Right-of-Use Assets 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.
Ind AS 116 gives lessees a presentation choice. Schedule III does not remove it — but it adds a requirement that survives whichever option is taken.
The lessee's choice
A lessee shall either present in the balance sheet or disclose in the notes right-of-use assets separately from other assets — except those meeting the definition of investment property.
If the lessee does not present them separately in the balance sheet, it shall:
- include right-of-use assets within the same line item as that within which the corresponding underlying assets would be presented if they were owned; and
- disclose which line items in the balance sheet include those right-of-use assets.
Companies that fold right-of-use assets into property, plant and equipment usually get the first limb right — leased buildings sit within buildings, leased vehicles within vehicles. The second limb is a separate, freestanding disclosure: which line items include those right-of-use assets.
Without it a reader cannot tell whether the buildings line is owned, leased or both, and the Schedule III reconciliation for that class becomes uninterpretable.
Schedule III adds its own overlapping requirement in the property, plant and equipment note: assets under lease shall be separately specified under each class of asset. That is a per-class split, and it applies whichever Ind AS 116 presentation option the lessee has chosen — so a lessee taking the combined-line option still has to show, class by class, how much is under lease.
The investment property carve-out
The exception is not optional. Right-of-use assets meeting the Ind AS 40 definition of investment property — property held to earn rentals or for capital appreciation — must be presented in the balance sheet as investment property, not within the right-of-use asset line and not within the underlying asset class.
Both sides of the lease
| Position | Requirement |
|---|---|
| Assets obtained on lease, accounted as right-of-use assets | Apply the presentation and disclosure requirements under Ind AS 116 in addition to the requirements of Ind AS Schedule III |
| Assets given on lease | Apply the presentation and disclosure requirements under Ind AS 116 in addition to the requirements of Ind AS Schedule III |
The phrase "in addition to" is the operative one in both rows, and it reflects the general principle running through the guidance note: Schedule III disclosures are in addition to and not in substitution of the disclosures specified in Ind AS.
Deciding the presentation
- Identify right-of-use assets meeting the investment property definition — these are removed from the choice and presented as investment property.
- For the remainder, choose separate presentation or inclusion in the underlying asset line.
- If included, disclose which line items contain them.
- Either way, separately specify assets under lease within each PPE class as Schedule III requires.
- Add the full Ind AS 116 lessee disclosures on top.
Common mistakes
- Including right-of-use assets in the owned asset line without disclosing which lines they are in.
- Presenting a leased-in investment property within the right-of-use asset line.
- Omitting the per-class "assets under lease" split because the Ind AS 116 disclosures were given.
- Treating Ind AS 116 presentation as a substitute for Schedule III rather than an addition.