ITFG clarifications explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Most of the ITFG answers on Ind AS 116 came in bulletins of September and October 2019, soon after the standard started. They deal with how long a lease is, whether a land lease paid for upfront is still a lease, how a lessor recognises escalating rent, and how first-time and existing adopters moved across. This digest restates them in our own words and checks each against the text of Ind AS 116 as it now reads.
ITFG clarifications are the views of ICAI's Ind AS Technical Facilitation Group as on the date of each bulletin; they are not standards. ITFG says that a lease renewable only with the lessor's consent has no enforceable term beyond the current period, so a one-year lease renewed each year can stay a short-term lease; that a 99-year land lease with an upfront premium is a lease and the right-of-use asset is depreciated; that a lessor recognises operating lease rent straight-line (or on another systematic basis) even where rent escalates with inflation; and that mineral extraction rights sit outside Ind AS 116 and under Ind AS 38. The transition answers are history for companies already on Ind AS 116.
Ind AS as on 1 April 2025 (ICAI Compendium of Ind AS 2025-26, the standards notified under the Companies (Indian Accounting Standards) Rules, 2015). Amendments notified after 1 April 2025 are not reflected in this article and should be checked on mca.gov.in. Lease registers, schedules and entries of this kind are part of financial statement preparation for an Ind AS company.
How to read the table
Each issue is cited by bulletin and issue as printed at the end of the answer; the compendium numbers them differently. The last column says whether the paragraph relied on reads the same today. See our guides to lessee accounting under Ind AS 116, lessor accounting and modifications, the outline of Ind AS 116 and right-of-use assets and balance sheet presentation.
Digest
| Situation | ITFG's view | Reference | Paragraph relied on; still the same? |
|---|---|---|---|
| A one-year lease renewed every year by mutual consent | Short-term lease: the term is the enforceable period, and a renewal needing the lessor's consent is no right of the lessee | ITFG Clarification Bulletin 21, Issue 1 | Ind AS 116, paragraphs 5, 18, B34 and the definitions: reads the same |
| Rent equalisation liability at transition from the earlier lease standard | Folded into the opening balance: against the right-of-use asset and retained earnings under full retrospective application or under the modified approach with asset at carrying amount; deducted from the asset where the asset equals the liability less accrued rent | Bulletin 21, Issue 2 | Paragraphs C5, C7, C8: reads the same (transition history) |
| 99-year land lease with a large upfront premium and negligible annual rent | A lease, whatever the payment pattern; liability is about the premium already paid; leasehold land is depreciable unless title passes or a purchase option is reasonably certain | Bulletin 21, Issue 3 | Paragraphs 9, 18-19, C5, C11: reads the same |
| First-time adopter and leases of a subsidiary acquired earlier | If the combination is restated, treat the leases as new at acquisition date with the rate at that date; if not restated, either apply retrospectively from acquisition or use the first-time adopter's transition approach with the rate at transition | Bulletin 21, Issue 4 | Ind AS 101, paragraphs 7, 9, C1, D9B; Ind AS 103, paragraphs 28A-28B; Ind AS 116, paragraph 26: reads the same |
| Foreign exchange on a lease liability first recognised at transition | Not covered by the long-term foreign currency relief, which is for items recognised before the first Ind AS period; expensed as they arise | Bulletin 21, Issue 5 | Ind AS 101, paragraphs 18, D13AA: reads the same |
| Right of way with termination on a month's notice, and one-year leases renewed by consent | Right of way: the term depends on whether the lessee is reasonably certain not to terminate, judged on economic incentives such as the need for the route and any advance forfeited; if so, not short-term. One-year consent-renewed leases: short-term | Bulletin 22, Issue 1 | Paragraphs 5, 18, 19, B34, B37: reads the same, with a caution below |
| A lessor whose rent rises each year in line with inflation | Straight-line (or another more representative systematic basis) under Ind AS 116, unlike the earlier standard's allowance; the change is a change in accounting policy | Bulletin 22, Issue 2 | Paragraph 81: reads the same |
| Rights to extract limestone | Outside Ind AS 116 and Ind AS 16; an intangible asset under Ind AS 38 where feasibility is already established, amortised on the pattern of consumption (time, units or revenue) | Bulletin 22, Issue 3 | Ind AS 116, paragraph 3(a) (cited as paragraph 2 in the bulletin); Ind AS 38, paragraph 2; Ind AS 106: reads the same |
Issues left out
No issue in this range is left out as superseded. The facts in several answers refer to the earlier lease standard; those parts are history and are noted in the table. The modified retrospective question in Bulletin 22, Issue 1 is not separately digested because the analysis in that answer is expressly confined to the lease term.
A caution on lease 1 in Bulletin 22, Issue 1
Paragraph B34 also says that a lease is no longer enforceable when the lessee and the lessor each has the right to terminate it without the other's permission and with no more than an insignificant penalty. ITFG's answer for the right-of-way lease works through the lessee's economic incentive and the possible loss of the advance payment. A team relying on it should check the penalty facts against B34 and B35 before concluding that the term is the full period.
Worked illustration: a cancellable shop lease
The entity and all figures in this example are invented for illustration.
Amrit Textiles Limited takes a shop on a three-year lease at Rs 80,000 a month. Only Amrit may terminate, after the first year, on paying three months' rent. It spends Rs 12,00,000 on a fit-out expected to last six years. Alternative premises are available at Rs 70,000 a month; relocation would cost Rs 1,50,000. Assumed for arithmetic only.
Under paragraph B35, a termination right held only by the lessee is an option to terminate; paragraphs 18 and 19 and B37 ask whether Amrit is reasonably certain not to exercise it.
| Item at the end of Year 1 | Working | Rs |
|---|---|---|
| Termination penalty | 3 x 80,000 | 2,40,000 |
| Relocation cost | given | 1,50,000 |
| Unamortised fit-out | 12,00,000 x 5/6 | 10,00,000 |
| Cost of terminating | 2,40,000 + 1,50,000 + 10,00,000 | 13,90,000 |
| Rent saved at alternative premises | (80,000 - 70,000) x 24 | 2,40,000 |
Check: 13,90,000 - 2,40,000 = 11,50,000 net cost of terminating. The economic incentive is not to terminate, so Amrit is reasonably certain not to exercise the option and the lease term is 36 months (paragraph 18(b)). The lease is therefore not a short-term lease (paragraph 5 and its definition). If circumstances change significantly and within Amrit's control, the term is reassessed (paragraph 20).
What a finance team should take from this
- Record, lease by lease, who can renew or terminate and on what terms; consent-only renewals add no term.
- Test termination options on economic incentive, including fit-out, relocation cost and any forfeited advance.
- Keep lessor and lessee workings separate; a lessor's escalating rent is spread on a systematic basis.
Need help with lease accounting?
If a lease register, a lease term judgement or a lessor schedule needs to be built or reviewed, our team can prepare the workings and entries through financial statement preparation.
Key takeaways
- The enforceable period decides the lease term; a renewal that needs the lessor's consent does not extend it.
- A long land lease paid for upfront is still a lease, with a depreciable right-of-use asset.
- Lessors recognise operating lease rent on a straight-line or other systematic basis.
- Mineral extraction rights are outside Ind AS 116.
- Transition answers matter only to companies still on their first Ind AS 116 year.
Read next
- Lessee accounting under Ind AS 116
- Lessor accounting, lease modifications and sale and leaseback under Ind AS 116
- Ind AS 116: leases
- Right-of-use assets under Ind AS 116: balance sheet presentation
Disclaimer: Based on the Indian Accounting Standards as on 1 April 2025 (ICAI Compendium of Ind AS 2025-26, the standards notified under the Companies (Indian Accounting Standards) Rules, 2015) and, where named, the ITFG clarification bulletins of ICAI, as consulted on 4 October 2026. The worked example uses invented figures. Amendments notified after 1 April 2025 should be checked on mca.gov.in. This article is general information, not legal advice; check the official text before acting.