Two topics look familiar and then diverge. The third rarely looks familiar at all
ASC 606 and ASC 842 will read recognisably to anyone who has applied Ind AS 115 and Ind AS 116, because revenue was a genuinely converged project and leases was a parallel one. The differences are in the detail and in the disclosure. ASC 718 is different in kind: share-based payment is where an Indian subsidiary of a US group most often discovers it has been accounting for something incorrectly for years, because the awards are granted by the parent, over the parent's shares, to people employed by the Indian entity, and nobody has been quite sure whose accounting entry it is.
- ASC 606: the same five steps, and where the detail diverges
- ASC 842: why the dual model produces a different income statement from IFRS 16
- ASC 718: parent-granted awards, the recharge agreement, and the Indian tax and exchange control consequences
Revenue: converged in structure, not in every detail
The five-step model is the same one IFRS 15 uses, which is unusual and is the direct result of a joint project. An entity applying Ind AS 115 competently will not find ASC 606 conceptually unfamiliar. The work is in the differences of detail and in a materially heavier disclosure package for a public business entity.
Areas worth checking specifically on any conversion include the treatment of collectability at contract inception, the accounting for licences of intellectual property, the constraint on variable consideration, and the practical expedients each framework makes available. Six are worth knowing, and one commonly published difference is not a difference at all.
Collectability is the one most likely to bite an Indian exporter. Both standards use the word "probable" in the test for whether a contract exists, and the word means different things. Under US GAAP it means likely, in practice around 75 to 80 per cent. Under IFRS it means more likely than not, above 50 per cent. So a contract with a marginal customer can fail the test under US GAAP, pushing the seller into a cash-received model, while passing under IFRS and being recognised normally. If you sell into distressed markets, this is the difference that will show up first.
Licences of intellectual property are classified differently. US GAAP classifies by the nature of the intellectual property itself: functional intellectual property with standalone functionality, such as software, gives a right to use and revenue at a point in time, while symbolic intellectual property such as a brand gives a right to access and revenue over time. IFRS has no such taxonomy and asks instead whether the seller's activities significantly affect the intellectual property. The two usually agree. They part company on intellectual property that works on its own but is subject to significant continuing development, which describes a great deal of Indian software licensing.
Three narrower ones with real administrative weight. US GAAP bars recognition of licence renewal revenue before the renewal period begins, whatever the contract or the billing date; IFRS has no equivalent restriction. US GAAP allows a policy election to treat shipping and handling after control passes as a fulfilment activity rather than a separate promise; IFRS does not, so freight is more often a separate performance obligation with revenue deferred. And US GAAP allows a policy election to exclude all taxes collected from customers from the transaction price, avoiding a principal-versus-agent analysis for every tax in every jurisdiction; IFRS requires that analysis.
The one that is a framework-level difference rather than a detail: onerous contracts. The US revenue standard contains no onerous contract guidance and did not displace the older industry-specific loss provisions, so a loss is recognised only where specific guidance requires it. Under IFRS the general provisions standard applies to every contract with a customer, so a provision arises whenever unavoidable costs exceed expected benefits. That is much the broader requirement, and it is the difference most likely to produce a loss on the IFRS numbers that simply is not there on the US ones.
A common error worth naming. Sales- and usage-based royalties on licensed intellectual property are frequently listed as a difference. They are not. Both frameworks require recognition at the later of the sale or usage occurring and the related performance obligation being satisfied, and that was a deliberate joint decision. Several published comparison summaries state it wrongly.
One Update to be aware of. An Accounting Standards Update issued in May 2025 clarified the accounting for share-based consideration payable to a customer, amending both ASC 718 and ASC 606, and applies to annual periods beginning after 15 December 2026. If your contracts include warrants or equity issued to a customer, this is a live change rather than background.
Leases: both on the balance sheet, only one on the income statement
ASC 842 requires a lessee to recognise a right-of-use asset and a lease liability for both finance and operating leases, which is where it agrees with IFRS 16. It then retains the distinction for the income statement, which is where it does not.
What the dual model does
A finance lease produces amortisation of the right-of-use asset plus interest on the liability, front-loading the total charge. An operating lease produces a single lease cost recognised on a straight-line basis over the term. The balance sheets under the two frameworks look broadly similar. The income statements and the cash flow classifications do not, and neither does EBITDA.
Why this matters for a group pack
An Indian entity reporting a property lease under Ind AS 116 is producing depreciation and interest. The same lease in the US pack may be a single straight-line operating lease cost. That is a recurring, permanent reconciling item on every lease the entity holds, not a one-off transition adjustment, and it is a common omission in packs assembled by someone who assumed the two lease standards converged.
Stock compensation: the awards belong to the parent, the expense may not
This is the section to read if nothing else on this page applies to you. The pattern is almost universal in Indian subsidiaries of US groups and it is almost universally handled loosely.
The arrangement
The US parent grants restricted stock units or options over its own shares to employees of the Indian subsidiary. The employees provide services to the Indian entity. The parent bears the dilution.
The accounting question
An expense is recognised where the services are received, which is the Indian entity, with a corresponding credit reflecting the parent's contribution. The Indian entity therefore carries a charge for an award it did not grant, over shares it does not issue, to a value determined by a valuation model applied to a company it does not control.
The recharge agreement
Where the parent recharges the cost to the subsidiary, the recharge changes the accounting, the transfer pricing analysis and the exchange control position all at once. Where there is no recharge, that is itself a related party position that needs to be defensible. Many groups have no written agreement either way.
The Indian consequences
Perquisite taxation and withholding in the hands of the employee on exercise or vesting, a corporate tax deduction question for the Indian entity that generally turns on whether a recharge was actually borne, transfer pricing documentation, and exchange control reporting on the remittance. Four things are settled and worth stating.
The perquisite, and the valuation burden nobody expects. The taxable perquisite is fair market value on exercise less anything the employee paid, recovered through payroll withholding by the Indian employer at the time of allotment. For shares of a US parent not listed in India, the value has to be determined by a merchant banker, because they are unlisted shares for this purpose. That merchant banker requirement is the recurring administrative cost of running a US parent's equity plan in India, and the Income-tax Act 2025 did not relieve it.
The deferral you have probably heard about is not available to you. Deferred withholding on share awards exists only for employees of an eligible start-up, which requires both recognition by the Department for Promotion of Industry and Internal Trade and certification by an Inter-Ministerial Board. A typical Indian subsidiary of a US parent does not qualify, so tax bites at exercise and there is no deferral to plan around. Note also that reports describing the deferral as having been extended from 48 to 60 months are describing the same date expressed differently: the 2025 Act abolished the assessment year, so the period had to be restated against the tax year. Nothing was liberalised.
On later sale. Foreign parent shares not listed in India are unlisted shares: long-term after a holding period of more than 24 months and taxed at 12.5 per cent without indexation, short-term at slab rates. Guides still showing 20 per cent with indexation are out of date. The foreign shareholding also has to be disclosed in the foreign assets schedule of the return, which is a live enforcement area.
The deduction is available, and it is conditional in ways that decide the answer. Indian case law allows the discount on employee share awards as business expenditure over the vesting period. Where the cost is recharged to a foreign parent, the tribunal position is that it is allowable as and when it is actually paid. So the conditions are: an actual cross-charge rather than an accounting entry, a written agreement allocating the cost, consistency between the accounting and the contract, and arm's length pricing. If the parent absorbs the cost and never recharges, the Indian entity should not be claiming a deduction.
There is a trap for a cost-plus captive: a real risk of the share-based cost being disallowed as business expenditure while simultaneously sitting inside the cost base on which the mark-up is computed. Worth modelling before the plan is rolled out rather than after.
The GST point, which is the most useful thing on this page and the easiest to get wrong. Securities are neither goods nor services, so where the Indian subsidiary reimburses the foreign parent on a strict cost-to-cost basis there is no supply and no GST. But if the parent adds any markup, administration fee or commission above the cost of the securities, that additional amount is consideration for a service, and the Indian subsidiary must pay GST on it under reverse charge as an import of services. The whole of it is the cost-to-cost discipline, and what usually breaks it is an administration fee buried inside the parent's intercompany invoice.
Exchange control is more straightforward than it looks. A resident individual may acquire shares of a foreign entity under an employee benefit scheme without limit, provided the scheme is offered globally on a uniform basis, and it therefore sits outside the annual remittance cap that otherwise applies to individuals. The acquisition is overseas portfolio investment rather than direct investment in the ordinary case, and the reporting is done by the Indian company rather than the employee, half-yearly for the periods ended 30 September and 31 March.
Two points are deliberately not answered here, and the reason is not that they were not researched. Neither the exchange control characterisation nor the withholding tax treatment of an intercompany share award recharge is determined by the label attached to the payment. Both require a transaction-specific analysis of the award plan, the recharge agreement, the settlement mechanics, the pricing and the applicable treaty. A general conclusion should not be applied without reviewing those facts, which is why this page does not offer one.
Where this sits
US GAAP Advisory
The overview page, with every guide listed and the situations each one answers.
US GAAP for Indian Subsidiaries of US Parents
Guide 1. The reporting pack, the close calendar, materiality set by the parent, and who actually owns the bridge.
Converting to US GAAP
Guide 2. Where US GAAP and Ind AS or IFRS genuinely part company, and what that does to the numbers.
Business Combinations, Consolidation and Goodwill
Guide 4. ASC 805, ASC 810 and ASC 350, including the variable interest model and the private company alternatives.
US Listing Readiness
Guide 5, in preparation. Foreign private issuer status, filer categories, internal control over financial reporting, and what the SEC has proposed to change.
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If your group grants share awards to Indian employees and nobody is certain where the expense sits or whether a recharge agreement exists, that is worth checking before it is several years old. A partner replies within one business day.
This page is general information, not professional advice. US GAAP, the rules of the Securities and Exchange Commission, and the Indian law that sits alongside them all change frequently, and several of the United States positions described on these pages were at proposal stage rather than settled when this page was written. The Income-tax Act 2025 replaced the 1961 Act with effect from 1 April 2026. Take professional advice before acting on anything on this page. We are happy to be that adviser, but we do not act on a web page, ours or anyone else's, without one.