Ind AS 40 Investment Property: A Practitioner Guide for FY 2026-27
Ind AS 40 (Investment Property) is the Indian Accounting Standard that prescribes how companies must account for property held to earn rentals or for capital appreciation. The standard requires entities to distinguish investment property from owner-occupied property and inventory.
The Ministry of Corporate Affairs notified Ind AS 40 via the Companies (Indian Accounting Standards) Rules, 2015. It became mandatory from 1 April 2016 for Phase I companies. Ind AS 40 replaces the earlier treatment under AS 13 (Investments), which classified such assets as long-term investments.
For FY 2026-27, holding companies and family offices must ensure fair value disclosures are supported by registered valuer reports, as required by Para 79(e). This requirement has increased demand for IBBI-registered valuers across India.
Ind AS 40 at a Glance
Ind AS 40 establishes the accounting principles for investment property, property held to earn rental income or for capital appreciation. The primary users are companies preparing financial statements under Indian Accounting Standards that hold real estate not used in operations.
| Field | Value |
|---|---|
| Standard Number | Ind AS 40 |
| Full Name | Investment Property |
| 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 13 (Investments) for property held as investment, treated as long-term investment under AS framework |
| Equivalent Standard | AS 13 (Investments) ↔ Ind AS 40 ↔ IAS 40 |
| Applies To | All companies required to follow Indian Accounting Standards. Ind AS 40 prescribes the accounting treatment for investment property - property held to earn rentals or for capital appreciation or both, rather than for use in production or supply of goods or services or for administrative purposes. |
What is Ind AS 40: Investment Property?
Ind AS 40 defines investment property as land or buildings held by an entity, either as owner or lessee, to earn rental income or realise capital appreciation. The standard draws a clear line between such assets and those used in business operations or held as inventory.
The Institute of Chartered Accountants of India introduced this standard to align Indian practice with international norms set by IASB through IAS 40. Previously, properties not used in operations were often grouped with long-term investments under the older Indian GAAP framework (AS 13). Convergence with IFRS prompted a dedicated standard focused on consistent classification and measurement.
CFOs and finance teams in real estate-rich companies reference this standard frequently when preparing annual financial statements and responding to audit queries.
Objective of Ind AS 40
- Prescribe accounting treatment for investment property and related disclosure requirements.
- Distinguish investment property from owner‑occupied property (Ind AS 16) and inventory (Ind AS 2).
- Permit either the cost model or the fair value model, with disclosure requirements differing accordingly.
By mandating consistent recognition and measurement of investment property, the standard supports reliable financial reporting. This enables users to assess an entity’s asset base accurately and upholds the “true and fair view” principle required by Section 129 of the Companies Act, 2013.
Who Must Apply Ind AS 40?
Entities covered, applicability table
Ind AS 40 applies to all companies required to follow Indian Accounting Standards per MCA’s phase-wise roadmap:
| Applicability Phase | Covered Entities |
|---|---|
| Phase I | Listed entities with net worth ≥ Rs 500 crore; holding/subsidiary/JV/associate entities thereof |
| Phase II | Unlisted entities with net worth ≥ Rs 250 crore; holding/subsidiary/JV/associate entities thereof |
| Voluntary adoption allowed since FY 2015-16 |
All listed companies in India that meet these thresholds must comply with Ind AS 40 when presenting financial statements.
Scope exclusions
Entities must not apply Ind AS 40 to:
- Owner‑occupied property (covered by Ind AS 16)
- Property held for sale in the ordinary course of business (covered by Ind AS 2)
- Property under construction/development on behalf of third parties (covered by Ind AS 115)
- Biological assets related to agricultural activity (covered by Ind AS 41)
When the standard does not apply
Where a company uses a building primarily in its own business operations, such as its head office, the asset is accounted for under Ind AS 16 Property, Plant and Equipment. If a developer holds flats intended for sale rather than lease, these are inventory under Ind AS 2 Inventories. Properties developed on behalf of clients fall within contract revenue rules under Ind AS 115 Revenue from Contracts with Customers. Agricultural land generating crops is outside scope, such assets are dealt with under Ind AS 41 Agriculture.
Key Definitions under Ind AS 40
| Term | Definition |
|---|---|
| Investment property | Land/building held by owner/lessee as right-of-use asset to earn rentals/capital appreciation/both. |
| Owner‑occupied property | Held by owner/lessee as right-of-use asset for use in production/supply of goods/services/admin purposes. |
| Cost model | Subsequent measurement at cost less accumulated depreciation and impairment losses; mandatory under Ind AS 40. |
| Fair value model | Subsequent measurement at fair value with changes recognised in P&L; not permitted under Indian carve-out. |
| Mixed-use property | Significant portions held for different purposes; accounted separately if sellable individually. |
Recognition and Measurement under Ind AS 40
When to recognise
An entity recognises investment property when both conditions are met:
It is probable that future economic benefits will flow from the asset.
The cost can be measured reliably.
(Refer Para 16.)
Recognition occurs on acquisition, whether purchased outright or acquired via right-of-use lease arrangements qualifying as investment property.
Initial measurement
On initial recognition, investment property is measured at cost per Para 20:
Cost includes:
- Purchase price
- Directly attributable transaction costs such as stamp duty, legal fees and brokerage
- Any expenditure necessary to bring the asset into working condition
For self‑constructed investment properties, cost equals construction expenditure up until completion date, after which it is reclassified from PPE under Ind AS 16.
If acquired through exchange against another non-monetary asset:
- Measure at fair value unless exchange lacks commercial substance
**Formula:**
Initial Cost = Purchase Price + Stamp Duty + Legal Fees + Brokerage + Direct Costs
Land is not depreciated but buildings are depreciated over their useful life, typically fifty years per Schedule II guidance unless technical estimates support otherwise.
Subsequent measurement
India’s carve-out mandates only the cost model after initial recognition (Para 30). Under this approach:
- Carrying amount = Cost less accumulated depreciation less accumulated impairment
- Depreciate buildings over useful life per Schedule II/technical estimate; do not depreciate land
- Test annually for impairment indicators per Ind AS 36 Impairment of Assets
- Do not revalue through profit/loss even if fair value increases
Transfers between categories, such as moving a building from investment property to owner‑occupied PPE, are made at carrying amount without recognising gain/loss on transfer.
Fair value disclosure remains mandatory in notes even if not used in accounting records (Para 79(e)). Entities typically engage IBBI‑registered valuers or RVO members recognised under Companies Act rules.
India Carve-out - Cost Model Only
Unlike IAS 40 which allows either cost model or fair value model post-recognition, Indian regulators require only cost model application throughout an asset’s life cycle. Fair value changes never flow through profit/loss but must be disclosed annually so users can assess market values alongside book values.
If management cannot reliably determine fair value, for example due to illiquid markets, it must disclose this fact along with reasons why valuation was impracticable.
This carve-out reflects ICAI’s position that introducing earnings volatility via periodic revaluations would undermine comparability across reporting periods in India’s context.
Worked Examples on Ind AS 40
Example 1: Initial recognition of investment property
Maharashtra Holdings purchased commercial real estate on April 1st, 2025 for Rs 100 crore comprising land worth Rs 30 crore and building worth Rs 70 crore intending long-term lease outflows. Stamp duty paid was Rs 6 crore; legal fees Rs 1 crore; brokerage Rs 1.50 crore; building useful life estimated at fifty years.
Computation Table
| Component | Amount (Rs crore) | Notes |
|---|---|---|
| Purchase price | ₹100 | Land ₹30 + Building ₹70 |
| Stamp duty | ₹6 | Directly attributable |
| Legal fees | ₹1 | Directly attributable |
| Brokerage | ₹1.50 | Directly attributable |
| Total Cost | ₹108.50 |
Allocation:
Land = ₹30/₹100 × ₹108.50 = ₹32.55 crore
Building = ₹70/₹100 × ₹108.50 = ₹75.95 crore
Annual depreciation on building = ₹75.95 /50 = ₹1.52 crore
Land is not depreciated.
Journal Entries
On purchase:
Dr Investment Property, Land ₹32.55 crore
Dr Investment Property, Building ₹75.95 crore
Cr Bank ₹108.50 crore
Annual depreciation:
Dr Depreciation Expense ₹1.52 crore
Cr Accumulated Depreciation, Investment Property ₹1.52 crore
Example 2: Transfer between investment property and owner‑occupied
Krishna Real Estate owned a building originally classified as investment property (cost Rs 50 crore; accumulated depreciation Rs 10 crore). On October 1st, 2025 it decided to use this building as its own office space, a change triggering transfer from investment property classification to PPE per standards.
Computation Table
| Component | Amount (Rs crore) | Notes |
|---|---|---|
| Original cost | ₹50 | |
| Accumulated depn | ₹10 | |
| Carrying amount | ₹40 | Transfer at carrying amount |
No gain/loss arises because transfer occurs at book value, not market/fair value, under cost model rules.
Journal Entries
On transfer:
Dr PPE, Building ₹40 crore
Dr Accumulated Depreciation, Investment Property ₹10 crore
Cr Investment Property, Building (cost) ₹50 crore
Depreciation continues based on remaining useful life but now follows PPE accounting policy per Ind AS 16.
Disclosure Requirements under Ind AS 40
Ind AS 40 mandates detailed disclosures to ensure users of financial statements understand the basis of investment property accounting and its impact on reported results. Schedule III to the Companies Act, 2013 requires separate line-item presentation for investment property, reinforcing transparency and comparability across companies.
| Item | Requirement | Para Reference |
|---|---|---|
| Accounting policy | Cost model under Ind AS 40 mandate | Para 75(a) |
| Reconciliation of carrying amount | Opening to closing balance, additions, disposals, transfers, depreciation, impairment | Para 76 |
| Fair value of investment property | Mandatory disclosure even under cost model | Para 79(e) |
| Restrictions on realisability | Where applicable | Para 75(g) |
| Contractual obligations to purchase, construct, develop | If applicable | Para 75(h) |
| Methods and assumptions used in determining fair value | Including significant unobservable inputs; aligns with Ind AS 113 hierarchy | Para 75(d) |
| Rental income and direct operating expenses | From investment property | Para 75(f) |
Auditors must verify these disclosures for completeness and accuracy in accordance with SA 700 when issuing their opinion.
Common Mistakes & Industry-Specific Considerations
Common errors auditors flag
- Classifying owner-occupied property as investment property.
- Failing to allocate purchase price between land and building (only buildings depreciate).
- Missing fair value disclosure (mandatory under Para 79(e) even under cost model).
- Treating mixed-use property entirely as investment property when significant owner-occupation exists.
- Failing to transfer to PPE when use changes.
- Including investment property in PPE line on balance sheet (Schedule III requires separate line).
Industry application notes
For real estate developers, distinguishing between inventory (held for sale) and investment property (held to lease) requires careful judgement. Pre-let arrangements with buyback options can alter classification, impacting both measurement and disclosure.
Holding companies and family offices often hold real estate for capital appreciation. These entities must engage a registered valuer, typically IBBI or RVO members, each year to support the mandatory fair value disclosure required by Ind AS 40.
Listed companies with surplus property awaiting sale or lease must assess intent. Surplus owner-occupied space is not automatically investment property. Para 8 of Ind AS 40 provides specific guidance for such transitions.
Ind AS 40 vs AS 13 vs IFRS: Key Differences
The table below summarises the principal differences between Ind AS 40, its predecessor AS 13 (Investments), and IAS 40 under IFRS:
| Aspect | AS | Ind AS | IFRS |
|---|---|---|---|
| Definition | Long-term investment under AS 13 | Specific definition - rentals or capital appreciation | Same as Ind AS |
| Subsequent measurement | Cost less impairment | Cost model mandatory (carve-out) | Choice: cost or fair value model |
| Fair value disclosure | Encouraged | Mandatory (Para 79(e)) | Mandatory if cost model used |
| Transfers | Reclassified per use | At carrying amount under cost model | At fair value or carrying amount per model |
| Mixed-use property | Limited guidance | Separate accounting if portions sellable separately | Same |
India’s carve-out from IFRS is significant: Ind AS 40 prohibits the fair value model for subsequent measurement. Entities must use only the cost model but still disclose fair value annually. This approach reduces earnings volatility compared to IFRS but places greater emphasis on transparent note disclosures.
Latest Amendments to Ind AS 40 (FY 2026-27)
No amendments have been notified to Ind AS 40 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/), Owner-occupied property follows Ind AS 16 (PPE).
- [Ind AS 2](/ind-as-2-inventories/), Property held for sale in ordinary course follows Ind AS 2 (Inventories).
- [Ind AS 36](/ind-as-36-impairment-of-assets/), Impairment testing where indicators present.
- [Ind AS 113](/ind-as-113-fair-value-measurement/), Fair value measurement for disclosure under Ind AS 40.
- [Ind AS 116](/ind-as-116-leases/), Investment property held under lease - lessee right-of-use asset can be investment property.
Need Help with Ind AS 40 Compliance?
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Frequently Asked Questions (FAQs)
All companies required to prepare financial statements under Indian Accounting Standards must apply Ind AS 40 if they hold land or buildings primarily for rental income or capital appreciation rather than operational use or inventory purposes.
Investment property is held mainly for earning rentals or capital appreciation. Property, Plant and Equipment (PPE), covered by Ind AS 16, is used in production, supply of goods/services, or administration.
No. The Indian carve-out mandates only the cost model for subsequent measurement of investment properties. Entities cannot recognise fair value changes in profit or loss but must disclose annual fair values in notes as per Para 79(e).
Yes. Regardless of measurement at cost, every entity must disclose the fair value of each class of investment property annually in its notes per Para 79(e). This usually requires a valuation by an IBBI‑registered valuer or RVO member.
Transfers, such as from investment property to owner‑occupied PPE, are made at carrying amount without recognising gain or loss. The change is triggered by a change in use as defined by the standard’s criteria.
If significant portions serve different purposes and can be sold separately, account for each portion separately, investment portion under Ind AS 40; owner‑occupied portion under Ind AS 16. If not separable, classify based on predominant use.
Frequent errors include misclassification between PPE and investment property; failing to allocate land versus building; omitting mandatory fair value disclosures; not transferring assets when use changes; and improper Schedule III presentation.
Investment properties must appear as a separate line item on the balance sheet distinct from PPE. Additional note disclosures are required regarding reconciliation, policy adopted, rental income earned, direct expenses incurred, and annual fair values.
While not explicitly mandated by law, most companies engage an IBBI‑registered valuer or RVO member since management must justify disclosed values using recognised professional standards, especially for audit evidence purposes per SA 700 requirements.
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