Ind AS 102 Share-based Payment: A Practitioner Guide for FY 2026-27
Ind AS 102 (Share-based Payment) is the Indian Accounting Standard that prescribes how companies must account for transactions where goods or services are received in exchange for shares or share-linked instruments.
The Ministry of Corporate Affairs notified Ind AS 102 via the Companies (Indian Accounting Standards) Rules, 2015. It became mandatory from 1 April 2016 for Phase I companies. This standard replaced the ICAI Guidance Note on Employee Share-based Payments under the previous AS framework.
For FY 2026-27, Ind AS 102 remains critical in technology and startup sectors. ESOPs and share appreciation rights drive talent retention and compensation structuring across listed and unlisted companies. Startups face unique challenges in valuing unlisted options and disclosing fair value methodology.
Ind AS 102 at a Glance
Ind AS 102 establishes the accounting principle that all share-based payment (SBP) transactions, whether settled in equity or cash, must be recognised as expenses over the vesting period. The primary users are listed companies and large unlisted entities granting ESOPs or similar awards.
| Field | Value |
|---|---|
| Standard Number | Ind AS 102 |
| Full Name | Share-based Payment |
| Issuing Body | ICAI (Accounting Standards Board) |
| Notified By | MCA, Companies (Indian Accounting Standards) Rules, 2015, dated 16 February 2015 |
| Effective Date | 1 April 2015 (voluntary), 1 April 2016 (mandatory Phase I) |
| Supersedes | ICAI Guidance Note on Employee Share-based Payments (under AS framework, effective 2005) |
| Equivalent Standard | Guidance Note on Employee Share-based Payments ↔ Ind AS 102 ↔ IFRS 2 |
| Applies To | All companies required to follow Indian Accounting Standards. Ind AS 102 prescribes the accounting for transactions in which an entity receives goods or services in exchange for equity instruments or where the entity assumes a liability based on the price of equity instruments. |
What is Ind AS 102: Share-based Payment?
Ind AS 102 sets out how an entity accounts for transactions where it receives goods or services, including employee services, in exchange for shares, stock options, or liabilities linked to its share price. The standard covers both equity-settled and cash-settled arrangements.
ICAI introduced this standard to align Indian accounting with global practice under IFRS 2. Before its notification by MCA in February 2015, Indian companies followed the ICAI Guidance Note on Employee Share-based Payments. The move to a principles-based approach ensures consistency between Indian entities and their international peers.
Finance teams in listed companies, statutory auditors performing audits under SA 700, and CA students preparing for exams frequently use this standard.
Objective of Ind AS 102
- Specify the financial reporting by an entity when it undertakes a share-based payment transaction.
- Require the effects of share-based payment transactions to be reflected in profit or loss and balance sheet, including expenses associated with transactions in which share options are granted to employees.
- Establish requirements for distinguishing equity-settled, cash-settled, and choice-based share-based payment transactions.
The objective ensures that financial statements present a true and fair view of compensation costs arising from SBPs as required by Section 129 of the Companies Act, 2013. Transparent recognition helps users assess how SBP arrangements affect reported profits and shareholders’ equity.
Who Must Apply Ind AS 102?
Entities covered
All companies required to comply with Indian Accounting Standards must apply Ind AS 102. This includes:
| Category | Applicability Timeline |
|---|---|
| Phase I (Listed + Net worth ≥ Rs 500 crore) | Mandatory from FY 2016-17 |
| Phase II (Unlisted + Net worth ≥ Rs 250 crore) | Mandatory from FY 2017-18 |
| Voluntary adopters | Any year from FY 2015-16 |
Statutory auditors must ensure compliance wherever SBPs exist, regardless of whether an entity is listed or unlisted, if it falls within the prescribed thresholds.
Scope exclusions
Ind AS 102 does not apply to:
- Transactions where an entity acquires goods as part of net assets in a business combination (accounted under Ind AS 103).
- Transactions covered by Ind AS 32 and Ind AS 109 where an entity receives or delivers its own equity instruments as part of financial instrument contracts.
When the standard does not apply
If a company acquires inventory as part of a business combination, it applies Ind AS 103 Business Combinations instead of this standard. Where contracts fall within financial instruments guidance (e.g., convertible debentures), entities must apply either Ind AS 32 Financial Instruments: Presentation or Ind AS 109 Financial Instruments as appropriate.
Key Definitions under Ind AS 102
| Term | Definition |
|---|---|
| Share-based payment transaction | Entity receives goods/services from counterparty in exchange for shares/share-linked settlement. |
| Equity-settled SBP | Transaction settled by issuing company’s own shares/options on shares. |
| Cash-settled SBP | Transaction settled in cash/other assets based on company’s share price/value. |
| Vesting | Becoming entitled; entitlement conditional on service/performance conditions being met. |
| Vesting period | Time during which all vesting conditions must be satisfied. |
| Grant date | Date when both parties agree to SBP arrangement terms and conditions. |
| Fair value | Price received in orderly transaction between market participants per Ind AS 113. |
Recognition and Measurement under Ind AS 102
When to recognise
Under Paras 7-8 of Ind AS 102, an entity recognises goods or services received, or acquired, when it obtains those goods or as services are rendered by employees or other suppliers. For employee services subject to vesting conditions (e.g., service over three years), expense recognition occurs systematically over that vesting period rather than up-front at grant date.
For non-employees providing goods/services not subject to vesting conditions, recognition occurs when those goods/services are obtained by the company.
In all cases:
- For equity-settled SBPs, the corresponding credit goes directly to equity.
- For cash-settled SBPs, the corresponding credit creates a liability.
Initial measurement
Equity-settled SBPs involving employees are measured at fair value of equity instruments granted at grant date (Para 11). For other counterparties (non-employees), initial measurement is at fair value of goods/services received unless that cannot be reliably measured; if so, measure at fair value of equity instruments granted instead.
Cash-settled SBPs are initially measured at fair value of liability incurred at grant date, based on expected payout linked to share price movements.
**Formula:**
Total SBP Expense = Number of Instruments × Grant Date Fair Value × Probability Expected to Vest
>
Recognise this expense over vesting period as services are rendered.
Subsequent measurement
For equity-settled SBPs:
- Total fair value determined at grant date is recognised as expense over vesting period (Para 19).
- Adjust only for changes in non-market vesting conditions such as employee turnover or performance targets.
- Do not revise grant-date fair value for changes in market price after grant date.
- If awards do not vest due only to non-market conditions being unmet (e.g., resignation before vesting), reverse cumulative expense previously recognised relating to those awards.
- Market-related vesting conditions are factored into initial fair value; no subsequent adjustment regardless of whether condition is ultimately met.
For cash-settled SBPs:
- Liability remeasured at each reporting date and settlement date using updated fair value.
- Changes in liability recognised immediately through profit or loss (Para 30).
Where settlement choice exists between cash/equity:
- Analyse components separately per Paras 34-43; bifurcate into debt/equity portions based on settlement terms.
Modified Grant Date Method for Equity‐Settled SBPs
Ind AS 102 mandates use of modified grant date method:
- Grant-date fair value is fixed, subsequent changes in market prices do not affect amount recognised.
- Non-market vesting conditions adjust only number expected/actual to vest, not per-unit fair value.
- Market conditions like share price targets are incorporated into initial valuation; actual outcome does not impact subsequent accounting.
- Forfeitures due to non-market condition failure reduce cumulative expense via reversal entries.
- Modifications such as re-pricing/options extension require incremental fair value recognition if new terms are more beneficial than original award terms.
- Cancellation triggers immediate recognition of any unrecognised expense unless replacement awards are granted simultaneously.
This approach ensures consistent expense recognition aligned with economic substance rather than short-term market fluctuations, a critical requirement under both Indian GAAP and IFRS convergence frameworks.
Worked Examples on Ind AS 102
Example 1: Equity‐settled ESOP with service condition
Scenario:
Sundaram Engineering Pvt Ltd grants one lakh stock options on April 1st, 2025 to fifty employees with a four-year continuous service condition. Black-Scholes model yields Rs 80 per option at grant date; estimated forfeiture rate is ten percent.
Computation Table
| Parameter | Value | Calculation |
|---|---|---|
| Options granted | ₹1 lakh | , |
| Fair value per option | ₹80 | , |
| Estimated forfeiture | ₹10% | , |
| Total expense | ₹72 lakh | ₹1 lakh × ₹80 × (1, ₹10%) |
| Annual charge | ₹18 lakh/year | ₹72 lakh ÷ four years |
Journal Entry Year One:
Dr Employee Compensation Expense ₹18 lakh / Cr Stock Options Outstanding (Equity) ₹18 lakh
Repeat annually adjusting for actual forfeitures; reverse prior expense if options lapse due to resignation before vesting. On exercise: Dr Cash plus Stock Options Outstanding / Cr Equity Share Capital plus Securities Premium.
Example 2: Cash‐settled SAR with remeasurement
Scenario:
Maharashtra Cement Ltd grants fifty thousand Stock Appreciation Rights (SARs) on April 1st, 2025 with three-year vesting period; payout equals share price at vesting date paid in cash. Initial SAR fair value is Rs 60; end-of-year values rise sequentially, Rs 80 after year one; Rs 90 after year two; Rs 100 after year three, all SARs ultimately vest.
Computation Table
| Year | SAR FV per unit | Cumulative Expense | Current Year Expense |
|---|---|---|---|
| Year One | Rs 80 | ₹13.33 lakh | ₹13.33 lakh |
| Year Two | Rs 90 | ₹30 lakh | ₹16.67 lakh |
| Year Three | Rs 100 | ₹50 lakh | ₹20 lakh |
(Cumulative = Number × FV × Proportion Vested)
Journal Entries:
Each year-end remeasurement, Dr Employee Compensation Expense / Cr SAR Liability with updated amount based on current FV estimate
On final settlement, Dr SAR Liability ₹50 lakh / Cr Bank ₹50 lakh
Disclosure Requirements under Ind AS 102
Ind AS 102 requires detailed disclosures to ensure transparency of share-based payment (SBP) arrangements as mandated under Schedule III to the Companies Act, 2013. Entities must provide sufficient information for users to understand the nature and impact of SBPs on financial statements, including valuation methods and expense recognition.
| Item | Requirement | Para Reference |
|---|---|---|
| Description of each SBP arrangement | Including terms, vesting conditions, settlement details | Para 45(a) |
| Number and weighted average exercise prices of share options | Outstanding at beginning, granted, forfeited, exercised, expired, outstanding at end, exercisable at end | Para 45(b) |
| Weighted average share price at exercise dates | For options exercised during the period | Para 45(c) |
| Range of exercise prices and weighted average remaining contractual life | For options outstanding | Para 45(d) |
| Method of measurement of fair value | Inputs into model (option pricing model), volatility, risk-free rate, dividend yield, expected life | Para 47 |
| Total expense recognised | Distinguishing equity-settled from cash-settled; separate disclosure of expense from goods/services that did not qualify for asset recognition | Para 51 |
| Carrying amount of liability | For cash-settled SBPs at end of period | Para 51(b) |
Statutory auditors must verify compliance with these disclosure requirements as part of their reporting duties under SA 700.
Common Mistakes & Industry-Specific Considerations
Common errors auditors flag
- Failing to recognise expense over vesting period (often missed when accountants treat SBPs as cash transactions only)
- Adjusting fair value for changes in market conditions after grant date (prohibited)
- Treating SARs as equity-settled instead of cash-settled
- Inadequate disclosure of valuation inputs (volatility, expected life)
- Failing to recognise modification expense on re-pricing or extension of SBPs
- Missing the deferred tax effect of SBP expenses (deferred tax asset where tax deduction available on exercise/settlement)
Industry application notes
IT services and software:
ESOPs are a mainstay for talent retention in Indian IT majors like TCS and Infosys. Multi-tranche ESOPs with service and performance vesting are common. Black-Scholes is the preferred valuation model; historical volatility is a key input disclosed in financial statements.
Banks and NBFCs:
RBI compensation guidelines require additional scrutiny for performance-linked pay and equity-settled SBPs in banks. Material risk takers face deferral and clawback provisions. Auditors review compliance with both Ind AS 102 and RBI circulars.
Startups and unicorns:
Unlisted startups use ESOPs extensively but face challenges in estimating fair value due to lack of market data. Disclosure around methodology gains prominence during IPO or secondary sale events when significant expenses may be triggered.
Ind AS 102 vs Guidance Note on ESOPs vs IFRS: Key Differences
| Aspect | AS (Guidance Note on ESOPs) | Ind AS (Ind AS 102) | IFRS (IFRS 2) |
|---|---|---|---|
| Equity-settled measurement | Per Guidance Note on ESOPs | Fair value at grant date (Para 11) | Same as Ind AS |
| Vesting condition treatment | Service-based mainly | Distinguishes market vs non-market conditions | Same |
| Cash-settled SBP | Limited specific guidance | Comprehensive (Para 30) | Same |
| Choice between cash and equity | Limited | Detailed bifurcation (Para 34-43) | Same |
| Modifications, cancellations, settlements | Limited | Comprehensive Para 26-29 | Same |
India’s Ind AS 102 closely aligns with IFRS 2 in both structure and substance. The principal carve-outs relate to transitional provisions and certain employee benefit arrangements. The earlier ICAI Guidance Note lacked detailed guidance on market vesting conditions, modifications, or cash-settled arrangements, areas now addressed comprehensively under Ind AS 102.
Latest Amendments to Ind AS 102 (FY 2026-27)
No amendments have been notified to Ind AS 102 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.
Related Standards You Should Know
- [Ind AS 32](/ind-as-32-financial-instruments-presentation/), Classification of choice-based SBPs as debt or equity.
- [Ind AS 33](/ind-as-33-earnings-per-share/), Diluted EPS impact of equity-settled SBPs.
- [Ind AS 12](/ind-as-12-income-taxes/), Deferred tax on SBP expense and tax deduction at exercise.
- [Ind AS 113](/ind-as-113-fair-value-measurement/), Fair value measurement principles for SBPs.
- [Ind AS 24](/ind-as-24-related-party-disclosures/), Compensation of KMP includes SBP component.
Need Help with Ind AS 102 Compliance?
Patron Accounting LLP supports companies across India with expert advice on Ind AS 102 Share-based Payment compliance. Our team helps you navigate complex ESOP accounting, valuation challenges for unlisted options, and regulatory disclosures required by Schedule III.
Our services include:
- Statutory Audit
- Ind AS Advisory
- Financial Reporting & Schedule III
- Disclosure Review
Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.
Frequently Asked Questions (FAQs)
Every company required to follow Indian Accounting Standards must apply Ind AS 102 if it enters into share-based payment transactions, whether equity-settled or cash-settled, including listed companies, large unlisted entities, NBFCs, banks, and startups issuing ESOPs or similar awards.
Equity-settled share-based payments result in shares or stock options being issued by the entity. Cash-settled arrangements require payment based on share price movements but settled in cash or other assets, such as Stock Appreciation Rights, recognised as liabilities remeasured at each reporting date.
Ind AS 102 introduces fair value measurement at grant date for most awards, distinguishes market versus non-market vesting conditions, covers cash-settled schemes comprehensively, mandates detailed disclosures, and aligns Indian practice with IFRS 2 requirements, offering more rigour than the earlier Guidance Note.
Entities must measure ESOPs granted to employees at fair value determined on grant date using an option pricing model such as Black-Scholes. Expense is recognised over the vesting period based on service rendered; forfeitures due to non-market conditions reduce cumulative expense recognised.
Non-market vesting conditions like service periods affect only the number of awards expected to vest, not their per-unit fair value. Market-related conditions such as share price targets are incorporated into initial fair value at grant date and not subsequently adjusted regardless of outcome.
Modifications that increase the fair value or make terms more beneficial require recognition of incremental expense immediately or over remaining vesting period. Cancellations generally trigger immediate recognition unless replacement awards are granted simultaneously per Paras 26-29 of Ind AS 102.
Unlisted companies use option pricing models like Black-Scholes but must estimate key inputs such as volatility based on peer group data or historical performance. Transparent disclosure around methodology is critical, especially during IPO or liquidity events that may trigger significant expenses.
Yes. Where a tax deduction arises upon exercise or settlement exceeding cumulative book expense recognised under Ind AS 102, a deferred tax asset is recognised per Ind AS 12 Income Taxes. The timing difference is measured using applicable tax rates expected at settlement date.
Companies must disclose arrangement terms; number and weighted average exercise prices; method used for fair value estimation; key assumptions such as volatility; total expenses recognised; carrying amount of liabilities for cash-settled awards; and any modifications during the period per Paras 45-51.
Frequent errors include failing to spread expense over vesting period; treating all awards as equity-settled regardless of payout mode; adjusting grant-date fair values post-grant; omitting key valuation inputs from disclosures; missing modification effects; or overlooking deferred tax implications arising from award settlement.
About This Article
Reviewed by CA & CS Team · Patron Accounting LLP
Technical reviewer: CA Sundram Gupta, FCA
Last reviewed: 2026-05-02
Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Indian Accounting Standards) Rules, 2015, dated 16 February 2015) · IFRS Foundation