Who Must Follow Ind AS
Ind AS applicability is governed by the Companies (Indian Accounting Standards) Rules 2015, notified under Section 133 of the Companies Act 2013. Phase 1 (from April 1, 2016): listed companies and unlisted companies with net worth of INR 500 crore or more. Phase 2 (from April 1, 2017): listed companies with net worth below INR 500 crore, and unlisted companies with net worth between INR 250 and INR 500 crore.
For an Indian subsidiary of a foreign company: if the parent company follows Ind AS for its Indian group reporting (many large multinationals do), the subsidiary follows Ind AS regardless of its own net worth. Net worth is computed as paid-up share capital plus reserves and surplus (excluding revaluation reserves). For a GCC that received USD 10 million (approximately INR 83 crore) in FDI, the net worth crosses INR 250 crore threshold after profitable operations build reserves.
Small companies (paid-up capital not exceeding INR 4 crore and turnover not exceeding INR 40 crore) are exempt from Ind AS but must still comply with Schedule III of the Companies Act 2013 under AS (old accounting standards). Most GCCs exceed these thresholds quickly.
Key Standards with GCC Impact
Ind AS 115 (Revenue from Contracts with Customers, equivalent to IFRS 15): GCCs that invoice the parent for software development services must recognize revenue in accordance with the 5-step model (identify contract, performance obligations, transaction price; allocate; recognize). For a GCC billing the parent monthly for time-and-materials IT services, revenue is recognized over time as services are rendered - straightforward. For milestone-based contracts, revenue recognition may differ from billing timing.
Ind AS 116 (Leases, equivalent to IFRS 16): GCCs with long-term office leases (5+ years) must recognize a right-of-use asset and corresponding lease liability on the balance sheet. For a 5-year lease of 50,000 sq ft at INR 80/sq ft/month, the lease liability is approximately INR 24 crore at inception. This significantly increases total assets and liabilities reported to the parent.
Ind AS 19 (Employee Benefits, equivalent to IAS 19): GCCs must recognize defined benefit obligation for gratuity using the Projected Unit Credit method, with annual actuarial valuation. The defined benefit liability is on the balance sheet; actuarial gains and losses go to Other Comprehensive Income (OCI).
IFRS vs Ind AS: Key Differences for GCCs
IFRS 9 vs Ind AS 109 (Financial Instruments): Ind AS 109 has India-specific carve-outs from IFRS 9 on hedge accounting (Indian companies are permitted to use the hedging provisions of AS 30, the previous standard, in certain situations). For GCCs that hedge foreign currency receivables, consult the auditor on which hedge accounting standard to apply.
Functional currency: IFRS allows entities to determine their functional currency based on the primary economic environment in which they operate (which for a GCC invoicing the parent in USD could arguably be USD). Ind AS follows the same principle but Indian regulatory filings (MCA, GST, income tax) require INR-denominated statements. Most GCCs report in INR as functional currency for statutory purposes.
Related party disclosures under Ind AS 24: must disclose all transactions with the parent and affiliated entities, including the nature and amount of each transaction and the amounts outstanding. This is a key disclosure in every GCC's annual accounts and is cross-referenced with transfer pricing documentation for consistency.
Align Ind AS and transfer pricing documentation
The related party transaction disclosures in the Ind AS financial statements (under Ind AS 24) must be consistent with the transfer pricing documentation in Form 3CEB. Tax authorities cross-reference the two documents. Mismatches in disclosed transaction amounts are a red flag that triggers transfer pricing enquiries.