Ind AS 23 Borrowing Costs: A Practitioner Guide for FY 2026-27
Ind AS 23 (Borrowing Costs) is the Indian Accounting Standard that requires entities to capitalise borrowing costs directly attributable to acquiring or constructing qualifying assets and expense all other borrowing costs as incurred.
The Ministry of Corporate Affairs notified Ind AS 23 via the Companies (Indian Accounting Standards) Rules, 2015. The standard became mandatory from 1 April 2016 (Phase I), replacing AS 16 for Ind AS-applicable companies. It aligns closely with IAS 23 issued by the International Accounting Standards Board.
For FY 2026-27, real estate developers must pay special attention to the timing of capitalisation cessation. Under Ind AS 23, capitalisation must stop when construction is substantially complete, even if marketing or fit-out activities continue. This is a frequent audit finding in our practice.
Ind AS 23 at a Glance
Ind AS 23 prescribes that borrowing costs directly attributable to qualifying assets must be capitalised as part of the asset’s cost. This principle primarily affects entities with significant capital projects and long-duration asset construction.
| Field | Value |
|---|---|
| Standard Number | Ind AS 23 |
| Full Name | Borrowing Costs |
| 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 16 (Borrowing Costs) for Ind AS-applicable entities |
| Equivalent Standard | AS 16 ↔ Ind AS 23 ↔ IAS 23 |
| Applies To | All companies required to follow Indian Accounting Standards under the MCA roadmap. Capitalisation required for qualifying assets. |
What is Ind AS 23: Borrowing Costs?
Ind AS 23 defines how an entity must account for borrowing costs related to funds borrowed for acquiring or constructing qualifying assets. The standard requires capitalisation of such costs as part of the cost of the asset if they are directly attributable; all other borrowing costs are expensed in profit or loss.
The Institute of Chartered Accountants of India introduced this standard to align Indian practice with global norms under IAS/IFRS. It replaced the earlier Indian GAAP standard (AS 16), introducing stricter rules on when borrowing costs qualify for capitalisation and how exchange differences are treated.
Finance teams in infrastructure, manufacturing capex-heavy companies, and real estate developers most frequently apply this standard in preparing financial statements and supporting audit compliance.
Objective of Ind AS 23
The objectives of Ind AS 23 are:
- Require capitalisation of borrowing costs that are directly attributable to acquiring, constructing, or producing a qualifying asset.
- Mandate that all other borrowing costs are recognised as an expense in the period incurred.
- Specify clear conditions governing commencement, suspension, and cessation of capitalisation.
By enforcing these principles, Ind AS 23 ensures financial statements reflect a true and fair view as required by Section 129 of the Companies Act, 2013. Accurate allocation between expense and asset cost supports comparability across periods and entities.
Who Must Apply Ind AS 23?
Entities covered, applicability table
Ind AS 23 applies mandatorily to all companies required to adopt Indian Accounting Standards under the Ministry of Corporate Affairs’ roadmap:
| Phase | Companies Covered |
|---|---|
| Phase I | Listed companies and their subsidiaries/associates/joint ventures with net worth ≥ Rs 500 crore |
| Phase II | Unlisted companies with net worth ≥ Rs 250 crore |
| Voluntary | Any company may opt early |
Entities not covered by the MCA roadmap continue applying AS 16 until transition.
Scope exclusions
Borrowing costs relating to these situations are excluded from capitalisation under Ind AS 23:
- Actual or imputed cost of equity (including preferred shares not classified as liabilities).
- Qualifying assets measured at fair value (e.g., biological assets governed by Ind AS 41).
- Inventories manufactured or produced in large quantities on a repetitive basis.
When the standard does not apply
Cost of equity is not a borrowing cost, excluded by definition. Assets measured at fair value fall under standards like Ind AS 41. Large-scale inventory production is governed by Ind AS 2 rather than this standard.
Key Definitions under Ind AS 23
| Term | Definition |
|---|---|
| Borrowing costs | Interest and other costs incurred from borrowing funds; includes interest using EIR method and certain exchange differences. |
| Qualifying asset | Asset taking substantial time (usually over twelve months) to get ready for intended use or sale. |
| Capitalisation rate | Weighted average rate applied to general borrowings outstanding during the period. |
| Specific borrowings | Loans taken specifically for a qualifying asset; actual interest less investment income is capitalised. |
| General borrowings | General-purpose debt; capitalisation rate applied to qualifying asset expenditure. |
| Substantial period | Typically twelve months or more; facts may support shorter periods as qualifying based on circumstances. |
Recognition and Measurement under Ind AS 23
When to recognise
An entity must begin capitalising borrowing costs when three conditions are met as per Para 17:
Expenditure on the qualifying asset has commenced.
Borrowing costs are being incurred.
Activities necessary to prepare the asset for its intended use or sale are in progress.
Capitalisation ceases when substantially all activities needed to prepare the asset are complete (Para 22). If development halts for an extended period without active progress, for example due to regulatory delays, capitalisation must be suspended during that interval (Para 20).
Initial measurement
For specific borrowings obtained solely for a qualifying asset, actual interest incurred during construction is eligible for capitalisation after reducing any investment income earned from temporarily investing unused funds (Para 12).
For general borrowings used partly or wholly for a qualifying asset:
Capitalised Amount = Weighted Average Expenditure × Capitalisation Rate
Where
Capitalisation Rate = Weighted average cost across all general borrowings outstanding during the period
Amount eligible cannot exceed total actual borrowing costs incurred during that period.
Subsequent measurement
Once borrowing costs have been capitalised into a qualifying asset’s carrying amount, such as property, plant and equipment under Ind AS 16, they are depreciated or amortised along with that asset over its useful life.
Borrowing costs not eligible for capitalisation, including those incurred after completion, are charged directly to profit or loss using the effective interest method prescribed by Ind AS 109.
Specific vs General Borrowings, The Two‑Track Capitalisation Mechanism
Under Ind AS 23:
Specific borrowings relate solely to one project or qualifying asset; only actual interest less investment income qualifies for capitalisation during active construction phases.
General borrowings fund multiple purposes; here, a weighted-average rate across all such loans is calculated each reporting period and applied proportionately against expenditure on each qualifying asset still in development.
If both types fund one project simultaneously, for example in infrastructure, a company applies specific rates up to specific loan amounts used first; any additional outlay draws from general pool rates thereafter.
This distinction ensures only directly attributable financing charges form part of an asset’s cost while preventing over-capitalisation beyond actual finance expenses incurred during construction periods.
Worked Examples on Ind AS 23
Example 1: Capitalisation under specific borrowing
Maharashtra Cement Ltd takes a term loan of Rs 80 crore at nine percent per annum on April 1, 2025 specifically for constructing a new clinker line expected to take eighteen months. Rs 30 crore remains invested at seven percent in fixed deposits during initial six months until drawn down fully for project use.
Computation Table
| Component | Calculation | Amount |
|---|---|---|
| Interest incurred on specific loan | Rs 80 crore × nine percent | Rs 7.20 crore |
| Investment income on idle funds | Rs 30 crore × seven percent × six/twelve | Rs 1.05 crore |
| Net borrowing cost eligible for capitalisation | Rs 7.20 crore minus Rs 1.05 crore | Rs 6.15 crore |
Journal Entry
Dr Capital Work-in‑Progress Rs 6.15 crore / Cr Interest Payable Rs 7.20 crore + Dr Bank/Investment Income Rs 1.05 crore (offset against capitalised amount).
Example 2: Capitalisation under general borrowings
Krishna Steel Industries expands its plant at a total outlay of Rs 25 crore but uses only general borrowings, Rs 60 crore at ten percent plus Rs 40 crore at eight point five percent annual rates, for funding during FY2025‑26.
Expenditure schedule:
- Rs 5 crore on April 1,
- Rs 10 crore on October 1,
- Rs 10 crore on January 1 next year.
Computation Table
| Component | Calculation | Amount |
|---|---|---|
| Weighted average cap rate | ((60×10%) + (40×8.5%)) ÷100 | nine point four percent |
| Weighted avg expenditure | (5×12/12)+(10×6/12)+(10×3/12)=5+5+2.5=Rs12.5 crore | Rs12.5 crore |
| Eligible borrowing cost | Rs12.5 crore × nine point four percent | Rs1.175 crore |
Actual general financing cost was Rs9.4 crore so eligible amount does not exceed cap set by Para14.
Journal Entry
Dr Capital Work-in‑Progress Rs1.175 crore / Cr Interest Expense (P&L) Rs1.175 crore
Disclosure note required stating weighted average rate applied per Para26(b).
Disclosure Requirements under Ind AS 23
Disclosure under Ind AS 23 is critical for transparency and comparability, especially given Schedule III to the Companies Act, 2013. Entities must provide clear, entity-specific information about capitalised borrowing costs, policies, and rates used. These disclosures enable users and auditors to assess compliance and ensure proper allocation between expense and asset cost.
| Item | Requirement | Para Reference |
|---|---|---|
| Amount of borrowing costs capitalised during the period | Disclose total amount capitalised under Ind AS 23 | Para 26(a) |
| Capitalisation rate used to determine borrowing costs | Where general borrowings used; disclose the weighted-average rate | Para 26(b) |
| Accounting policy adopted for borrowing costs | Disclose formal policy in significant accounting policies section | Para 26 |
| Carrying amount of qualifying assets including capitalised borrowing costs | Disclose CWIP and PPE additions including capitalised costs | Schedule III |
| Source of borrowings used for qualifying assets | Distinguish specific and general borrowings where material | Para 26 |
| Period of capitalisation | Disclose commencement, suspension, and cessation dates where material | Para 22 |
Auditors must evaluate these disclosures as part of their opinion on true and fair presentation under SA 700.
Common Mistakes & Industry-Specific Considerations
Common errors auditors flag
- Capitalising borrowing costs after substantial completion of the qualifying asset.
- Failing to suspend capitalisation during extended periods of inactivity.
- Including general financing costs unrelated to qualifying assets in the capitalisation rate calculation.
- Failing to deduct investment income on temporary investment of specifically borrowed funds.
- Capitalising borrowing costs on assets that do not qualify (e.g., repetitive inventory or fair value assets).
- Treating all exchange differences on foreign currency borrowings as borrowing costs without applying Para 6(e).
Industry application notes
Real estate developers: Long-duration residential or commercial projects generally qualify. However, capitalisation must cease when construction is substantially complete, even if marketing or fit-out continues. ICAI Educational Material on Real Estate provides further guidance for complex scenarios.
Infrastructure (power, roads, ports): Multi-year projects often involve mixed funding, specific loans, sponsor support, bond issues. Accurate tracking is essential as project IRR calculations depend heavily on correct borrowing cost capitalisation.
Manufacturing capex: Greenfield expansions usually meet the substantial-period test. For brownfield expansions or plant upgrades, management must carefully document facts supporting qualification as a “substantial period” asset.
Ind AS 23 vs AS 16 vs IFRS: Key Differences
The table below summarises how Ind AS 23 compares with AS 16 and IFRS (IAS 23) across major aspects:
| Aspect | AS 16 | Ind AS 23 | IFRS (IAS 23) |
|---|---|---|---|
| Capitalisation requirement | Mandatory for qualifying assets | Mandatory for qualifying assets | Mandatory (since 2009) |
| Definition of qualifying asset | Substantial period interpretation | Same with explicit exclusion of FV-measured assets and large-quantity inventory | Same as Ind AS |
| Foreign currency exchange differences | Adjustment to interest cost permitted (limited) | Adjustment regarded as borrowing cost only to extent of interest cost differential | Same as Ind AS |
| Investment income offset | Required for specific borrowings | Required for specific borrowings (Para 12) | Required |
| Capitalisation rate for general borrowings | Weighted average of general borrowings | Same approach | Same approach |
| Disclosure | Total amount and rate | Total amount and rate; broader contextual disclosure | Same as Ind AS |
India’s carve-outs from IFRS are minimal on this topic. The main differences relate to explicit exclusions (such as biological assets at fair value under Ind AS 41), additional guidance on inventory produced in large quantities, and more granular disclosure requirements aligned with Schedule III.
Latest Amendments to Ind AS 23 (FY 2026-27)
No amendments have been notified to Ind AS 23 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 16](/ind-as-16-property-plant-and-equipment/), Capitalised borrowing costs become part of cost of PPE under Ind AS 16.
- [Ind AS 38](/ind-as-38-intangible-assets/), Borrowing costs on qualifying intangible assets (e.g., development of software) are capitalised.
- [Ind AS 2](/ind-as-2-inventories/), Inventories produced in large quantities on a repetitive basis are excluded from capitalisation.
- [Ind AS 109](/ind-as-109-financial-instruments/), Effective interest method under Ind AS 109 is used to compute borrowing cost recognition.
- [AS 16](/as-16-borrowing-costs/), Equivalent borrowing costs standard for non-Ind AS companies; substantively similar.
Need Help with Ind AS 23 Compliance?
Patron Accounting LLP supports companies across India with full-scope compliance on Ind AS 23 Borrowing Costs, from policy drafting through audit support. Our team combines technical expertise with real-world experience in manufacturing, infrastructure, and real estate sectors.
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)
Ind AS 23 mandates that entities must capitalise borrowing costs directly attributable to acquiring or constructing a qualifying asset. All other borrowing costs are expensed in profit or loss when incurred. This ensures accurate allocation between asset cost and period expense.
A qualifying asset under Ind AS 23 is one that necessarily takes a substantial period, typically twelve months or more, to get ready for intended use or sale. Examples include large infrastructure projects, real estate developments, or major plant expansions.
Specific borrowings are loans taken solely for a particular qualifying asset; actual interest less any investment income is capitalised. General borrowings fund multiple purposes; here, a weighted-average capitalisation rate is applied proportionately against expenditure on each qualifying asset.
The capitalisation rate equals the weighted average interest rate across all general-purpose loans outstanding during the period. This rate is applied to eligible expenditures on qualifying assets. The total amount capitalised cannot exceed actual interest incurred during that period.
Capitalisation must be suspended during extended periods when active development halts, for example due to regulatory delays. It ceases entirely once substantially all activities necessary to prepare the asset are complete, even if ancillary work continues.
Both standards require mandatory capitalisation for qualifying assets. However, Ind AS 23 provides stricter rules around fair value exclusions, inventory produced repetitively, foreign currency adjustments (Para 6(e)), and broader disclosure aligned with Schedule III requirements.
Only those exchange differences regarded as adjustments to interest cost, up to the difference between local-currency interest rates, are treated as borrowing costs eligible for capitalisation per Para 6(e). Other exchange gains or losses follow normal recognition rules.
Yes. Under Para 12 of Ind AS 23, entities must reduce eligible borrowing costs by any investment income earned from temporarily investing unused portions of specific borrowings before project expenditure occurs.
Inventories produced in large quantities on a repetitive basis, such as daily manufacturing output, are specifically excluded from being treated as qualifying assets under Ind AS 23. Only inventories requiring a substantial construction period may qualify based on facts.
Entities must disclose total borrowing costs capitalised during the period (Para 26(a)), applicable rates used (Para 26(b)), accounting policies adopted, sources of funds distinguished by type, carrying amounts including such costs in CWIP/PPE, and relevant timing details per Schedule III alignment.
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