Is a explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The Companies Act, 2013 and the accounting standards each define an associate, and they do not use the same words. For a company that sits two steps down a chain, the answer under the Act turns on how "significant influence" and "control" are read, while Accounting Standard 23 and Ind AS 28 expressly count voting power held indirectly through subsidiaries. This guide tests a holding-subsidiary-associate chain under each definition separately, as per the Companies Act, 2013 in the Ministry's consolidated text (last updated 29 July 2022), AS 23 in the Accounting Standards Rules and Ind AS 28 in the Ind AS Rules, consulted on 3 October 2026. Later amendments should be checked.
Section 2(6) says an associate company is one in which another company has significant influence, which is not its subsidiary, and includes a joint venture company; "significant influence" means control of at least twenty per cent of total voting power, or control of or participation in business decisions under an agreement. AS 23 and Ind AS 28 presume significant influence where the investor holds, directly or indirectly (for example through subsidiaries), twenty per cent or more of voting power. Whether a holding company is itself an associate-holder through its subsidiary is answered yes by the standards on that presumption and left to the reading of "control" by the Act's text.
The Act's definitions
- Section 2(6): "associate company", in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence, and includes a joint venture company. Explanation (a): "significant influence" means control of at least twenty per cent of total voting power, or control of or participation in business decisions under an agreement. Explanation (b): "joint venture" means a joint arrangement whereby the parties that have joint control have rights to the net assets of the arrangement.
- Section 2(27): "control" shall include the right to appoint the majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.
- Section 2(87): a "subsidiary" is a company in which the holding company controls the composition of the Board of Directors, or exercises or controls more than one-half of the total voting power, either at its own or together with one or more of its subsidiary companies. Explanation (a): a company is deemed to be a subsidiary of the holding company even if the control is of another subsidiary of the holding company. Explanation (c) says "company" includes any body corporate; Explanation (d) defines a "layer" as a holding company's subsidiary or subsidiaries.
- Section 2(46): a holding company is a company of which other companies are subsidiaries.
Section 129(3) requires consolidated statements of the company and all its subsidiaries and associate companies. For how the consolidation sequence runs, see our article on a holding company's AGM and subsidiary accounts. For a review of your group structure, see our compliance advisory service.
The accounting standards
AS 23 (Accounting Standard 23, Accounting for Investments in Associates in Consolidated Financial Statements). Paragraph 3.1: an associate is an enterprise in which the investor has significant influence and which is neither a subsidiary nor a joint venture of the investor. Paragraph 3.2: significant influence is the power to participate in the financial and/or operating policy decisions of the investee but not control over those policies. Paragraph 4: significant influence may be gained by share ownership, statute or agreement; if an investor holds, directly or indirectly through subsidiary(ies), 20% or more of the voting power of the investee, it is presumed to have significant influence unless it can be clearly demonstrated that it does not; if less than 20%, the opposite presumption. A substantial or majority ownership by another investor does not necessarily preclude significant influence. The Explanation says potential equity shares of the investee held by the investor are not taken into account for determining voting power. AS 23 applies in consolidated statements; for separate statements, AS 13 applies.
Ind AS 28 (Investments in Associates and Joint Ventures). An associate is an entity over which the investor has significant influence; significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control. Paragraph 5: if an entity holds, directly or indirectly (e.g. through subsidiaries), 20 per cent or more of the voting power, significant influence is presumed unless clearly demonstrated otherwise, and conversely below 20 per cent. Paragraph 6 lists indicators such as representation on the board, participation in policy-making, material transactions, interchange of managerial personnel and provision of essential technical information; paragraph 7 considers potential voting rights currently exercisable or convertible.
Working the chain (invented names)
Hathi Holdings Limited (H) holds 60 per cent of the voting power of Sutra Industries Limited (S). S holds 25 per cent of the voting power of Arka Components Limited (A).
| Question | Under the Act | Under AS 23 and Ind AS 28 |
|---|---|---|
| Is S a subsidiary of H? | Yes: H exercises more than one-half of the total voting power (section 2(87)(ii)); 60 > 50 | S is a subsidiary because H controls more than one-half of the voting power (AS 23 para 3.3(a)) |
| Is A an associate of S? | S controls 25 per cent of total voting power, which is at least twenty per cent: significant influence under section 2(6) Explanation (a); A is not a subsidiary of S (25 is not more than 50). Yes | S holds 25 per cent: presumption of significant influence (AS 23 para 4; Ind AS 28 para 5). Yes |
| Is A an associate of H? | Section 2(6) tests whether H has significant influence over A, meaning control of at least twenty per cent of total voting power. Section 2(27) includes control exercised directly or indirectly. The text does not say in terms how a holding through a subsidiary is counted for the twenty per cent, so the text leaves the question to a reading of "control" | H holds, indirectly through its subsidiary S, voting power in A of 25 per cent, which is twenty per cent or more: the standards' presumption applies. Yes, unless it is clearly demonstrated that H has no significant influence |
Under the Act alone the answer for H and A should not be stated as settled; under the standards the presumption points to yes. Where the Act and the standards are applied together for consolidated statements, take professional advice on which treatment your auditor expects.
Variation 1: part held directly
H also holds 10 per cent of A directly. A's voting power is then held 10 per cent by H and 25 per cent by S. The standards' words, "directly or indirectly through subsidiary(ies)", include both holdings, so H's 10 + 25 = 35 per cent is twenty per cent or more.
Variation 2: A becomes a subsidiary
If H holds 30 per cent of A directly, and S holds 25 per cent, then H exercises or controls, "at its own or together with one or more of its subsidiary companies", 30 + 25 = 55 per cent, which is more than one-half. A is then a subsidiary of H under section 2(87)(ii). Section 2(6) excludes a subsidiary from "associate", so A is not H's associate; it is a subsidiary, and S's 25 per cent is not what makes it an associate.
Variation 3: below twenty per cent
If S holds only 15 per cent of A, S does not meet the twenty per cent statement in section 2(6) Explanation (a) by shareholding, and the standards presume no significant influence unless clearly demonstrated. Control of or participation in business decisions under an agreement could still amount to significant influence under the Act's Explanation, on the facts.
Common mistakes
- Treating an associate of a subsidiary as an associate of the holding company without checking the definitions separately.
- Ignoring section 2(6)'s limb on business decisions under an agreement.
- Counting potential equity shares in the twenty per cent test under AS 23, which its Explanation excludes.
- Forgetting that a company controlled together with the subsidiaries is a subsidiary, not an associate.
- Missing a joint venture company, which the Act includes in "associate company".
Need help classifying group companies?
We can map your group's voting power, test each relationship under the Act and the applicable standard and prepare the disclosures. See our compliance advisory service.
Key takeaways
- The Act's significant influence is control of at least twenty per cent of total voting power, or control of or participation in business decisions under an agreement.
- AS 23 and Ind AS 28 count voting power held directly or indirectly through subsidiaries.
- A company the holding company controls together with its subsidiaries is a subsidiary, not an associate.
- Under the Act the treatment of a holding through a subsidiary rests on a reading of "control"; the text does not settle it.
- Test each definition separately.
Read next
- Holding Company AGM and Subsidiary Accounts
- Incorporating a Wholly Owned Domestic Subsidiary
- Company Relationships: Holding, Subsidiary, Associate, Control
- Section 2(46): Holding Company
Disclaimer: Based on the Companies Act, 2013 in the Ministry of Corporate Affairs consolidated text (last updated 29 July 2022), the Rules as consolidated in the Ministry's e-book and the other official texts named in this article, as consulted on 3 October 2026. Later amendments, notifications, circulars, forms and fees should be checked. Formats are general drafts to be adapted to the company's articles and facts. This article is general information, not legal advice; check the official text before acting.