Amendment to Indian Accounting Standard-116 Leases

Ministry of Corporate Affairs (MCA) vide a notification dated 24th July,2020 has amended Indian Accounting Standard (Ind AS) 116 relating to Leases.

In the wake of the pandemic, many lessors have extended rent concessions to lessees. However, applying the Ind-AS 116 requirements for changes to lease payments could have posed practical difficulties in the current situation.

Against this backdrop, the ministry has amended the rules whereby entities would get relief from lease modification accounting due to COVID-19 related rent concessions. The amendments can be followed by lessees for annual reporting periods beginning on or after April 1, 2020.

MCA has inserted paras 46A and 46B under the heading lease modification which provides that:

As a practical expedient, a lessee may elect not to assess whether a rent concession is a lease modification, if all of the following conditions are met:

  • the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change;
  • any reduction in lease payments affects only payments originally due on or before the 30th June,2021
  • there is no substantive change to other terms and conditions of the lease.

If the lessee applies the practical expedient as per para 46A, he shall make the following disclosures:

  • that it has applied the practical expedient to all rent concessions that meet the conditions in para 46B or, if not applied to all such rent concessions, information about the nature of the contracts to which it has applied the practical expedient.
  • the amount recognized in profit or loss for the reporting period to reflect changes in lease payments that arise from rent concessions to which the lessee has applied the practical expedient in para 46A.

Lease modification requires re-computation of lease liability using discount rate on the date of modification. This would have posed significant challenge to company whose volume of leases are very high. The amendment to Ind-AS 116 will provide significant relief to such lessees for accounting for rent concessions thereby saving their cost and efforts from discounting revised lease payments using revised discount rate.


Source: MCA Notification| 24.07.2020