Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance: A Practitioner Guide for FY 2026-27
Ind AS 20 (Accounting for Government Grants and Disclosure of Government Assistance) is the Indian Accounting Standard that prescribes how companies must account for government grants and disclose other government assistance in their financial statements.
The Ministry of Corporate Affairs notified Ind AS 20 via the Companies (Indian Accounting Standards) Rules, 2015. It became mandatory from 1 April 2016 for Phase I companies. Ind AS 20 supersedes AS 12 (Accounting for Government Grants) for entities that have adopted Ind AS.
For FY 2026-27, government incentive schemes such as Production Linked Incentive (PLI), capital subsidies in manufacturing, and export incentives like MEIS and RoDTEP remain highly relevant. Entities in sectors such as manufacturing and exports must apply Ind AS 20 rigorously to ensure compliance.
Ind AS 20 at a Glance
Ind AS 20 requires entities to account for government grants based on a systematic approach that matches grant income with the related expenditure or loss. The standard primarily applies to companies adopting Indian Accounting Standards who receive monetary or non-monetary assistance from government sources.
| Field | Value |
|---|---|
| Standard Number | Ind AS 20 |
| Full Name | Accounting for Government Grants and Disclosure of Government Assistance |
| 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 | AS 12 (Accounting for Government Grants) for Ind AS-applicable entities |
| Equivalent Standard | AS 12 ↔ Ind AS 20 ↔ IAS 20 |
| Applies To | All companies required to follow Indian Accounting Standards. Ind AS 20 prescribes the accounting treatment for government grants (whether monetary or non-monetary) and the disclosure of other forms of government assistance. |
What is Ind AS 20: Accounting for Government Grants and Disclosure of Government Assistance?
Ind AS 20 defines how an entity must recognise government grants received, whether as cash subsidies, asset transfers, or other forms of economic benefit, and how it must disclose all government assistance in its financial statements. The standard establishes clear principles so that grant income is matched systematically with the expenses or losses it is intended to offset.
The Institute of Chartered Accountants of India introduced Ind AS 20 as part of India's convergence with International Financial Reporting Standards. It replaced the earlier framework under AS 12 by removing options such as recognising capital grants directly in equity and aligning Indian practice with IAS 20 issued by the International Accounting Standards Board.
CFOs, statutory auditors, finance teams in listed companies, NBFCs, and CA students regularly use this standard when preparing or reviewing financial statements where any form of government support is involved.
Objective of Ind AS 20
- Prescribe accounting and disclosure of government grants and other forms of government assistance.
- Establish that grants are recognised on a systematic basis over the periods in which the entity recognises related expenses or losses against which the grants are intended to compensate.
- Specify presentation choices (deduction from related asset/income approach) and ensure transparent disclosure.
By requiring consistent recognition and comprehensive disclosure, the objective ensures that users receive a true and fair view of an entity’s financial position as mandated by Section 129 of the Companies Act, 2013. Transparent reporting prevents overstatement or understatement of profits due to inconsistent grant accounting.
Who Must Apply Ind AS 20?
Entities covered
All companies required to comply with Indian Accounting Standards must apply Ind AS 20. This includes:
| Category | Applicability |
|---|---|
| Phase I Companies | Listed entities with net worth ≥ Rs 500 crore; mandatory from FY 2016-17 |
| Phase II Companies | Unlisted companies with net worth ≥ Rs 250 crore; mandatory from FY 2017-18 |
| Subsequent Phases | As notified by MCA; all new listings or net worth crossings above threshold |
Entities previously following only Indian GAAP now follow this standard if they have transitioned to the Ind AS framework.
Scope exclusions
Ind AS 20 does not apply to:
- Tax benefits including income tax holidays or investment tax credits, these are covered by Ind AS 12.
- Cases where the government participates in equity ownership.
- Grants related to biological assets within the scope of Ind AS 41 (Agriculture).
When the standard does not apply
Tax holidays are governed by provisions under Income Taxes (see Ind AS 12). If a grant relates specifically to biological assets, such as agricultural subsidies, it falls under Ind AS 41. Where governments become shareholders instead of providing a grant, regular equity accounting applies under relevant standards.
Key Definitions under Ind AS 20
| Term | Definition |
|---|---|
| Government | Includes central/state/local bodies or agencies at any level, national or international. |
| Government assistance | Economic benefit provided by government bodies based on qualifying criteria. |
| Government grants | Transfers from government linked to compliance with specified operating conditions. |
| Grants related to assets | Grants requiring purchase/construction/acquisition of long-term assets as primary condition. |
| Grants related to income | All other grants except those tied primarily to asset acquisition. |
| Forgivable loans | Loans where repayment is waived if certain conditions are fulfilled by the entity. |
Recognition and Measurement under Ind AS 20
When to recognise
An entity recognises a government grant only when there is reasonable assurance that it will meet all attached conditions and will actually receive the grant amount (Para 7). Mere receipt does not constitute evidence unless compliance is reasonably assured.
**Recognition trigger:**
Recognise when both:
- Reasonable assurance exists regarding compliance with conditions; **and**
- There is reasonable assurance that the grant will be received.
Entities often misinterpret “reasonable assurance.” In practice, this means management must assess both legal eligibility and operational ability before recording any amount in books.
Initial measurement
Monetary grants are measured at fair value, usually at amount received or receivable unless deferred payment terms require discounting. Non-monetary asset transfers such as land or equipment are measured at fair value on date received (Para 23).
If a non-monetary grant cannot be reliably measured at fair value but has nominal value assigned by policy decision (rare in India), use fair value unless clearly impracticable.
Subsequent measurement
Grants must be recognised in profit or loss over periods matching related expense recognition:
Grants related to assets:
Present either:
As deferred income, a liability amortised over useful life alongside depreciation;
By deducting from carrying amount, reduces depreciable base directly (Para 24).
Grants related to income:
Present either:
As “other income” in P&L;
By deducting from related expense line item(s) (Para 29).
If a grant becomes repayable due to non-compliance after initial recognition:
For asset-related grants, adjust carrying amount/deferred income balance;
For income-related grants, recognise repayment immediately in P&L;
Treat repayment as a change in accounting estimate per Para 32-33.
Two Presentation Options for Asset‐Related Grants
Ind AS 20 offers two options when presenting asset-related grants:
Option 1: Set up deferred income, a liability amortised over useful life so gross asset cost remains visible on balance sheet.
Option 2: Deduct grant directly from carrying amount, this reduces depreciation charge but obscures gross investment figure.
Both methods yield identical net profit impact over time but differ in balance sheet presentation. Many Indian corporates prefer deferred income method due to transparency requirements under Schedule III disclosures; however, deduction method may simplify fixed asset tracking if visibility is less critical.
Disclosure must state which method has been used consistently across periods.
Worked Examples on Ind AS 20
Example 1: Capital subsidy on plant - deferred income method
Maharashtra Cement Ltd received a state capital subsidy of Rs 5 crore towards installation of a plant costing Rs 50 crore with an expected useful life of ten years using straight-line depreciation. The company must operate its plant within Maharashtra for at least seven years post-subsidy receipt on April 1st, 2025.
#### Computation Table
| Particulars | Amount | Basis / Yearly Impact |
|---|---|---|
| Plant cost | Rs 50 crore | Gross block |
| Grant received | Rs 5 crore | Deferred income liability |
| Annual amortisation | Rs 0.50 crore | Rs 5 crore /10 years |
| Annual depreciation | Rs 5 crore | Rs 50 crore /10 years |
| Net annual P&L impact | Rs 4.50 crore | Depreciation, Grant Income |
#### Journal Entries
Receipt:
Dr Bank Rs 5 crore
Cr Deferred Govt Grant Rs 5 crore
Annual entries:
Dr Deferred Govt Grant Rs 0.50 crore
Cr Other Income (Grant Income) Rs 0.50 crore
Depreciation:
Dr Depreciation Rs 5 crore
Cr Accumulated Depreciation Rs 5 crore
Example 2: MEIS export incentive (income-related grant)
Sundaram Exports Pvt Ltd earned MEIS scrip worth Rs 2 crore during FY 2025-26 based on export performance criteria met during that year; scrips are freely tradeable upon issue.
#### Computation Table
| Particulars | Amount | Basis / Timing |
|---|---|---|
| MEIS scrip entitlement | Rs 2 crore | Based on eligible exports |
| Recognition timing | On entitlement established | |
| Presentation option | Other Income OR deduction from export cost |
#### Journal Entries
On entitlement/receipt:
Dr Govt Grant Receivable / Bank Rs 2 crore
Cr Other Income (Export Incentive) Rs 2 crore
Disclose this sum within Other Income notes per Schedule III requirements.
Disclosure Requirements under Ind AS 20
Ind AS 20 mandates detailed disclosures for all government grants and assistance, ensuring transparency under Schedule III to the Companies Act, 2013. Entities must enable users to understand the nature, extent, and accounting policies for grants recognised. These disclosures help auditors and stakeholders assess compliance with grant conditions and the true financial effect of government support.
| Item | Requirement | Para Reference |
|---|---|---|
| Accounting policy for grants | Including methods of presentation adopted in financial statements | Para 39(a) |
| Nature and extent of government grants | And other forms of government assistance from which the entity has directly benefited | Para 39(b) |
| Unfulfilled conditions and other contingencies | Attaching to government assistance that has been recognised | Para 39(c) |
| Repayment of grants | Where applicable, treatment as a change in accounting estimate | Para 32-33 |
| Non-monetary grants | Description and amount of fair value used | Para 23 |
| Grants related to biological assets | If applicable, separate disclosure (cross-ref Ind AS 41) | Para 2(d) |
Auditors must verify these disclosures for completeness and consistency with SA 700 reporting requirements.
Common Mistakes & Industry-Specific Considerations
Common errors auditors flag
- Recognising grant immediately when received as 'other income' instead of systematic recognition over related expense periods.
- Failing to assess whether reasonable assurance of compliance with conditions is achieved before recognition.
- Treating tax holidays as government grants (these are excluded; covered by Ind AS 12).
- Incorrect classification between asset-related and income-related grants.
- Failing to disclose accounting policy choice (deferred income vs deduction method).
- Inconsistent treatment of grants across periods (policy choice should be applied consistently).
Industry application notes
Manufacturing companies often receive state capital subsidies, interest rebates, or non-monetary land allotments. Each form must be evaluated separately under Ind AS 20. For example, Gujarat and Maharashtra offer land at concessional rates, requiring fair value measurement on receipt.
Export sector entities such as Sundaram Exports Pvt Ltd account for MEIS, RoDTEP, or EPCG benefits as income-related government grants. Recognition depends on entitlement assessment rather than cash receipt. RBI guidelines also affect recognition timing for duty drawback claims.
Renewable energy projects frequently access Production Linked Incentive (PLI) schemes or viability gap funding. These arrangements often include complex compliance conditions linked to capacity addition or employment targets. Careful documentation is required to demonstrate reasonable assurance before recognising such grants.
Ind AS 20 vs AS 12 vs IFRS: Key Differences
The table below summarises principal differences in accounting for government grants across Indian GAAP (AS 12), Ind AS 20, and IFRS (IAS 20):
| Aspect | AS 12 | Ind AS 20 | IFRS |
|---|---|---|---|
| Grant types | Capital approach (against asset/share capital) vs revenue approach | Income approach only | Income approach only |
| Asset-related grant presentation | Deferred income or deduction from asset | Deferred income or deduction from asset | Same |
| Capital approach (recognised in equity) | Permitted in some cases (Para 8.1) | Not permitted | Not permitted |
| Non-monetary grants | May be recognised at nominal value or fair value | Required at fair value | Required at fair value |
| Disclosure | Limited | Comprehensive (Para 39) | Comprehensive |
India’s move from AS 12 to Ind AS 20 eliminates the capital approach for direct equity recognition of grants. All government assistance now flows through profit or loss systematically. Measurement requirements are stricter, non-monetary assets must be recorded at fair value under both Ind AS 20 and IAS 20. Disclosure requirements are more extensive under Ind AS 20 compared to legacy Indian GAAP.
Latest Amendments to Ind AS 20 (FY 2026-27)
No amendments have been notified to Ind AS 20 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.
Related Standards You Should Know
- [AS 12](/as-12-accounting-for-government-grants/), Equivalent grants standard for non-Ind AS companies; permits capital approach.
- [Ind AS 16](/ind-as-16-property-plant-and-equipment/), Asset-related grants reduce carrying amount or set up as deferred income.
- [Ind AS 12](/ind-as-12-income-taxes/), Tax-based government assistance covered by Ind AS 12, not Ind AS 20.
- [Ind AS 41](/ind-as-41-agriculture/), Government grants related to biological assets follow Ind AS 41.
- [Ind AS 1](/ind-as-1-presentation-of-financial-statements/), Disclosure of accounting policies for grants.
Need Help with Ind AS 20 Compliance?
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Frequently Asked Questions (FAQs)
All companies required to comply with Indian Accounting Standards must apply Ind AS 20 if they receive any form of government grant or assistance, whether monetary or non-monetary, in their financial statements for FY 2026-27.
The entity may present an asset-related grant either as deferred income amortised over the useful life of the asset or by deducting it directly from the carrying amount of the related asset per Para 24.
Under Ind AS 20, all government grants flow through profit or loss, direct equity recognition is prohibited. Non-monetary assets are measured at fair value. Disclosure requirements are more comprehensive compared to limited disclosures under AS 12.
Export incentives such as MEIS and RoDTEP qualify as income-related government grants under Ind AS 20. Entities recognise them when there is reasonable assurance regarding entitlement, not merely on receipt, usually presented as ‘other income’ in profit or loss.
Yes. PLI scheme benefits provided by central or state governments qualify as government grants if linked to operating activities or capital expenditure. Recognition requires reasonable assurance that all attached conditions will be met per Para 7.
Non-monetary government grants like free land must be measured at their fair value on the date received per Para 23. The entity recognises this amount systematically over periods matching related costs incurred.
No. Tax holidays, investment tax credits, accelerated depreciation allowances are not treated as government grants under Ind AS 20, they fall within the scope of Ind AS 12 Income Taxes.
If a grant becomes repayable due to non-compliance with attached conditions after initial recognition, the entity treats it as a change in accounting estimate per Paras 32-33, adjusting either deferred income balance or profit/loss depending on original classification.
Entities must disclose their accounting policy for recognising government grants; nature and extent of assistance received; any unfulfilled conditions; repayment details; method used for non-monetary assistance; and separate disclosure if related to biological assets per Paras 23-39.
No. Once an entity selects either deferred income method or deduction from asset carrying amount method for presenting asset-related government grants under Ind AS 20, it must apply that policy consistently across periods unless a change is justified by new circumstances.
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