An unlisted private company has to move from the Accounting Standards (AS) to Indian Accounting Standards (Ind AS) in one of three ways. The first is its own net worth reaching ₹250 crore on an audited standalone balance sheet. The second is becoming the holding company, subsidiary, associate or joint venture of a company that already follows Ind AS. The third is listing even a debt security in India or abroad, and that route ignores net worth altogether. Everything else in Ind AS applicability is detail around those triggers, but the detail decides the year you switch, and the switch usually lands earlier than the finance team expects.
The rules sit in Rule 4 of the Companies (Indian Accounting Standards) Rules, 2015, which have not changed on these thresholds since the 2016 amendment. What follows is the test as it stands on 3 November 2026, how to compute the net worth figure that drives it, the group links that pull small companies in, and what the first Ind AS year actually demands.
The routes into Ind AS for a company that is not yet on it
Rule 4 of the Companies (Indian Accounting Standards) Rules, 2015 phased Ind AS in from 1 April 2016 for companies with net worth of ₹500 crore or more. The second phase, from 1 April 2017, took in unlisted companies between ₹250 crore and ₹500 crore and all other listed companies. Those dates have passed, so for a company looking at the question today the phases collapse into the routes below.
| Route | What triggers it | When Ind AS starts |
|---|---|---|
| Own net worth | Standalone net worth of ₹250 crore or more for the first time on an audited balance sheet | The accounting year immediately after that balance sheet date |
| Listing | Equity or debt securities listed, or in the process of being listed, on a stock exchange in India or outside India (other than an SME exchange) | The accounting year after the criterion is met, with no net worth floor |
| Group relationship | Becoming the holding company, subsidiary, associate or joint venture of a company covered by Ind AS | From the same period as the covered company, which can mean the current year |
| Voluntary adoption | A board decision under clause (i) of Rule 4(1) | The year chosen, and it cannot be reversed |
A company caught by none of these stays on the Accounting Standards. Rule 3 of the Ind AS Rules still refers to the 2006 Accounting Standards Rules, but those were superseded by the Companies (Accounting Standards) Rules, 2021 notified on 23 June 2021. Under Rule 3 of the Ind AS Rules, a company follows one framework only: Ind AS once Rule 4 covers it, the Accounting Standards otherwise.
Working out net worth for the ₹250 crore test
The Ind AS Rules do not have their own definition. Rule 2(1) of the Ind AS Rules borrows "net worth" from section 2(57) of the Companies Act, 2013. That clause takes paid-up share capital, all reserves created out of profits and the securities premium account, and the debit or credit balance of profit and loss. It then deducts accumulated losses, deferred expenditure and miscellaneous expenditure not written off. It does not include reserves created out of revaluation of assets, write-back of depreciation or amalgamation. The wording is reproduced in an ICAI Expert Advisory Committee opinion quoting section 2(57), which also shows how often reserve labels cause confusion in practice.
The figure comes from the standalone audited balance sheet, never the consolidated one. A small holding company with large subsidiaries is tested on its own numbers. The subsidiaries matter only through the group route discussed later.
The Ind AS Transition Facilitation Group (ITFG) of ICAI settled several grey items for applicability purposes. Its answers are collected in the ICAI compendium of ITFG clarification bulletins:
| Balance sheet item | Counted in net worth for Ind AS applicability? | Basis |
|---|---|---|
| Paid-up equity capital, securities premium, general reserve, retained earnings | Yes | Section 2(57) |
| Revaluation reserve | No | Excluded by section 2(57) |
| Amalgamation reserve, write-back of depreciation | No | Excluded by section 2(57) |
| Employee stock option outstanding (ESOP reserve) | Yes | ITFG Bulletin 11, Issue 1 |
| Capital reserve from government grants in the nature of promoter's contribution | Yes | ITFG Bulletin 6, Issue 4 |
| Accumulated losses, deferred and miscellaneous expenditure not written off | Deducted | Section 2(57) |
A negative net worth never triggers the net worth route, however large it is; ITFG Bulletin 4, Issue 3 confirms this. A loss-making company can still be pulled in by listing or by a group relationship.
Which balance sheet date counts
Rule 4(2)(a) originally fixed the test on the standalone financial statements as on 31 March 2014. For any company that crosses a threshold later, or did not exist then, Rule 4(2)(b) uses the first audited financial statements in which it meets the threshold. The Explanation and illustration to that sub-rule then say that a company meeting the threshold for the first time at the end of an accounting year applies Ind AS from the immediately next accounting year. A company first at ₹250 crore on 31 March 2017 was on Ind AS from FY 2017-18.
Two consequences follow. First, the obligation is fixed by the year-end figure. A large capital infusion in the middle of a year does not pull Ind AS into that same year; ICAI's study material on Ind AS applicability works through exactly this case. Second, the test bites only once. Under ITFG Bulletin 6, Issue 1, a company that met the threshold stays on Ind AS even if net worth later falls well below it, and Rule 4(9) says the same in terms.
A worked example: crossing ₹250 crore on 31 March 2026
Illustration. Kaveri Polymers Private Limited is unlisted, has no listed debt and is not part of any Ind AS group. Its net worth on 31 March 2025 was ₹231 crore. Its standalone balance sheet as on 31 March 2026, audited and adopted in September 2026, shows (₹ crore):
- Equity share capital: 40
- Securities premium: 60
- General reserve: 35
- Retained earnings: 112
- Employee stock options outstanding: 4
- Revaluation reserve on land: 22
- Capital reserve arising on an amalgamation: 9
Total equity in the balance sheet is ₹282 crore. Net worth under section 2(57) excludes the revaluation reserve and the amalgamation reserve, which leaves 40 + 60 + 35 + 112 + 4 = ₹251 crore. Without the ESOP reserve the figure would have been ₹247 crore and the company would have stayed on AS. That one ITFG answer decides the case.
Because ₹251 crore is reached for the first time on 31 March 2026, Ind AS applies from the accounting period beginning 1 April 2026. That means:
- First Ind AS financial statements: the year ending 31 March 2027, the year already running when the audit was signed.
- Comparative year: FY 2025-26, restated under Ind AS.
- Date of transition: 1 April 2025, for which an opening Ind AS balance sheet has to be built, eighteen months in the past by the time the numbers are known.
This is the trap in practice. By the time the auditor signs the balance sheet that crosses ₹250 crore, half the first Ind AS year is gone and the transition date is more than a year old. A company within reach of the threshold should project its year-end net worth before the year closes, not after the audit.
How a small company inherits Ind AS from its group
Clauses (ii) and (iii) of Rule 4(1) extend each phase to the holding, subsidiary, joint venture or associate companies of the covered company. The relationship is tested with Ind AS definitions, so control is judged under Ind AS 110 and significant influence under Ind AS 28, not under the older AS 21 and AS 23 tests. The ITFG has applied this in situations that come up regularly:
- Becoming a holding company mid-year. In ITFG Bulletin 3, Issue 7, an unlisted company with net worth under ₹250 crore acquired shares of an Ind AS company during the year and became its holding company. It had to prepare Ind AS financial statements for that same year.
- Becoming an associate mid-year. In Bulletin 3, Issue 6, a company became an associate of an Ind AS investor on 31 October 2016. Its annual statements for the year ending 31 March 2017 had to be under Ind AS, with quarterly Ind AS reporting from the December 2016 quarter.
- Foreign parents do not count. In Bulletin 2, Issue 2, two Indian subsidiaries of a large foreign company were tested on their own net worth. A foreign company is not incorporated under the Companies Act, so its size does not pull its Indian subsidiaries in. Rule 4(6) then requires the Indian subsidiary to follow Ind AS only if it meets the criteria itself.
- Overseas subsidiaries. Under Rule 4(5), a foreign subsidiary, associate or joint venture of an Indian Ind AS company may keep its standalone accounts under local rules. For consolidation, its numbers still have to be converted to Ind AS.
The cascade runs both ways. If a ₹40 crore subsidiary is covered because its holding company is on Ind AS, the holding company's other subsidiaries, associates and joint ventures are covered too. Send any fresh investment of 20% or more by an Ind AS company, or a joint venture agreement with one, to the accounts team before signing. The investee may be switching frameworks in the current year.
Listed debt and SME listing change the answer
The listing route catches companies that think of themselves as private. Clause (iii)(a) of Rule 4(1) covers companies whose equity or debt securities are listed or in the process of being listed, with net worth below ₹500 crore. There is no lower net worth limit. A private company that lists non-convertible debentures is on Ind AS from the following accounting year, even with net worth of ₹30 crore.
The test is applied immediately before the mandatory date, not frozen on the 2014 balance sheet. In ITFG Bulletin 3, Issue 8, a company that was listed on 31 March 2014 but delisted by 31 March 2015 was held to be outside the roadmap. Bulletin 6, Issue 1 later made clear that this relief applies only to the listing criterion, not to net worth.
The proviso to Rule 4(1) takes companies listed, or in the process of listing, on an SME exchange or the Institutional Trading Platform out of every mandatory clause. Only voluntary adoption under clause (i) is open to them. A company moving from an SME platform to the main board should revisit the question as soon as the migration is planned.
NBFCs, banks and insurers follow separate tracks
Non-banking financial companies have their own phases in clause (iv) of Rule 4(1). NBFCs with net worth of ₹500 crore or more moved from 1 April 2018. Listed NBFCs below that figure and unlisted NBFCs between ₹250 crore and ₹500 crore moved from 1 April 2019. For an NBFC the measurement date is 31 March 2016 or the first audited statements after it. Unlisted NBFCs below ₹250 crore cannot adopt Ind AS voluntarily.
ICAI's study material on Ind AS applicability also records that the Reserve Bank of India deferred Ind AS for scheduled commercial banks till further notice in March 2019. All insurance companies, regardless of net worth, were scheduled from 1 April 2021. Holding companies, subsidiaries, joint ventures and associates of banks are covered from 1 April 2018 under clause (v), which matters for bank-owned broking, asset management and services companies.
Voluntary adoption is a one-way door
Any company may adopt Ind AS voluntarily under clause (i) of Rule 4(1), and its group companies then follow it. Three sub-rules settle the consequences. Rule 4(7) requires consistent application, Rule 4(8) makes the choice irrevocable, and Rule 4(9) keeps the company on Ind AS for every later year even if it no longer meets any criterion. Companies preparing for an investor exit or an IPO often opt in early to get comparatives ready. They should do so knowing that a failed IPO will not take them back to AS.
Partnership firms and LLPs cannot use Ind AS even by choice, since the Rules apply only to companies; ITFG Bulletin 11, Issue 7 confirms this. Branch offices of foreign companies are also outside the Rules.
What the first Ind AS year requires once the trigger is hit
Under Rule 4(3), Ind AS applies to both standalone and consolidated financial statements from the first year, so a company cannot convert one set and leave the other. Rule 4(4) requires the first set to use the Ind AS in force at the end of the first Ind AS reporting period, which for Kaveri Polymers is 31 March 2027.
The first Ind AS financial statements contain three balance sheets: the reporting date, the comparative year-end and the opening balance sheet at the date of transition. They also contain profit and loss, changes in equity and cash flows for two years, and reconciliations of equity and profit from the old AS figures to Ind AS. For the Kaveri example, the work list in order is:
- Close the FY 2025-26 AS accounts as normal and freeze them as the base for restatement.
- Prepare the opening Ind AS balance sheet as on 1 April 2025, choosing the Ind AS 101 exemptions (deemed cost of property, plant and equipment is the usual one).
- Restate FY 2025-26 under Ind AS and prepare the equity and profit reconciliations.
- Run FY 2026-27 under Ind AS, including any interim reporting the company is required to give.
- Present the FY 2026-27 statements using Ind AS formats, with the reconciliations disclosed.
Before relying on any of this, recheck Rule 4 for later amendments on the date of the decision. Take the standalone net worth from the signed audited balance sheet, not from a draft or the consolidated accounts.
