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.
When a company grants employee stock options, Ind AS 102 treats the options as pay: it fixes their fair value once, at grant date, and spreads that value as an expense over the period the employees must serve, adjusting only the number expected to vest. This guide takes the rule through vesting conditions, leavers, a repricing and cash-settled awards, and reconciles a three-year grant.
For equity-settled awards to employees, measure the services by reference to the fair value of the instruments at grant date (paragraph 11). Spread it over the vesting period (paragraph 15), adjusting the number expected to vest for service and non-market performance conditions (paragraphs 19 and 20). Market conditions sit inside the fair value (paragraph 21). After vesting, total equity is not adjusted (paragraph 23).
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. Designing a plan and accounting for it are separate jobs; for the plan itself, see ESOP and employee stock options.
What the paragraphs require
| Paragraph | Requirement | What it means in practice |
|---|---|---|
| 10-12 | Equity-settled: measure the services by reference to the fair value of the equity instruments granted, with a matching credit to equity | The services cannot be measured directly for employees |
| 14-15 | If vesting is immediate, expense in full at grant; otherwise over the vesting period | A three-year service condition means three years of expense |
| 16-18 | Fair value from market prices, else a valuation technique consistent with accepted methodologies | An option pricing model is typical (Appendix B names the inputs) |
| 19-20 | Vesting conditions other than market conditions are not in fair value; they change the number expected to vest; revise each period; true up to the number that vest | No expense in total for options that fail a service or non-market condition |
| 21, 21A | Market conditions and non-vesting conditions are in the fair value; expense continues if the other vesting conditions are met | A share-price target does not reverse the expense |
| 23 | No adjustment to total equity after vesting; transfers within equity are allowed | Do not reverse the expense for lapsed vested options |
| 26-29, B42-B44 | Modifications: expense at least the grant date fair value; add any increase in fair value; cancellation accelerates vesting | A repricing adds cost; a cut in value does not reduce the minimum |
| 30-33 | Cash-settled: liability at fair value, remeasured every period until settled, changes in profit or loss | Share appreciation rights are an example (paragraph 31) |
| 44-52 | Disclose the nature of the arrangements, a table of options, how fair value was measured and the expense | Inputs include share price, exercise price, volatility, option life, dividends and the yield on government securities |
The standard is outlined in Ind AS 102 Share-based Payment. The company-law side of an ESOP scheme, such as the special resolution and the register, is covered in our post on Rule 12 and employee stock option schemes.
The method
- Fix the grant date and the terms: options per employee, exercise price, vesting period, conditions.
- Value one option at grant date (paragraphs 16 to 18). Include market and non-vesting conditions in the value; leave service and non-market performance conditions out (paragraph 19).
- Estimate how many options will vest.
- Expense for each year: cumulative expected cost x time elapsed / vesting period, less amounts already booked (paragraph 20).
- At vesting date, true up to the options that actually vest (paragraph 20).
- After vesting, record exercises and lapses without changing total equity (paragraph 23).
- On any modification, compare the fair value immediately before and after (paragraph B43(a)).
Worked example
The entity and all figures in this example are invented for illustration.
Tapti Software Limited grants 1,000 options to each of 100 employees on 1 April Year 1, the first day of financial year Year 1 (each year here runs from 1 April to 31 March and is named Year 1, Year 2 and Year 3). Each option gives one equity share of face value Rs 10 at an exercise price of Rs 100. The options vest on 31 March Year 3, after three years of service, if the employee is still in service and the company achieves a cumulative revenue target (a non-market performance condition the board expects to be met). The fair value of one option at grant date is Rs 60 (as valued, assumed for arithmetic only). Estimates of the employees who will vest, and the actual position, are below.
| Year-end | Employees who have left | Estimated total employees who will vest | Basis |
|---|---|---|---|
| 31 March Year 1 | 4 | 88 | Further leavers expected |
| 31 March Year 2 | 9 | 86 | Estimate revised (paragraph 20) |
| 31 March Year 3 | 16 | 84 | Actual: options vest (paragraph 20) |
Yearly expense (paragraphs 15, 19 and 20).
| Year | Cumulative cost computation (Rs) | Cumulative expense (Rs) | Expense for the year (Rs) |
|---|---|---|---|
| 1 | 88 employees x 1,000 x Rs 60 x 1/3 | 17,60,000 | 17,60,000 |
| 2 | 86 x 1,000 x Rs 60 x 2/3 | 34,40,000 | 16,80,000 |
| 3 | 84 x 1,000 x Rs 60 x 3/3 | 50,40,000 | 16,00,000 |
| Particulars | Debit (Rs) | Credit (Rs) |
|---|---|---|
| Each year-end Employee benefit expense (share-based payment) | as above | |
| To Share options outstanding account (equity) | as above |
Exercise and lapse (paragraph 23). Of the 84,000 options that vest, employees exercise 70,000 and 14,000 lapse unexercised.
| Particulars | Debit (Rs) | Credit (Rs) |
|---|---|---|
| Bank (70,000 x Rs 100) | 70,00,000 | |
| Share options outstanding account (70,000 x Rs 60) | 42,00,000 | |
| To Share capital (70,000 x Rs 10) | 7,00,000 | |
| To Securities premium | 1,05,00,000 | |
| Share options outstanding account (14,000 x Rs 60) | 8,40,000 | |
| To General reserve (transfer within equity) | 8,40,000 |
Check. Share options outstanding account: credits 17,60,000 + 16,80,000 + 16,00,000 = 50,40,000; debits 42,00,000 + 8,40,000 = 50,40,000, so the account closes to nil. Securities premium: 70,00,000 + 42,00,000 - 7,00,000 = 1,05,00,000. Total equity is not reversed for the lapsed options.
Variant: a repricing. Suppose that on 1 April Year 3, the company lowers the exercise price, and the fair value of an option immediately before and after the change is Rs 60 and Rs 68, an incremental fair value of Rs 8 (assumed). The increase is recognised over the period from the modification to vesting (paragraph B43(a)), here Year 3 only, on the options that vest: 84,000 x Rs 8 = Rs 6,72,000. Year 3 expense becomes 16,00,000 + 6,72,000 = Rs 22,72,000 and the original Rs 50,40,000 is unaffected (paragraph 27).
Presentation and disclosure
The expense is an employee cost and the credit is a separate equity reserve until exercise. Paragraph 45 requires the description of each arrangement and a reconciliation of the number and weighted average exercise price of options outstanding, granted, forfeited, exercised, expired and exercisable; paragraphs 46 and 47 require how fair value was measured, including the pricing model and its inputs; the later paragraphs require the effect on profit or loss and the financial position. Tax on ESOPs belongs to our income-tax guides. The deferred tax angle on the expense is in deferred tax under Ind AS 12.
Cash-settled awards in brief
If employees receive cash linked to the share price, as with share appreciation rights, the company records a liability at the fair value of the award, built up as service is rendered, and remeasures it at every reporting date and at settlement, with changes in profit or loss (paragraphs 30 to 33). There is no grant-date lock; the expense follows the share price until settlement.
Common mistakes
- Valuing options again each year for an equity-settled grant; the value is fixed at grant date.
- Including a service condition or a non-market performance target in the option value rather than in the number expected to vest (paragraph 19).
- Reversing the expense when vested options lapse (paragraph 23).
- Ignoring a repricing that raises the fair value (paragraph 27).
- Treating a failed share-price target as a reason to reverse the cost (paragraph 21).
Need help accounting for an ESOP?
If you are launching a plan, or have one running whose expense has been booked on cash or on the exercise date, we can re-perform the valuation inputs and the vesting estimates and fix the entries. Our ESOP team works with finance staff so that the plan document and the accounting say the same thing.
Key takeaways
- Fair value is fixed at grant date for equity-settled awards.
- Expense accrues over the vesting period on the number expected to vest.
- Service and non-market performance conditions change the number; market conditions are in the value.
- A repricing that raises fair value adds expense; vested-option lapses are a transfer within equity.
- Cash-settled awards are remeasured until settled.
Read next
- Earnings per share under Ind AS 33: basic and diluted EPS, bonus, rights and options
- Deferred tax under Ind AS 12: temporary differences, tax base and recognition, worked
- Rule 12 and employee stock option schemes
- Ind AS 102 Share-based Payment: overview
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.