Ind AS 38 Intangible Assets: A Practitioner Guide for FY 2026-27
Ind AS 38 (Intangible Assets) is the Indian Accounting Standard that prescribes recognition, measurement, and disclosure requirements for intangible assets not specifically covered by other standards.
The Ministry of Corporate Affairs notified Ind AS 38 via the Companies (Indian Accounting Standards) Rules, 2015. It became mandatory from 1 April 2016 for Phase I companies. Ind AS 38 supersedes AS 26 for entities required to comply with Ind AS.
For FY 2026-27, Ind AS 38 remains central to technology and pharmaceutical sectors. Indian SaaS and pharma companies frequently capitalise development costs once technical feasibility is established and all Para 57 criteria are met.
Ind AS 38 at a Glance
Ind AS 38 sets out how companies must recognise and measure intangible assets such as patents, software, and trademarks. Its core principle is that only identifiable non-monetary assets without physical substance are recognised if specific criteria are satisfied. The standard primarily serves finance teams in listed companies and statutory auditors.
| Field | Value |
|---|---|
| Standard Number | Ind AS 38 |
| Full Name | Intangible Assets |
| 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 26 (Intangible Assets) for Ind AS-applicable entities |
| Equivalent Standard | AS 26 ↔ Ind AS 38 ↔ IAS 38 |
| Applies To | All companies required to follow Indian Accounting Standards under the MCA roadmap. Covers all intangible assets except those covered by other Ind AS (financial assets, goodwill from business combinations, exploration and evaluation assets, etc.). |
What is Ind AS 38: Intangible Assets?
Ind AS 38 defines how an entity must account for intangible assets that are identifiable non-monetary items without physical substance. The standard requires recognition only when probable future economic benefits will flow to the entity and cost can be measured reliably.
ICAI introduced Ind AS 38 as part of the IFRS convergence process to align Indian accounting practices with global norms. It replaced the earlier Indian standard on intangibles (AS 26), bringing greater rigour in areas like development cost capitalisation and indefinite useful life assessment.
CFOs of listed companies, statutory auditors performing Schedule III audits, and CA students preparing for exams regularly use this standard in practice.
Objective of Ind AS 38
The objectives of Ind AS 38 are:
- Prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Indian Accounting Standard.
- Require an entity to recognise an intangible asset only if specified criteria are met (identifiability, control, future economic benefits, reliable measurement).
- Specify how to measure the carrying amount of intangible assets and the disclosures to be provided.
By enforcing these principles, Ind AS 38 ensures financial statements present a true and fair view in accordance with Section 129 of the Companies Act, 2013. Accurate recognition and disclosure of intangibles improves comparability and transparency for users of financial statements.
Who Must Apply Ind AS 38?
Entities covered, applicability table
Ind AS 38 applies to all companies required by the Ministry of Corporate Affairs roadmap to prepare financial statements under Indian Accounting Standards. This includes:
| Roadmap Phase | Entities Covered |
|---|---|
| Phase I | Listed entities with net worth ≥ Rs 500 crore |
| Phase II | Unlisted entities with net worth ≥ Rs 250 crore |
| Voluntary adoption | Any company may opt in; once adopted cannot revert |
Companies following only Accounting Standards (AS) continue applying AS 26 instead.
Scope exclusions
Ind AS 38 does not apply to:
- Intangible assets within the scope of another Ind AS (e.g., inventories under Ind AS 2).
- Financial assets as defined in Ind AS 32.
- Recognition and measurement of exploration and evaluation assets (Ind AS 106).
- Mineral rights and reserves such as oil or natural gas.
- Goodwill acquired in a business combination (Ind AS 103).
- Intangible assets held for sale (Ind AS 105).
When the standard does not apply
Each exclusion above is addressed by a sister standard:
- Inventories are covered under Ind AS 2.
- Financial instruments fall under Ind AS 32.
- Exploration/evaluation assets are governed by Ind AS 106.
- Mineral rights/reserves are scoped out entirely.
- Goodwill from business combinations is governed by Ind AS 103 and impairment tested per Ind AS 36.
- Held-for-sale intangibles follow requirements in Ind AS 105.
Key Definitions under Ind AS 38
The following terms have specific meanings under this standard:
| Term | Definition |
|---|---|
| Intangible asset | Identifiable non-monetary asset without physical substance. |
| Identifiability | Asset separable or arising from contractual/legal rights regardless of separability. |
| Control | Power to obtain future economic benefits from resource and restrict others’ access. |
| Useful life | Period expected available for use; finite or indefinite but not infinite. |
| Research | Planned investigation aiming at new scientific or technical knowledge/understanding. |
| Development | Applying research findings/designs before commercial production or use. |
| Active market | Market with frequent transactions providing ongoing pricing information. |
Recognition and Measurement under Ind AS 38
When to recognise
An entity recognises an intangible asset when both these conditions are met:
Probable future economic benefits attributable to the asset will flow to the entity.
The cost can be measured reliably.
For internally generated intangibles such as software or patents developed in-house, Para 57 imposes additional requirements before capitalisation:
(a) Technical feasibility of completing the asset,
(b) Intention to complete/use/sell,
(c) Ability to use/sell,
(d) Demonstration that probable future economic benefits will result,
(e) Availability of adequate resources,
(f) Reliable measurement of expenditure during development.
Expenditure incurred during research phase must always be expensed as incurred per Para 54.
**Recognition formula:**
Recognise an intangible asset if
- Probable future economic benefits +
- Reliable cost measurement +
- For internal development: all six Para 57 criteria satisfied cumulatively
Initial measurement
At initial recognition, measure an intangible asset at cost:
For separately acquired intangibles:
- Purchase price net of discounts/rebates
- Import duties/non-refundable taxes
- Directly attributable costs preparing asset for intended use
For business combinations:
- Recognise at fair value as at acquisition date per Para 33-34; see also Ind AS 103.
For internally generated intangibles:
- Cost comprises expenditure incurred from date when all recognition criteria first met; earlier expenses remain expensed.
Subsequent measurement
After initial recognition:
Cost model: Carrying amount = cost less accumulated amortisation less accumulated impairment losses.
Revaluation model: Allowed only if active market exists, rarely applicable except some licenses/trading rights. Carrying amount = fair value at revaluation date less subsequent amortisation/impairment losses.
Finite-life intangibles must be amortised systematically over useful life; review useful life/residual value annually per Para 104-106.
Intangibles with indefinite useful life are not amortised but require annual impairment testing under Ind AS 36 regardless of whether indicators exist.
Internally Generated Intangibles, The Research/Development Distinction
Ind AS 38 draws a strict line between research costs (always expensed, Para 54) and development costs (capitalised only if all six Para 57 criteria met). Internally generated brands, mastheads, publishing titles or customer lists cannot be capitalised even if they appear valuable, see Para 63 prohibition.
Goodwill arising internally cannot be recognised; only goodwill purchased via business combination is permitted, governed by Ind AS 103 and subject to impairment testing per Ind AS 36.
Patron's clients in SaaS routinely encounter this distinction when developing proprietary platforms; careful documentation around technical feasibility milestones is essential before capitalising any development expenditure.
Worked Examples on Ind AS 38
Example 1: Capitalisation of internally developed software
Scenario:
Sundaram Infotech Pvt Ltd develops a SaaS inventory platform intended for sale. Research phase runs May-August 2025 costing Rs 1.20 crore, market studies and technology evaluation. Development phase September 2025-March 2026 costs Rs 4.50 crore including salaries/infrastructure/testing. Technical feasibility established on September 30th; remaining Para 57 criteria also met from that date onwards.
Computation Table
| Description | Amount (Rs crore) | Treatment |
|---|---|---|
| Research phase costs | 1.20 | Expensed immediately |
| Development costs before criteria met (Sept 1-30) 0.64 | Expensed | |
| Development costs after criteria met (Oct 1-Mar 31) 3.86 | Capitalised as intangible asset |
Journal Entry
Dr Research Expense (P&L): Rs 1.20 crore
Dr Pre-Criteria Dev Expense (P&L): Rs 0.64 crore
Dr Intangible Asset Under Development: Rs 3.86 crore
Cr Bank/Salary Payable etc.: Rs 5.70 crore
Example 2: Acquisition of patent
Scenario:
Krishna Steel Industries acquires a steel rolling patent from a research institute on April 1st 2025 at Rs 5 crore; estimated useful life eight years; residual value nil; patent deployed immediately in production process.
Computation Table
| Description | Amount | Treatment |
|---|---|---|
| Acquisition cost | Rs 5 crore | Initial recognition |
| Annual amortisation | Rs 0.625 crore | Straight-line over eight years |
| Carrying amount at Mar’26 (Rs5cr, Rs0.625cr) | Rs 4.375 crore | Closing balance after one year |
Journal Entry
On acquisition: Dr Intangible Asset, Patent Rs 5 crore / Cr Bank Rs 5 crore
Annual amortisation: Dr Amortisation Expense Rs 62.50 lakh / Cr Accumulated Amortisation Rs 62.50 lakh
Disclosure Requirements under Ind AS 38
Disclosures under Ind AS 38 are essential for compliance with Schedule III to the Companies Act, 2013. They enable users of financial statements to assess the nature, carrying amount, and changes in intangible assets. The standard mandates granular class-wise disclosures, including reconciliation, useful life assessments, and R&D expenditure.
| Item | Requirement | Para Reference |
|---|---|---|
| Useful lives and amortisation methods used | Disclose for each class of intangible asset whether finite or indefinite, and amortisation rates/methods | Para 118(a) |
| Gross carrying amount and accumulated amortisation at beginning and end | Reconciliation by class of intangible asset | Para 118(c) |
| Reconciliation of carrying amount | Show additions, disposals, additions through business combinations, revaluations, impairment losses, amortisation, and other changes | Para 118(e) |
| Intangible assets with indefinite useful life | Carrying amount and reasons supporting indefinite life assessment | Para 122(a) |
| Material individual intangible assets | Description and remaining amortisation period for individually material items | Para 122(b) |
| Restrictions on title and intangibles pledged as security | Disclose where applicable | Para 122(d) |
| Aggregate research and development expenditure recognised as expense | Total R&D expense for the period | Para 126 |
| Revaluation details (if revaluation model used) | Effective date, methodology, valuer credentials, carrying amount under cost model | Para 124 |
Auditors must verify these disclosures for completeness and accuracy to ensure true and fair presentation under SA 700.
Common Mistakes & Industry-Specific Considerations
Common errors auditors flag
- Capitalising research expenditure (always expensed under Para 54)
- Capitalising development expenditure before all six Para 57 criteria are demonstrably met
- Recognising internally generated brands, mastheads, customer lists (prohibited under Para 63)
- Failing to amortise finite-life intangibles or applying the wrong useful life
- Treating computer software embedded in hardware (e.g., operating system in a server) as intangible, it is part of the PPE under Ind AS 16
- Failing to perform annual impairment test on indefinite-life intangibles even without indicators (mandatory under Ind AS 36)
Industry application notes
Pharmaceuticals: Drug development phases align well with Ind AS 38. Pre-clinical (research) costs are expensed; Phase I-III (development) costs can be capitalised once regulatory milestone makes commercial viability probable. Indian pharma companies typically capitalise from late Phase II onwards.
Technology and SaaS: Internally developed software for sale or internal use is capitalised under Ind AS 38 if all Para 57 criteria are met. Cloud computing subscription costs are usually expensed; configuration or customisation may be capitalised as an intangible asset based on recent IFRS Interpretations Committee guidance.
Media and entertainment: Film rights, music catalogues, broadcasting rights qualify as intangibles. Useful life assessment is complex, film rights are typically finite (3-5 years), but evergreen IP may justify longer or even indefinite life with strong supporting evidence.
Ind AS 38 vs AS 26 vs IFRS: Key Differences
The table below summarises major differences between Ind AS 38, AS 26 (applicable to non-Ind AS companies), and IFRS (IAS 38):
| Aspect | AS | Ind AS | IFRS |
|---|---|---|---|
| Useful life | Rebuttable presumption useful life ≤ 10 years | Finite or indefinite (no presumption) | Same as Ind AS |
| Indefinite useful life concept | Not recognised | Recognised; no amortisation, annual impairment test | Same as Ind AS |
| Subsequent measurement | Cost model only | Cost or revaluation model (active market required) | Same as Ind AS |
| Internally generated brands and similar | Not recognised | Not recognised (Para 63) | Not recognised |
| Research costs | Expensed | Expensed | Expensed |
| Development costs | Capitalised if criteria met | Capitalised if Para 57 criteria met | Same as Ind AS |
Ind AS 38 closely tracks IAS 38 issued by the International Accounting Standards Board. Key Indian carve-outs include stricter documentation for development cost capitalisation and rare use of the revaluation model due to limited active markets for intangibles in India.
Latest Amendments to Ind AS 38 (FY 2026-27)
No amendments have been notified to Ind AS 38 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 36](/ind-as-36-impairment-of-assets/), Impairment testing of intangibles; annual test for indefinite-life and not-yet-available-for-use intangibles.
- [Ind AS 103](/ind-as-103-business-combinations/), Intangibles acquired in business combinations recognised at fair value.
- [Ind AS 23](/ind-as-23-borrowing-costs/), Borrowing costs on qualifying intangible asset under development capitalised.
- [Ind AS 116](/ind-as-116-leases/), Right-of-use assets are not within Ind AS 38 scope (covered by Ind AS 116).
- [AS 26](/as-26-intangible-assets/), Equivalent intangibles standard for non-Ind AS companies; key differences in useful life and revaluation model.
Need Help with Ind AS 38 Compliance?
Patron Accounting LLP advises listed companies, NBFCs, startups, and private limited companies on all aspects of Ind AS 38 compliance. Our team ensures your recognition policies align with ICAI guidance while minimising audit risk.
Our services include:
- Statutory Audit support for Schedule III compliance
- End-to-end Ind AS Advisory including policy drafting
- Financial Reporting & Schedule III presentation
- Disclosure Review for Board/Audit Committee sign-off
Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.
Frequently Asked Questions (FAQs)
All companies required by the Ministry of Corporate Affairs roadmap to prepare financial statements under Indian Accounting Standards must comply with Ind AS 38. This includes listed entities above specified net worth thresholds and voluntarily adopting companies. Non-Ind AS entities continue applying Accounting Standard 26.
Research expenditure is always expensed in the period incurred per Para 54. Development expenditure can be capitalised only if all six criteria in Para 57 are cumulatively met. These include technical feasibility, intention to complete/use/sell, resource availability, future economic benefits, ability to use/sell, reliable measurement.
An intangible asset has a finite useful life if there is a foreseeable limit on its expected utility. If no such limit exists based on legal or economic factors, and management can justify it, the asset has an indefinite useful life. This distinction drives whether amortisation applies or only annual impairment testing is required.
Internally generated brands, including mastheads, publishing titles, customer lists, cannot be recognised as intangible assets per Para 63 of Ind AS 38. This prohibition exists because their cost cannot be measured reliably and future economic benefits cannot be demonstrated objectively until sold or acquired externally.
Major differences include recognition of indefinite-life intangibles under Ind AS 38 (not permitted by Accounting Standard 26), option to use revaluation model when active markets exist (cost model only under Accounting Standard 26), no presumption that useful life exceeds ten years in Ind AS 38.
Computer software qualifies as an intangible asset if separable from hardware, such as enterprise resource planning tools or SaaS platforms developed internally. However, software embedded in hardware like operating systems forms part of property, plant and equipment per Ind AS 16 requirements.
The entity must demonstrate technical feasibility; intention to complete/use/sell; ability to use/sell; probable future economic benefits; availability of adequate resources; reliable measurement of related expenditure during development phase, all six per Para 57 must be satisfied before capitalising any development cost.
The revaluation model may be used only if there is an active market providing regular price information for identical assets, rarely available except certain licenses or trading rights in India. Most Indian companies use the cost model due to lack of active markets for most intangibles.
Annual impairment testing is mandatory only for intangible assets with indefinite useful lives or those not yet available for use per Ind AS 36 Impairment of Assets. Finite-life intangibles require impairment testing only when indicators exist.
Entities must disclose total research and development expenditure recognised as expense during the reporting period separately per Para 126 of Ind AS 38. This disclosure enables users to assess investment levels in innovation versus amounts capitalised on the balance sheet.
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