Ind AS · Revenue from Contracts with Customers

Ind AS 115 revenue recognition — the 5-step model explained.

How to apply Ind AS 115 to identify contracts, performance obligations and the transaction price — with a worked journal-entry example for a SaaS subscription business.

Reviewed July 2026
9 min read
CA Anil Agarwal & the TatvaBooks team

What is Ind AS 115?

Ind AS 115, Revenue from Contracts with Customers, is the converged Indian Accounting Standard (aligned with IFRS 15) that governs when and how much revenue an entity recognises from its contracts with customers. It replaces the older AS 9 model — based on transfer of risks and rewards — with a single, principle-based 5-step model built around the transfer of control of goods or services.

It applies to all entities required to follow Ind AS (see our Ind AS applicability page for the phase-wise criteria), and it is one of the standards examiners and reviewers probe hardest because it directly affects reported top-line revenue — the number most stakeholders look at first.

The 5-step model

Every revenue contract — a one-time sale of goods, a construction contract, or a SaaS subscription — is worked through the same five steps.

Step	What it means
Step 1 Identify the contract with a customer	An agreement (written, oral or implied by customary practice) that creates enforceable rights and obligations, has commercial substance, and where collection of consideration is probable.
Step 2 Identify the performance obligations	Each distinct promise to transfer a good or service. "Distinct" means the customer can benefit from it on its own (or with readily available resources) and it is separately identifiable from other promises in the contract.
Step 3 Determine the transaction price	The consideration the entity expects to be entitled to — adjusted for variable consideration, significant financing components, non-cash consideration and amounts payable to the customer.
Step 4 Allocate the transaction price	Split the transaction price across performance obligations in proportion to their standalone selling prices, where there is more than one obligation in the contract.
Step 5 Recognise revenue	Recognise revenue as (or when) each performance obligation is satisfied — either over time (if specific criteria are met) or at a point in time.

Revenue is recognised only when (or as) control of the promised good or service passes to the customer — not on invoicing, and not on cash receipt. For a subscription business this distinction is the whole exercise: you bill upfront but earn the revenue across the subscription term.

Worked example — a SaaS subscription

Facts: On 1 April, SoftCloud Pvt Ltd invoices a customer ₹1,20,000 + GST for a 12-month software subscription (access to the hosted application, no separate implementation deliverable) and receives full payment on the same day. GST at 18% is ₹21,600, so the invoice totals ₹1,41,600. Because the gap between payment and performance is within the standard's one-year practical expedient, no separate financing component is recognised.

Step 1 (contract): a single 12-month contract exists. Step 2 (performance obligation): one distinct obligation — continuous access to the software — satisfied over time as the customer simultaneously receives and consumes the benefit. Step 3–4 (transaction price and allocation): ₹1,20,000, wholly allocated to the single obligation. Step 5 (recognition): ₹10,000 per month (₹1,20,000 ÷ 12) recognised straight-line over the term, since the customer benefits evenly month to month.

Entry 1 — on invoicing and cash receipt (1 April):

Date	Particulars	Debit ₹	Credit ₹
1 Apr	Bank A/c Dr	1,41,600
	To Deferred Revenue (Contract Liability) A/c		1,20,000
	To Output GST Payable A/c		21,600
Being 12-month subscription invoiced and collected upfront; no revenue recognised yet — control has not transferred.

Entry 2 — at the end of each month (e.g. 30 April), repeated for all 12 months:

Date	Particulars	Debit ₹	Credit ₹
30 Apr	Deferred Revenue (Contract Liability) A/c Dr	10,000
	To Subscription Revenue A/c		10,000
Being one month's performance obligation satisfied — 1/12th of the contract price recognised as revenue as the customer receives continuous access.

After 12 such monthly entries the Deferred Revenue account is reduced to nil and total Subscription Revenue recognised for the year equals ₹1,20,000 — matching the transaction price allocated in Step 4. The GST liability of ₹21,600 sits entirely in Output GST Payable from day one; GST timing is governed by the CGST/SGST Act (typically on invoice or receipt, whichever is earlier), not by Ind AS 115 — the two run on separate clocks and shouldn't be confused.

Practical application notes for a practicing CA

Don't recognise revenue on invoice date by habit. For subscription, retainer and long-duration contracts, the invoice/GST event and the Ind AS 115 recognition event are frequently different dates — build a deferred revenue schedule, don't rely on the sales register.
Watch for bundled contracts. A SaaS deal that includes onboarding, training or a hardware device alongside the subscription may contain multiple performance obligations that need separate standalone selling prices and separate recognition patterns — don't default to treating the whole invoice as one obligation without testing distinctness.
Variable consideration needs an estimate, not a wait-and-see. Usage-based fees, volume discounts, credits and refund rights must be estimated and constrained at contract inception (and reassessed each period) — you cannot simply recognise variable amounts only when invoiced.
Contract modifications (upgrades, downgrades, term extensions) each need a fresh assessment under the standard's modification guidance — whether to treat the change as a separate contract, a termination-and-new-contract, or a cumulative catch-up depends on specific criteria in Ind AS 115; don't just re-baseline the deferred revenue schedule without checking which treatment applies.
Disclosure is not optional. Ind AS 115 requires disaggregated revenue disclosure, a reconciliation of contract balances, and information about remaining performance obligations — auditors and reviewers check this closely; build the disclosure note alongside the recognition workings, not after.

As always with a standard that carries transitional and interpretive detail, verify the current wording and any recent ICAI/MCA clarifications on the standard before finalising a position on an unusual contract structure.

Where TatvaBooks helps

TatvaBooks keeps GST invoicing and the accounting books in the same ledger, so the GST event and the revenue-recognition event don't get conflated in your working papers — deferred revenue schedules for subscription and retainer clients sit alongside the GST return data your GSTR-1/3B is built from, making the reconciliation between "billed" and "recognised" straightforward when you're preparing financials or briefing an auditor.

See the for Chartered Accountants page, or go straight to pricing.

Frequently asked questions

Is Ind AS 115 the same as IFRS 15?

Yes, Ind AS 115 is India's converged version of IFRS 15 and follows the same 5-step model. There are a small number of carve-outs and India-specific transitional provisions relative to IFRS 15 — if you're reconciling an Indian subsidiary's numbers to a foreign parent's IFRS consolidation, check the specific carve-outs in the standard rather than assuming line-for-line identity.

How is Ind AS 115 different from AS 9 (Revenue Recognition under the old Accounting Standards)?

AS 9 recognised revenue based on the transfer of risks and rewards and was largely silent on multi-element arrangements. Ind AS 115 replaces that with a single, principle-based 5-step model built around the transfer of control, and it explicitly addresses variable consideration, financing components, contract modifications and multiple performance obligations — situations AS 9 handled inconsistently in practice.

When does a SaaS company recognise revenue over time versus at a point in time?

A performance obligation is recognised over time if the customer simultaneously receives and consumes the benefit as the entity performs (the usual case for a SaaS subscription — access to the software over the subscription period), if the entity's performance creates or enhances an asset the customer controls as it is created, or if the asset created has no alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. Most subscription access falls under the first criterion and is recognised ratably over the subscription term.

What is a significant financing component, and does annual SaaS billing trigger one?

A significant financing component arises when the timing of payment gives the customer or the supplier a material benefit of financing — for example, a customer pays for a 3-year licence upfront and receives the service over 3 years. Ind AS 115 provides a practical expedient: if the gap between payment and performance is one year or less, an entity need not adjust for the financing component. Most annual SaaS billing falls within this expedient and does not require a separate financing adjustment; multi-year upfront payments need a case-by-case assessment.

Do I need to separately account for a free trial or a setup/onboarding fee in a SaaS contract?

A free trial with no distinct, separately chargeable deliverable is generally not a separate performance obligation — it's a marketing cost. A non-refundable setup or onboarding fee is usually not distinct either (the customer can't benefit from onboarding on its own), so it is typically recognised over the expected customer relationship period rather than upfront on invoicing, unless the onboarding itself transfers a distinct good or service the customer could use independently. Judgement is required contract by contract — document the basis.

Keep going.

Ind AS

Related standards & audit

For your practice

Free on Solo · no card · India-hosted

Books that keep GST and revenue recognition straight.

TatvaBooks keeps your GST invoicing and accounting books in one ledger, so billed and recognised revenue never get confused when you're closing the books.

Request beta access For Chartered Accountants