Indian company prepares its consolidated statements under Ind AS where it is covered.
- Rule 4(6): an Indian company that is a subsidiary, associate or joint venture of a foreign company follows Ind AS if it meets the criteria, or voluntarily.
Rule 4(3) also says that once Ind AS is required, it applies to both stand-alone and consolidated statements.
5. Voluntary adoption#
A company below the thresholds may choose Ind AS under Rule 4(1)(i). Three conditions follow from the Rules:
- It must then apply Ind AS consistently (Rule 4(7)).
- The choice is irrevocable (Rule 4(8)).
- It need not prepare a second set of statements under the Accounting Standards (Rule 4(8)).
Reasons finance teams cite include investor or lender expectations, group alignment and future listing. Those are business judgements for you and your advisers; the Rules do not require any reason.
6. The one-way rule#
Rule 4(9) is easy to overlook when reading only the thresholds. Once a company follows Ind AS, voluntarily or mandatorily, it must follow Ind AS for all subsequent financial statements even if none of the Rule 4 criteria applies to it later. A fall in net worth, delisting or a change in group structure does not, on that text, return the company to the Accounting Standards. Whether a particular restructuring changes the analysis is a question for professional review.
7. Companies that stay on the Accounting Standards#
Companies outside Rule 4 follow the Accounting Standards under the Companies (Accounting Standards) Rules, 2021. From the secondary copies we could read, those Rules specify the Standards recommended by ICAI for accounting periods beginning on or after 1 April 2021, and define a small and medium sized company for the purposes of certain exemptions. We could not read the 2021 notification on an official portal for this draft, so please confirm the definition and the Rules text against the gazette. We understand the Rules were amended in March 2026 in relation to Accounting Standard 22 and Pillar Two taxes; as we understand it, that amendment does not change who follows the Standards.
Listed on an SME exchange? The proviso to Rule 4(1) says nothing in that sub-rule, other than the voluntary clause (i), applies to companies listed or in the process of listing on an SME exchange or the Institutional Trading Platform. The proviso refers to SEBI's 2009 regulations, so check how it is read now.
8. Banks, insurers and NBFCs#
Rule 5 as substituted in 2016 says banking and insurance companies apply Ind AS as notified by the Reserve Bank of India and IRDA respectively; insurers must give Ind AS-compliant data to a parent, investor or venturer that needs it for consolidation. NBFCs have their own phased net worth roadmap in Rule 4(1)(iv), with different start years. The holding, subsidiary, joint venture and associate companies of scheduled commercial banks (excluding RRBs) are covered by Rule 4(1)(v). The regulators' own instructions sit outside the Rules we read, so confirm them separately.
9. Three illustrative examples#
These are made-up figures to show the mechanics. They are not client facts.
Example A: net worth arithmetic. An unlisted stand-alone company has paid-up share capital of Rs 100 crore, securities premium of Rs 60 crore, reserves created out of profits of Rs 120 crore, a revaluation reserve of Rs 30 crore and accumulated losses of Rs 20 crore. Net worth = 100 + 60 + 120 - 20 = Rs 260 crore, as the revaluation reserve is excluded. That is at least Rs 250 crore but below Rs 500 crore, so the company falls in the unlisted band of Rule 4(1)(iii)(b). Wrongly including the revaluation reserve would give Rs 290 crore; the band would not change here, but for a company near a threshold it could.
Example B: crossing for the first time. An unlisted company shows net worth of Rs 240 crore in its audited statements at 31 March 2026, and Rs 260 crore at 31 March 2027, the first time it meets Rs 250 crore. On the Explanation to Rule 4(2), it applies Ind AS from 2027-28, and its first Ind AS financial statements should include comparatives for 2026-27.
Example C: group links and the one-way rule. An unlisted parent with net worth of Rs 300 crore is covered by Rule 4(1)(iii)(b). Its unlisted subsidiary has net worth of Rs 40 crore. Under Rule 4(1)(iii)(c), the subsidiary is covered as a subsidiary of a covered company, despite being well below Rs 250 crore. Separately, if a company had net worth of Rs 400 crore when it began following Ind AS and losses later bring it to Rs 100 crore (400 - 300 = 100), Rule 4(9) still keeps it on Ind AS.
10. When a threshold is crossed: practical steps#
Ind AS 101 governs the first set of Ind AS statements. From the text we read, the essentials are:
- Rule 4(4): the first Ind AS statements use the Ind AS effective at the end of the first Ind AS reporting period.
- Ind AS 101, paragraph 6: prepare an opening Ind AS balance sheet at the date of transition, defined as the beginning of the earliest period for which full comparative information is presented in the first Ind AS statements.
- Ind AS 101, paragraph 7: use the same accounting policies in the opening balance sheet and throughout all periods presented.
- Ind AS 101, paragraph 21: the first Ind AS statements include at least three balance sheets and two statements of profit and loss, among other statements.
In practice, that points to a checklist: confirm the test date and basis early; map group entities that are pulled in; run a gap analysis between your current policies and Ind AS; adjust systems and consolidation processes; agree the transition date with your auditor; and brief lenders and the board. The sequencing depends on the specifics, and Ind AS 101 contains optional exemptions and mandatory exceptions that need review.
11. Common points of confusion#
We are cautious here because these come from our reading, not a ruling.
- Consolidated versus stand-alone: Rule 4(2) refers to stand-alone statements for the net worth test.
- "Listed" wording: the Rules cover companies listed or in the process of listing, which is broader than companies already trading.
- Figures from earlier roadmaps: the Rules have been amended since 2015, so check any threshold against the current text and not against a summary.
12. Where to read the official text#
The Ind AS Rules are on the Ministry of Corporate Affairs website (mca.gov.in) and in the e-Gazette, and the Companies (Accounting Standards) Rules, 2021 are published there as well. ICAI (icai.org) publishes the Standards themselves. Always read the latest consolidated Rules, because the Ministry has amended the Ind AS Rules repeatedly, most recently in 2025.
Talk to a professional#
Applicability turns on facts: your audited stand-alone balance sheet, group map and listing position. If you are near a threshold, or considering voluntary adoption, take advice from a qualified Chartered Accountant before you decide.