ITFG clarifications 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.
Financial guarantees within a group, deposits that carry no interest and fees paid on loans are everyday items that Ind AS 109 treats at fair value or through the effective interest rate. This digest restates ITFG's answers in our own words, checks each against the current paragraph, and works one short invented guarantee example.
ITFG clarifications are the views of ICAI's Ind AS Technical Facilitation Group as on the date of each bulletin; they are not standards. ITFG says a financial guarantee is recognised by its issuer at fair value on day one (even for a subsidiary or parent, and even if no fee is charged), then measured at the higher of the loss allowance and the unamortised amount; fees that are integral to a loan go into the effective interest rate; and a deposit or loan carrying no interest is discounted where the time value is material. One reference in the answers has changed: paragraph 4.2.1(c) now points to Ind AS 115, not Ind AS 18.
Ind AS as on 1 April 2025 (ICAI Compendium of Ind AS 2025-26, the standards notified under the Companies (Indian Accounting Standards) Rules, 2015). Amendments notified after 1 April 2025 are not reflected in this article and should be checked on mca.gov.in. Guarantee, deposit and loan accounting of this kind is part of the virtual CFO services we give finance teams at year end.
How to read the table
Each issue is cited by bulletin and issue as printed at the end of the answer; the compendium numbers them differently. The last column says whether the paragraph relied on reads the same today. See our guides to classification and measurement of financial assets, derecognition and modification and expected credit loss, and the outline of Ind AS 109.
Digest
| Situation | ITFG's view | Reference | Paragraph relied on; still the same? |
|---|---|---|---|
| Guarantee given for an associate for a commission | Fair value on day one is likely the commission if it matches an arm's length price; later at the higher of loss allowance and unamortised amount | ITFG Clarification Bulletin 12, Issue 11 | Ind AS 109, paragraphs 4.2.1(c), 5.1.1, B2.5: reads the same; the reference to Ind AS 18 is now Ind AS 115 |
| Guarantee by a subsidiary for its parent's loan, no fee | Subsidiary records a liability at fair value with the debit to equity (a distribution); parent includes the amount in the loan's effective interest rate | Bulletin 16, Issue 1 | Paragraphs 5.1.1, B2.5, B5.4.1-B5.4.2; Ind AS 27, paragraph 10: reads the same |
| Parent's guarantee for its subsidiary's loan repaid early | Day-one liability is debited to the investment; on early repayment the unamortised balance is reversed to profit or loss | Bulletin 16, Issue 7 | Paragraph 4.2.1(c); Ind AS 8, paragraphs 36-37: reads the same |
| A personal guarantee from a director, no fee | No accounting by the beneficiary where the loan's fair value is its face value; check related party disclosure | Bulletin 13, Issue 2 | Appendix A definition; Ind AS 24, paragraph 18: reads the same |
| A comfort letter | Treated as a financial guarantee if it creates a contractual obligation to pay on default; legal form does not matter | Bulletin 12, Issue 3 | Paragraph B2.5: reads the same |
| Refundable security deposits | Discount where time value is material; difference to transaction price handled under B5.1.1 and B5.1.2A; deposits repayable on demand at transaction price. The rent-deposit example relied on Ind AS 17 and is left out | Bulletin 15, Issue 7 | Paragraphs 5.1.1, B5.1.1, B5.1.2A; Ind AS 113, paragraph 47: reads the same |
| Loan from a holding company carrying no interest | Excess of the loan over its fair value is an equity infusion by the parent, credited to equity | Bulletin 18, Issue 3 | Paragraph 5.1.1, B5.1.1: reads the same |
| Interest on a director's loan waived without changing the agreement | Show interest as expense and the waiver as income; consider related party disclosure | Bulletin 22, Issue 7 | Ind AS 1, paragraph 15: reads the same |
| Processing fee on a loan only partly drawn | If drawdown is probable, the whole fee is in the effective interest rate | Bulletin 10, Issue 2 | Appendix A (effective interest method), B5.4.1-B5.4.2: reads the same |
| Prepayment premium and fee on a replacement loan | Premium is part of the gain or loss on extinguishing the old loan, with its unamortised fee; the new loan's fee is in its effective interest rate | Bulletin 12, Issue 4 | Paragraphs 3.3.3, B3.3.6, B5.4.8: reads the same |
| Renegotiation after the year end but before approval | Modification gain or loss belongs to the period in which the terms were contractually changed | Bulletin 13, Issue 6 | Paragraph 5.4.3: reads the same |
| Loan assigned to a third party and restructured | Test release from the primary liability, then the 10 per cent test and a qualitative check; partial settlement by shares is separate | Bulletin 16, Issue 3 | Paragraphs 3.3.1-3.3.4, B3.3.6: reads the same |
| Income on a redeemable preference share held as an asset | Interest method only if the cash flows pass the SPPI test, which a discretionary dividend fails; then fair value through profit or loss | Bulletin 17, Issue 4; Bulletin 8, Issue 9 | Paragraph B4.1.7A; Ind AS 107, paragraph B5(e): reads the same |
| Shares held as stock-in-trade | Inventory scope excludes financial instruments, so Ind AS 109, 32 and 107 apply | Bulletin 14, Issue 5 | Ind AS 2, paragraph 2(b): reads the same |
| Sales tax incentive receivable from government | A financial asset once the scheme's conditions are met | Bulletin 15, Issue 3 | Ind AS 32, paragraph 13; Ind AS 109, paragraph 3.1.1: reads the same |
| Foreign exchange part of a fair value change on a foreign currency debenture held at fair value | No separate presentation required | Bulletin 20, Issue 1 | Ind AS 21, paragraph 52(a): reads the same |
| Foreign currency risk disclosure where exchange differences are capitalised | Sensitivity disclosure still applies | Bulletin 13, Issue 8 | Ind AS 107, paragraph 40(a): reads the same |
Issues left out
Compendium issue 71, which deals with a tax on dividends that was later withdrawn, is left out; see our income-tax guides.
Worked illustration: a parent's guarantee at fair value on day one
The entity and all figures in this example are invented for illustration.
Kaveri Tools Limited guarantees a Rs 5,00,00,000 five-year bank loan of its subsidiary and charges no fee. The bank charges the subsidiary 1.2 per cent a year less because of the guarantee. Using the second approach ITFG describes (present value of the interest saved), the saving is Rs 6,00,000 a year (Rs 5,00,00,000 x 1.2 per cent). Discount rate 10 per cent, assumed for arithmetic only.
| Year | Saving Rs | Discount factor at 10% | Present value Rs |
|---|---|---|---|
| 1 | 6,00,000 | 0.9091 | 5,45,455 |
| 2 | 6,00,000 | 0.8264 | 4,95,868 |
| 3 | 6,00,000 | 0.7513 | 4,50,789 |
| 4 | 6,00,000 | 0.6830 | 4,09,808 |
| 5 | 6,00,000 | 0.6209 | 3,72,553 |
| Total | 3.7908 | 22,74,472 |
Rows are rounded to the rupee; the total is computed on unrounded values (6,00,000 x 3.790787). The day-one liability is Rs 22,74,472 (Ind AS 109, paragraph 5.1.1; Bulletin 16, Issue 7: debit to investment in the subsidiary).
| Particulars | Debit Rs | Credit Rs |
|---|---|---|
| Investment in subsidiary | 22,74,472 | |
| Financial guarantee obligation | 22,74,472 |
At the end of Year 1, assuming straight-line release for simplicity (income recognised on Ind AS 115 principles, paragraph 4.2.1(c)(ii)): release = 22,74,472 / 5 = Rs 4,54,894; unamortised amount = Rs 18,19,578. If the loss allowance is assumed at Rs 3,00,000, the unamortised amount is higher and stays. If it were Rs 20,00,000, the liability would be Rs 20,00,000, a further Rs 1,80,422 (20,00,000 - 18,19,578). Check: 4,54,894 + 18,19,578 = 22,74,472.
What a finance team should take from this
- List every guarantee, comfort letter and similar undertaking and test it against B2.5, whatever it is called.
- Fix a day-one fair value method and document it; revisit loss allowance each reporting date.
- Treat processing fees as part of the effective interest rate unless the loan is at fair value.
Need help with guarantees and loan accounting?
If your group has guarantees, loans carrying no interest or restructured debt to account for, our team can prepare the fair value workings and entries through our virtual CFO services.
Key takeaways
- Issuers recognise guarantees at fair value on day one, group or not.
- Subsequent measurement is the higher of loss allowance and the unamortised amount.
- Integral fees go into the effective interest rate; prepayment premium goes to extinguishment gain or loss.
- Deposits and loans carrying no interest are discounted where material.
Read next
- Classification and measurement of financial assets under Ind AS 109
- Derecognition of financial assets and liabilities under Ind AS 109
- Expected credit loss under Ind AS 109
- Ind AS 109: financial instruments
Disclaimer: Based on the Indian Accounting Standards as on 1 April 2025 (ICAI Compendium of Ind AS 2025-26, the standards notified under the Companies (Indian Accounting Standards) Rules, 2015) and, where named, the ITFG clarification bulletins of ICAI, as consulted on 4 October 2026. The worked example uses invented figures. Amendments notified after 1 April 2025 should be checked on mca.gov.in. This article is general information, not legal advice; check the official text before acting.