Direct answer: For annual reporting periods beginning on or after 1 April 2026, a long-term loan made repayable on demand by a covenant breach on or before the reporting date is classified as current even if the lender agrees afterward, before financial-statement approval, not to demand payment because of that breach. Do not carry forward the earlier Indian post-reporting-date waiver exception into FY 2026–27.
The operative change is contained in Ind AS 1, paragraph 139U and the replacement paragraphs 74–76 applicable from 1 April 2026, with the consequential omission of the closing waiver paragraph in Ind AS 10 paragraph 3. Both official ICAI compendium texts identify MCA Notification G.S.R. 549(E), dated 13 August 2025. This article addresses a March-year-end Ind AS company’s FY 2026–27 closing and comparative working, checked on 23 October 2026. Later dates in the examples are fictional planning scenarios, not reports of actual future events.
Read the transition paragraph before the familiar waiver wording
The amendment has phased applicability. Paragraph 139U applies the main liability-classification amendments from annual periods beginning on or after 1 April 2025, retrospectively under Ind AS 8. It then specifies the replacement paragraphs 74, 75, 75A and 76 for annual periods beginning on or after 1 April 2026, also retrospectively. Ind AS 10 expressly omits the former waiver adjustment for those later periods.
This matters because a compendium can reproduce the earlier paragraph 74 in its main flow and the later applicable text in the transition paragraph. Reading only the first visible occurrence gives the wrong FY 2026–27 answer. For the original FY 2025–26 statements, the earlier Indian exception can remain relevant; when preparing FY 2026–27 comparatives, assess the required retrospective application rather than blindly copying the previously published classification.
Build the contractual-right assessment at the reporting date
Ind AS 1 paragraphs 69(d) and 72A require a substantive right at the end of the reporting period to defer settlement for at least twelve months. Paragraph 72B distinguishes a covenant that must be complied with on or before that date from one that must be complied with only afterward. A year-end covenant still affects classification when the lender measures or certifies it after year-end. By contrast, a genuinely future-only covenant does not determine whether that reporting-date right exists, although disclosure may be required.
| Situation | FY 2026–27 classification enquiry | Evidence |
|---|---|---|
| Year-end breach makes debt payable on demand | Current under the applicable paragraph 74 despite a later waiver. | Loan clause, reporting-date metrics and consequence of breach. |
| Lender grants sufficient grace by reporting date | Assess paragraph 75, including at least twelve months without immediate demand. | Binding dated agreement and its duration. |
| Compliance required only after reporting date | Apply paragraph 72B(b) and the other current/non-current criteria. | Exact covenant test date and reporting-date right. |
| Ordinary instalment within twelve months | It remains a separate current-maturity question. | Contractual repayment schedule, independent of breach waiver. |
An informal assurance, management expectation of refinancing or the lender’s past practice is not the same as a substantive contractual right. Paragraph 72 treats a refinancing or rescheduling agreement completed only after the reporting period as insufficient to change a liability already due within twelve months. Paragraph 73 separately addresses a reporting-date right to roll over under an existing facility. Identify which right actually exists rather than treating all refinancing plans alike.
Under the applicable paragraph 75, a grace period must have been agreed by the end of the reporting period, extend at least twelve months after it and allow rectification while preventing an immediate repayment demand. Check the whole agreement and all independent current-liability criteria. A waiver of one covenant does not remove a scheduled instalment or a separate breached clause.
Separate presentation from debt amount, cash and covenant remedies
A current/non-current reclassification does not itself repay debt, create income or improve cash. Present the same carrying amount in the correct liability category and recompute ratios from the corrected categories. Review accounting measurement, loan modifications, cross-default clauses and disclosure separately where relevant; they are not resolved merely by moving a balance-sheet line.
For non-current loans subject to compliance within twelve months after the reporting date, paragraph 76ZA requires information enabling readers to understand the risk of becoming repayable, including covenant terms/test dates, related carrying amounts and facts indicating difficulty in compliance. A future test can therefore require a substantial note even when it does not make the loan current at the reporting date.
The applicable paragraph 76 addresses post-reporting-date refinancing, rectification and granting of grace as non-adjusting-event disclosures where relevant. Ind AS 10 additionally requires material non-adjusting-event disclosures and a separate going-concern assessment. A technically correct classification does not replace a liquidity forecast or eliminate a material uncertainty.
Prepare a transition bridge from the original comparative presentation to the presentation required in the new annual statements. Document retrospective application and required disclosures under Ind AS 8. This is not an instruction to overwrite previously filed statements. Where only current/non-current classification changes, distinguish that presentation effect from any independent measurement, tax or equity effects.
Worked illustrations
These illustrations use fictional facts and expressly stated assumptions. Amounts are Indian rupees unless a different currency or unit is specified. They are independent examples, not findings about any actual client.
Illustrative example 1: A later waiver does not cure the FY 2026–27 demand classification
Assume a ₹2,00,00,000 long-term loan is made repayable on demand by a covenant breach existing on 31 March 2027. The lender waives that consequence on 30 April 2027, before Board approval on 20 May. For FY 2026–27, the loan is current under the applicable paragraph 74: ₹2,00,00,000 current and zero non-current for that balance. The later waiver is not used to recreate a reporting-date right.
Illustrative example 2: A comparative bridge can differ from the original prior-year filing
Assume a ₹2,50,00,000 loan was non-current in the originally issued FY 2025–26 statements solely because a qualifying post-year-end, pre-approval waiver satisfied the then-applicable Indian exception. In FY 2026–27, assume retrospective application requires that comparative balance to be current and no other criterion changes the result. The comparative bridge increases current liabilities by ₹2,50,00,000 and decreases non-current liabilities by the same amount. Total liabilities and equity change by zero from this classification adjustment alone.
Illustrative example 3: Sufficient grace agreed by year-end
For 31 March 2027, assume the lender validly agrees by that date to a grace period ending on 31 March 2028, allowing rectification and preventing immediate repayment demand throughout. The period is twelve months. A ₹1,20,00,000 loan otherwise repayable only after that period can be non-current under the stated assumptions. Verify the binding agreement and absence of separate current maturities or other demand triggers.
Illustrative example 4: A six-month grace period is not twelve months
Use the same ₹1,20,00,000 loan, but assume the binding year-end grace ends on 30 September 2027. That is six calendar months after 31 March, not twelve. Where the loan would otherwise be repayable on demand because of the breach, this shorter protection does not meet paragraph 75’s twelve-month condition; ₹1,20,00,000 remains current on the assumed facts.
Illustrative example 5: A future-only covenant is different from a later certificate
A ₹1,50,00,000 loan is contractually repayable after 31 March 2028, and assume the substantive right to defer exists on 31 March 2027. Its only relevant ratio covenant is required to be met on 30 September 2027 using that date’s financial position. A 31 March ratio of 1.10 versus the later minimum 1.25 does not itself establish breach of this future-only test; the numerical gap is 0.15. The loan can remain non-current on these facts, with paragraph 76ZA disclosure assessed. A covenant required at 31 March but certified later would be different.
Illustrative example 6: Test-date breach can make the whole facility current
A single ₹6,00,00,000 facility has a reporting-date net-debt/EBITDA covenant capped at 2.5 times. Assume net debt equals that ₹6,00,00,000 loan and EBITDA is ₹2,00,00,000, with no cash or other debt. The ratio is 3.0 times; the permitted net debt at that EBITDA is ₹5,00,00,000, a ₹1,00,00,000 excess. Assume breach makes the entire facility payable on demand at 31 March 2027 and no qualifying year-end protection exists. The current balance is the whole ₹6,00,00,000, not only the ₹1,00,00,000 covenant excess.
Illustrative example 7: Show the liquidity-ratio consequence without inventing cash
Current assets are ₹3,00,00,000, other current liabilities ₹1,00,00,000 and a breached loan requiring current classification ₹2,00,00,000. Correct current liabilities are ₹3,00,00,000 and current ratio is 1.00. Wrongly leaving the loan non-current would show 3.00. Working capital is correctly zero rather than an apparent positive ₹2,00,00,000. The reclassification changes neither cash nor total debt.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Identify the annual reporting period and applicable amendment phase. | Period dates, paragraph 139U and Ind AS 10 effective-date note. |
| 2 | Extract every relevant facility, covenant and demand consequence. | Executed agreements and cross-default review. |
| 3 | Identify when compliance is required, not just certified. | Covenant calendar and underlying measurement dates. |
| 4 | Recalculate reporting-date metrics using contractual definitions. | EBITDA/debt bridge and independently checked ratios. |
| 5 | Verify substantive reporting-date rights to defer or roll over. | Existing facility terms and legal assessment. |
| 6 | Test any year-end waiver or grace for timing, scope and duration. | Binding lender document and twelve-month protection analysis. |
| 7 | Separate scheduled current maturities from breach classification. | Repayment schedule and facility-level classification. |
| 8 | Apply retrospective presentation to relevant comparative balances. | Original-to-restated comparative bridge and Ind AS 8 assessment. |
| 9 | Prepare covenant and subsequent-event disclosures and liquidity analysis. | Paragraph 76ZA/Ind AS 10 notes and cash forecasts. |
| 10 | Reconcile the final balance sheet, ratios and total debt. | Current/non-current bridge, unchanged-total check and approval record. |
Sixteen practitioner FAQs
1. Does a waiver before Board approval always preserve non-current classification?
No. For annual periods beginning on or after 1 April 2026, a post-reporting-date waiver does not cure the stated year-end demand-classification problem.
2. Which text should a FY 2026–27 preparer read first?
Paragraph 139U and its later-applicable paragraphs 74–76, together with the consequential Ind AS 10 omission. Do not rely on the earlier main-flow waiver paragraph alone.
3. Did the whole amendment start only in April 2026?
No. The transition has a main phase from April 2025 and the specified later paragraphs from April 2026. Identify the applicable annual period.
4. Can the old comparative classification simply be copied?
Not automatically. Assess the required retrospective application under Ind AS 8 and prepare a supported comparative bridge.
5. Does comparative reclassification mean replacing the old filed statements?
That is not what this working instructs. It addresses presentation in the new annual financial statements and the applicable comparative disclosures.
6. Does a classification change create a gain?
No gain follows merely from moving the same carrying amount between current and non-current liabilities.
7. What if the lender checks the March ratio in April?
If compliance was required at the reporting date, later assessment does not make it a future-only covenant.
8. What if the covenant must be met only in September?
Paragraph 72B(b) treats that differently for the reporting-date right. Assess the other classification conditions and paragraph 76ZA disclosures.
9. Can a management refinancing plan create a reporting-date right?
Not merely because management expects success. Identify a substantive existing right and the applicable refinancing provisions.
10. Is a six-month grace enough for paragraph 75?
Not for its requirement of protection ending at least twelve months after the reporting period. Review all terms and other criteria.
11. Must grace be agreed by the reporting date?
That is a condition of the applicable paragraph 75. A later grant is not equivalent for this classification purpose.
12. Does one waived clause cure every facility problem?
No. Scheduled maturities, other breaches and cross-default consequences require separate assessment.
13. Is only the numerical covenant shortfall classified current?
Read the contractual consequence. If the entire facility becomes payable on demand, the affected carrying balance can be the whole facility.
14. Can a non-current loan still need a covenant-risk note?
Yes. Paragraph 76ZA specifically addresses relevant future compliance risks for loans classified non-current.
15. Does the correct current ratio settle going concern?
No. Assess cash flows, financing access and material uncertainties separately. Classification is only one part of the liquidity analysis.
16. What should a partner review before signing off?
The period-specific text, contractual compliance date, demand consequence, rights at year-end, retrospective bridge and consistency of the final ratios and notes.
Conclusion
For FY 2026–27, anchor debt classification to the applicable reporting-date rights and the later-effective covenant text. Preserve the transition bridge, distinguish future tests from later certification, and explain the liquidity effect without changing total debt merely to improve ratios.