Overview
- ICAI’s Accounting Standards Board, via FAQs issued in late December, classifies the higher gratuity liability from the new labour codes as past service cost to be recorded immediately.
- Under Ind AS 19 the expense must be recognized upfront in profit and loss, while AS 15 requires immediate recognition for vested benefits and amortization for unvested ones.
- The FAQ also directs immediate recognition of any additional leave encashment liability arising from the codes.
- The labour codes redefine wages as basic pay, dearness allowance and retaining allowance with a 50% floor for gratuity calculations, and extend gratuity to fixed‑term workers after one year of service.
- ICAI notes the impact must appear in interim results for the period ending December 31, 2025, including in consolidated accounts of listed parents, and flags upcoming standards—Ind AS 119 effective January 1, 2027, and a revised Ind AS 118 on financial‑statement presentation.