Ind AS 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.
Ind AS 115 replaced a patchwork of revenue rules with one model. A company identifies the contract, identifies what it has promised, fixes the price, shares the price across the promises, and recognises revenue as each promise is kept. This guide takes the five steps with their paragraphs and then works a software contract that bundles a licence, installation and two years of support.
Revenue is recognised when (or as) a performance obligation is satisfied by transferring control of a good or service (paragraph 31). The five steps are: identify the contract (paragraph 9), identify the performance obligations (paragraph 22), determine the transaction price (paragraph 47), allocate it on relative stand-alone selling prices (paragraph 76), and recognise revenue at a point in time or over time (paragraphs 32 to 38). A bundle discount is spread across all obligations unless there is evidence it belongs to some only (paragraph 81).
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. Revenue is the first line of the statement of profit and loss, and getting the allocation and timing right is central to financial statement preparation.
What the paragraphs require
| Step | Paragraph | Requirement | What it means in practice |
|---|---|---|---|
| 1. Identify the contract | 9-16 | Approved and committed parties, identifiable rights and payment terms, commercial substance, collection probable | Failing the test means consideration received is a liability until paragraph 15 is met (paragraph 16) |
| 1. Combine and modify | 17-21 | Combine contracts negotiated as a package; a modification is a separate contract if distinct goods are added at stand-alone prices | Otherwise adjust prospectively or by cumulative catch-up |
| 2. Performance obligations | 22-30 | Each distinct good or service, or a series of substantially the same distinct services | Distinct needs capability and separate identifiability (paragraph 27); setup activities are not an obligation (paragraph 25) |
| 3. Transaction price | 46-49 | The amount the entity expects to be entitled to, excluding constrained variable consideration | Excludes amounts collected for third parties |
| 4. Allocation | 73-81 | Relative stand-alone selling prices; estimate when not observable; spread a discount proportionately | The strongest evidence is the observable price when sold separately (paragraph 77) |
| 5. Recognise | 31-45 | Over time if one of the three criteria in paragraph 35 is met, otherwise at a point in time using the indicators in paragraph 38; measure progress by an output or input method | Revenue only if progress can be reasonably measured (paragraph 44) |
| Licences | B52-B63B | A distinct licence is a right to access (over time) or a right to use (point in time) | Software with significant stand-alone functionality is usually a right to use (paragraph B59A) |
| Presentation | 105-109 | Contract asset, contract liability and receivable shown separately | A receivable needs only the passage of time (paragraph 108) |
For companies on AS, the closest older standard covers construction contracts; see our AS 7 guide. The standard is outlined in Ind AS 115 Revenue from Contracts with Customers.
The method
- Test the contract against paragraph 9 and decide whether to combine contracts (paragraph 17).
- List the promises and test each for being distinct (paragraphs 26 to 30).
- Fix the transaction price, excluding amounts collected on behalf of others and constrained variable consideration. GST collected is not revenue; see GST exclusion under Ind AS 115.
- Find the stand-alone selling price of each obligation and allocate, spreading any discount proportionately.
- For each obligation, decide over time (paragraph 35) or point in time (paragraph 38) and measure progress for the former.
- Present the resulting contract asset or contract liability (paragraphs 105 to 108).
Worked example
The entity and all figures in this example are invented for illustration. Amounts are in rupees and exclude GST.
Sarayu Software Limited, with a year ending 31 March, signs a contract on 1 April of Year 1 with a customer, who pays Rs 76,50,000 in full on that date. The contract covers a perpetual software licence, installation, and two years of support (helpdesk and updates from 1 April of Year 1).
Step 1: the contract (paragraph 9). Both parties have approved it, the rights and payment terms are identifiable, it has commercial substance and collection is probable. The contract exists.
Step 2: performance obligations (paragraphs 22 to 30 and B54). The licence can be used on its own and the installation does not significantly modify the software, so the promises are separately identifiable. The company sells installation and support separately. There are three performance obligations: the licence, the installation and the support. The support is a stand-ready service provided evenly across the two years.
Step 3: transaction price (paragraph 47). Rs 76,50,000, fixed, with no variable element.
Step 4: allocation (paragraphs 76, 77 and 81). The stand-alone selling prices are observable because each item is sold separately. The sum of those prices, Rs 85,00,000, exceeds the price of Rs 76,50,000, so the customer receives a discount of Rs 8,50,000. No observable evidence ties the discount to one obligation, so it is spread over all three in proportion to their stand-alone prices.
| Obligation | Stand-alone selling price (Rs) | Share | Allocated price (Rs) |
|---|---|---|---|
| Licence | 60,00,000 | 70.588% | 54,00,000 |
| Installation | 10,00,000 | 11.765% | 9,00,000 |
| Support, 2 years | 15,00,000 | 17.647% | 13,50,000 |
| Total | 85,00,000 | whole | 76,50,000 |
Each allocated price is 90 per cent of the stand-alone price (76,50,000 / 85,00,000 = 0.90).
Step 5: recognition (paragraphs 31 to 38, B58, B61).
- Licence. The software has significant stand-alone functionality and the company does not undertake activities that significantly change it, so the licence is a right to use, satisfied at a point in time (paragraphs B59A and B61). Control passes on 1 April of Year 1, when the access code is made available. Revenue Rs 54,00,000 in Year 1.
- Installation. Completed on 30 April of Year 1; the customer takes control of the installed system at completion. Revenue Rs 9,00,000 in Year 1.
- Support. The customer receives and consumes the benefit as the company performs (paragraph 35(a)). Progress is measured by time elapsed (an output method suited to a stand-ready service, paragraph 41), so revenue is Rs 13,50,000 / 24 months = Rs 56,250 a month: Rs 6,75,000 in each of Year 1 and Year 2.
| Revenue by year | Year 1 (Rs) | Year 2 (Rs) | Total (Rs) |
|---|---|---|---|
| Licence | 54,00,000 | 54,00,000 | |
| Installation | 9,00,000 | 9,00,000 | |
| Support | 6,75,000 | 6,75,000 | 13,50,000 |
| Total revenue | 69,75,000 | 6,75,000 | 76,50,000 |
Contract liability roll-forward (paragraph 106). The customer paid before the company performed, so the receipt is a contract liability that reduces as revenue is recognised.
| Year 1 (Rs) | Year 2 (Rs) | |
|---|---|---|
| Opening contract liability | nil | 6,75,000 |
| Cash received on 1 April, Year 1 | 76,50,000 | |
| Revenue recognised | (69,75,000) | (6,75,000) |
| Closing contract liability | 6,75,000 | nil |
| Particulars | Debit (Rs) | Credit (Rs) |
|---|---|---|
| 1 April, Year 1 Bank | 76,50,000 | |
| To Contract liability | 76,50,000 | |
| Year 1 Contract liability | 69,75,000 | |
| To Revenue: licence | 54,00,000 | |
| To Revenue: installation | 9,00,000 | |
| To Revenue: support | 6,75,000 | |
| Year 2 Contract liability | 6,75,000 | |
| To Revenue: support | 6,75,000 |
Check. Allocated prices 54,00,000 + 9,00,000 + 13,50,000 = 76,50,000, the transaction price. Revenue over the two years 69,75,000 + 6,75,000 = 76,50,000. The contract liability is nil after Year 2. If the company had billed in arrears instead, the unbilled amounts would first be a contract asset if the right depended on more than the passage of time (paragraph 107).
Presentation and disclosure
Paragraphs 105 to 109 separate receivables, contract assets and contract liabilities; the contract liability here is also discussed in contract liability under Ind AS 115 and the contract asset side in contract assets under Ind AS 115. Paragraph 110 sets the disclosure objective: the nature, amount, timing and uncertainty of revenue and cash flows, with disaggregation of revenue, contract balances, remaining performance obligations and significant judgements. Excise duty included in revenue is shown separately (paragraph 109AA). Variable consideration, principal and agent questions and financing components are in our next Ind AS 115 guide.
Common mistakes
- Treating the whole bundle as one product and recognising it all on delivery or all over time.
- Allocating a bundle discount to the item the sales team liked to discount, without evidence under paragraph 82.
- Recognising a licence over time because support follows, when the licence is distinct and a right to use.
- Recognising revenue before the customer can use the software (paragraph B61).
- Including GST in the transaction price.
- Counting setup activities as a performance obligation (paragraph 25).
Need help with revenue recognition under Ind AS 115?
If contracts bundle products, services and licences, a contract-by-contract allocation memo and a contract balance schedule keep the revenue line defensible. Our team prepares these workings as part of financial statement preparation.
Key takeaways
- Five steps: contract, obligations, price, allocation, recognition.
- A promise is a performance obligation if it is distinct.
- A discount on a bundle is shared proportionately unless there is evidence it belongs to specific items.
- Over time if a paragraph 35 criterion is met; otherwise at a point in time when control passes.
- Cash received early is a contract liability, not revenue.
Read next
- Variable consideration, principal v agent and the financing component under Ind AS 115
- Expected credit loss under Ind AS 109: three stages, simplified approach and provision matrix
- Contract assets under Ind AS 115: presentation and impairment
- AS 7 Construction Contracts: percentage of completion
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.