Assurance Gazette – Nov 2025 Edition

Welcome to the Assurance Gazette for November 2025 Edition. The gazette discusses the Expert Advisory Committee’s (EAC) opinion on the accounting treatment of the GST component paid on lease Contents payments under Ind AS 116. The EAC clarifies that GST paid by the lessee to the lessor is a statutory levy and should not be included in the measurement of the lease liability or the Right-of-Use (ROU) asset. This edition also highlights the landscape of professional ethics continues to evolve rapidly, shaped by global convergence, technological disruption, and increasing regulatory expectations. In this context, the ICAI’s Exposure Draft of the 13th Edition of the Code of Ethics marks an important step toward strengthening the integrity and relevance of the ethical framework governing Chartered Accountants in India. This edition provides a concise yet comprehensive overview of the key revisions proposed across the three volumes, highlighting both the international alignment and India-specific enhancements embedded in the draft.

EAC Opinion on Accounting treatment for GST component paid on lease payments under Ind AS 116, ‘Leases’

Introduction: 

Ind AS 116, Leases, provides comprehensive guidance on the recognition, measurement, and presentation of lease arrangements in the financial statements of lessees. A recurring area of discussion is whether statutory levies such as Goods and Services Tax (GST), charged on lease payments, should be included in the measurement of the Right-of-Use (ROU) asset and lease liability. From the standpoint of Ind AS 116 alone, the answer lies in understanding what constitutes lease payments and how government levies are treated under accounting standards. The EAC has recently issued its opinion on this matter.

Background:

The Company, a power generation public sector undertaking, entered into a three-year lease for its corporate office. As per the lease terms, the rental was subject to 18% GST which the Company paid along with the lease rent. Since, the supply of electricity is exempt from GST, the Company has treated the GST as non-recoverable expense and included the GST component in the lease payments used to compute the present value of future lease liabilities. This effectively increased both the ROU asset and corresponding lease liability.

During the supplementary audit, the CAG team referred to ICAI’s Educational Material on Ind AS 116, which clearly states that GST should not be considered a lease payment. The Company, however, argued that excluding GST would distort the financial statements by showing GST separately as an expense which could misleadingly appear as an additional lease arrangement. Given the significance of the issue and its impact on lease accounting, the matter was referred to the Expert Advisory Committee (‘EAC’ or ‘the Committee’) of ICAI for an authoritative view.