This change to Ind AS 1, clarifying the classification of loans as current vs non-current was introduced through the Companies (Indian Accounting Standards) Second Amendment Rules 2025, notified by the Ministry of Corporate Affairs on 13th August 2025.
What is it about?
A loan shall be classified as current or non-current strictly based on legal rights at the reporting date. Intentions or expectations of management—are no longer relevant for classification. Accordingly, loan can be classified as non-current if the company has an unconditional 'right' to defer settlement for at least 12 months after the reporting date.
Right in this context refers to “Legal right” to defer settlement and not based on management’s plans or intentions.
Treatment in below situations:
If a company breaches a loan covenant before the reporting date, the loan becomes payable on demand unless the lender formally waives the breach before the reporting date.
A waiver received after the reporting date—even if before financial statement approval—does not change the classification.- If the right to defer doesn’t exist as at reporting date but the management intends to refinance or roll over the loan, then also it must be classified as current only, since legally the right to defer doesn't exist.
The emphasis is in substance over form, ensuring that what’s reported reflects actual enforceable rights and not optimistic projections.
The amendment shall be applicable for annual periods beginning on or after 1 April 2025.