Disclaimer: Education only, not accounting or audit advice. Paragraph references should be checked against the Ind AS notified by MCA as currently in force. Figures are as of the date shown at the end of the page.

In simple words (if you are in class 10)

If you build a road for the government and are allowed to collect toll for 20 years, you don't own the road. The government does. What you own is a permission slip: "you may collect toll". In accounting, that permission slip is an intangible asset, and you use up its value over the years.

If instead the government promises to pay you fixed amounts every six months (like HAM), what you own is closer to a loan you gave the government. In accounting, that is a financial asset (a receivable).

Same road, two very different kinds of asset, depending on who carries the traffic risk.

The professional view

1. Which standard?

Public-to-private service concession arrangements are covered by the service concession appendices to Ind AS 115 (the Indian equivalent of IFRIC 12, with disclosures based on SIC 29). Sources refer to the appendix by different letters, so cite it by title. It applies when:

  1. the grantor controls or regulates what services the operator provides, to whom and at what price; and
  2. the grantor controls any significant residual interest in the infrastructure at the end of the term.

If both are met, the operator does not recognise the road as property, plant and equipment (TaxGuru summary).

2. Intangible vs financial asset model

Intangible asset model Financial asset model
Trigger Right to charge users (demand risk with operator) Unconditional contractual right to cash from grantor
Typical road BOT (Toll), TOT HAM, BOT (Annuity)
Standard Ind AS 38 Ind AS 109
Measurement Cost (fair value of construction services), amortised over concession Amortised cost (usually), interest income at effective interest rate
Construction-period revenue Construction revenue recognised under Ind AS 115 (input method, with margin) Same
Borrowing costs Capitalised during construction (Ind AS 23) Expensed as incurred
Expected credit loss N/A Applies (Ind AS 109)
Major maintenance Provision under Ind AS 37 for contractual resurfacing Assess whether resurfacing is a separate performance obligation (revenue when performed) or an Ind AS 37 obligation

Where an arrangement has a guaranteed minimum plus a toll upside, a bifurcated (hybrid) model may apply: a financial asset for the guaranteed part and an intangible for the rest (the same approach as IFRIC 12).

HAM in practice: the 40% construction support and the annuity stream give the operator an unconditional right to cash, so HAM SPVs usually recognise a financial asset (the "receivable under service concession arrangement"). The O&M component is typically a separate performance obligation, with revenue recognised as O&M services are delivered.

3. Amortising the toll intangible

  • Ind AS 38 generally presumes revenue-based amortisation is inappropriate.
  • Indian carve-out: Ind AS 101 paragraph D22 permits first-time adopters to continue revenue-based amortisation for toll-road concession intangibles recognised before the first Ind AS reporting period. ITFG Clarification Bulletin 7 (Issue 9) concluded it does not extend to a toll road still under construction on transition (TaxGuru). Ind AS 38 paragraph 7AA carves this out of Ind AS 38's amortisation rules for entities that use the D22 option (Ind AS 38 text).
  • New concessions (post-transition) normally use straight-line or another pattern that reflects consumption of benefits; units-of-usage methods (e.g. traffic-based) are debated, so read the ICAI Expert Advisory Committee's opinions on toll-road amortisation (for example this EAC opinion) before choosing a policy.

4. Major maintenance under Ind AS 37

For an intangible-model toll road, the contractual obligation to resurface at intervals is a present obligation from use of the road. The SPV builds a provision over the cycle, at the best estimate of cost, discounted where material, and unwinds the discount as finance cost. Key audit focus: cycle length, unit rates, inflation, and whether the provision reconciles with the lender's MMRA requirement (they are different things: one is an accounting liability, the other is cash set aside).

5. Impairment and fair value

  • Ind AS 36: toll intangibles are tested when indicators exist (traffic shortfall, toll suspension, change in law such as free-travel or annual-pass schemes). Recoverable amount is a concession-life DCF, much like Part 7.
  • Ind AS 113: InvITs disclose fair values; the valuer's DCF is Level 3.

6. InvIT-level accounting

  • Consolidation (Ind AS 110): the InvIT consolidates SPVs it controls. Shareholder loans and interest eliminate on consolidation, which is why consolidated profit can look very different from distributions.
  • Acquisitions (Ind AS 103): buying an SPV may be a business combination or an asset acquisition (the optional concentration test helps). Acquisitions from the sponsor raise the question of whether common control accounting (Appendix C to Ind AS 103) applies. It applies only if the same party controls both before and after, which is often not the case for an InvIT, so it needs a fact-specific assessment.
  • Unit capital: equity or liability? Units carry an obligation to distribute at least 90% of NDCF, which under Ind AS 32 points towards a financial liability component. In practice InvITs present unitholders' funds as equity, following the disclosure formats in SEBI circulars CIR/IMD/DF/114/2016 (20 October 2016) and CIR/IMD/DF/127/2016 (29 November 2016), and explain in a note that the funds could otherwise be a compound instrument (see, for example, PowerGrid InvIT's 2021 annual report). Distributions become a liability once the investment manager approves them. This is a classic exam and interview question.
  • SEBI-specific statements: in addition to Ind AS statements, InvITs present a statement of NDCF, a statement of net assets at fair value and a statement of total returns at fair value, plus related-party disclosures, under the 2016 SEBI disclosure circulars as now consolidated in the Master Circular.

7. Tax accounting

  • Deferred tax at SPV level on the intangible/financial asset vs tax base differences; tax depreciation on toll rights is a recurring judgement area.
  • At InvIT level, exempt income means little current tax, but taxable "other" income is at maximum marginal rate.

8. An audit partner's top ten review points

  1. Appendix C scope tested for each concession, documented.
  2. Model choice (intangible / financial / bifurcated) and reasoning.
  3. Construction margin and its support.
  4. Effective interest rate on HAM receivables, including bank-rate resets.
  5. ECL on HAM receivables and on claims against the authority.
  6. MM provision: cycle, cost, discounting, reconciliation to reserves.
  7. Amortisation method and D22 eligibility.
  8. Impairment indicators from traffic and policy changes.
  9. Classification of unit capital and presentation of distributions.
  10. Reconciliation of Ind AS cash flows to the SEBI NDCF statement.

Sources

Previous: Part 7 · Next: Part 9: Debt, DSCR and covenants

Education only. This page is not investment, tax, legal or accounting advice, and it does not recommend buying, selling or holding any security. Laws and rules change: check the linked primary source and consult a qualified professional before acting.

Last reviewed 25 October 2026. Spotted an error? Tell us and we will correct it.