Indian Millennial: ICAI Journal Jan26

The New India Story: Technology, Talent and Transformative Impact

The story of the nation is being rewritten by the collective spirit of 1.4 billion Indians, propelled by a tide of aspiration that refuses to settle for mediocrity. One of India’s defining strengths has become its zeal to embrace and implement technology at every level, harnessing a vast talent pool to unlock the full potential of digital innovation.

Technology: From Potential to Powerhouse India’s march toward a high-tech future is gaining momentum, evidenced by a leading American technology company pledging to invest up to ₹1 lakh crore in the Bharat Future City, a smart-city project centered on deep tech and innovation. By leveraging its talent pool and pushing for advancements in AI and digital infrastructure, the nation is no longer just adopting modern technology but is actively shaping the future with global-scale vision.

Talent: The North Star of Progress With one of the world’s youngest and most dynamic workforces, India’s talent is driving transformation across several critical sectors. Key developments include:

Energy and Industry: The opening of the nuclear energy space to private players and the updated National Policy for Electronics, which emphasizes "Zero Effect, Zero Defect" domestic manufacturing.
Global Trade: Accelerated engagement with the Eurasian Economic Union and landmark agreements like the India–UK CETA are unlocking new markets for Indian MSMEs, startups, and service professionals.
Social Reform: The National Sports Policy 2025 and simplified Labour Codes aim to empower workers and nurture the potential of the youth.

Transformative Impact on the Profession This era of change profoundly affects the Chartered Accountancy profession. The integration of Artificial Intelligence is shifting CAs from traditional compliance roles toward becoming strategic advisors and forward-looking thinkers. Revolutionary government reforms in digital governance and taxation have further accelerated this momentum, defining the future of the profession through value-driven insights and ethical leadership.

Conclusion To succeed in this dynamic landscape, CAs must continue to embrace lifelong learning, adopt emerging technologies, and uphold the highest standards of professional integrity. The road ahead is replete with opportunities for those prepared to evolve and contribute to a rapidly changing world.

As the sources suggest, India's journey is like a rising tide that lifts all boats, where collective will and opportunity converge to ensure the sky is the limit.

Startups and India’s Economic Transformation: The Expanding Role of Chartered Accountants By CA. Mukul Lamba

The Startup Revolution Startups have transitioned from a mere buzzword to an integral part of daily life in India. A profound cultural transformation is underway; families that previously encouraged stable careers in engineering, medicine, or government service now celebrate risk-taking as a legitimate career choice. This shift reflects a renewed confidence among the youth, who are increasingly asking, “What problem can I solve?” rather than “Where will I get a job?”.

India currently stands as the third-largest startup ecosystem in the world, boasting nearly 125 unicorns and thousands of early-stage ventures emerging from both major metros and Tier-2 and Tier-3 cities. These ventures have generated over 1,700,000 jobs, effectively turning ambition into tangible opportunity.

Defining the Startup Ecosystem For Chartered Accountants, professional clarity regarding legal definitions is essential. Under the DPIIT framework, a business only qualifies as a "startup" if it meets specific conditions:

It must be less than ten years old.
It must be structured as a private limited company, LLP, or registered partnership.
Annual turnover must not have exceeded ₹100 crores.
It must be innovation-driven, with a focus on scalability and wealth/employment generation.

Notably, a business formed by splitting or restructuring an existing entity does not qualify. The CA’s role begins at this inception stage, ensuring the correct structure to unlock years of government support and tax benefits.

The Government as an Enabler The Startup India initiative, launched in 2015, established three pillars for growth: funding support, regulatory ease, and digital infrastructure. Key fiscal incentives include:

Section 80-IAC Tax Holiday: Eligible startups receive a 100% tax exemption on profits for three consecutive years within their first decade. Claiming this requires DPIIT recognition, Inter-Ministerial Board (IMB) certification, and a mandatory audit by a CA submitted in Form 10CCB.
Startup India Seed Fund Scheme (SISFS): Designed as an "oxygen tank for ideation," this ₹945 crore scheme provides grants up to ₹20 lakh for proof of concept and up to ₹50 lakh for commercialization. CAs add value here by bringing realism to financial projections and milestone mapping.

Non-Fiscal Support and Regulatory Ease The government has introduced several measures to reduce the compliance burden:

Intellectual Property (IPR) Rebate: Startups receive an 80% rebate on patent filing fees.
Self-Certification: Startups can self-certify compliance for six labor laws and three environmental laws, with no inspections conducted for five years in some cases.
Faster Exit: Winding up a business is now a quicker process, completed within 90 days.
BHASKAR Platform: A digital registry connecting founders, investors, and mentors to enhance visibility and engagement.

The Expanding Role of Chartered Accountants As the startup ecosystem matures, the role of the CA has evolved from traditional bookkeeping and audit to becoming a strategic advisor at every stage of business. Modern CAs now handle:

Budget planning, risk mapping, and financial modeling.
Deal Structuring: Balancing the needs of investors seeking returns with founders wanting to retain control.
Technology Integration: Leveraging AI, machine learning, and predictive analytics to generate real-time insights rather than manual MIS reports.
Specialized Sector Advisory: Providing guidance for Deep-tech (AI cost plans), Green-tech (carbon tracking), and Agri-tech (FPO structuring).

Conclusion Innovation is most successful when built on a foundation of governance, compliance, and financial discipline. The CA is no longer just a watchdog but an architect of trust and a growth partner. While high-risk ideas drive startups, their stable and profitable execution depends on the disciplined guidance provided by the accountancy profession. The ultimate mission remains: “Har Har Startup! Har Ghar Startup!”.

To visualize this transformation, consider the startup ecosystem as a high-speed engine; while innovation is the fuel, the Chartered Accountant serves as the precision engineer and navigator, ensuring the vehicle remains efficient, compliant, and on the right track toward long-term value.

India’s Startup Ecosystem: Advancing Towards the Milestone of ‘VIKSIT BHARAT@2047’ By Dr. O P Sharma & Chetan Sharma

Introduction The term ‘startup ecosystem’ refers to a physical or virtual network of individuals and organizations—such as educational institutions, funding firms, research groups, and government agencies—that work collectively to create and nurture new business models. India’s ecosystem has experienced remarkable growth since 2016, establishing itself as the third-largest vibrant startup ecosystem in the world. While metropolises like Mumbai, Bengaluru, and Delhi-NCR were the initial epicenters, the landscape is now witnessing a significant shift toward Tier II and III cities, which offer abundant opportunities and a skilled workforce.

Impact on Economic Transformation The startup ecosystem serves as a primary driver of technological advancement and innovation, playing a transformative role in boosting GDP, encouraging digital adoption, and generating extensive employment. Rural-focused startups are also addressing critical gaps in agriculture, education, and healthcare. As India strives to become a ‘Viksit Bharat’ (developed country) by 2047, this ecosystem provides the foundation to achieve ambitious targets, such as becoming a USD 30 trillion economy with a per capita income of USD 18,000.

Growth Statistics

As of December 9, 2025, there are 2,03,463 DPIIT-recognized startups across 779 districts.
The nation boasts over 100 unicorn companies (privately owned firms valued at over USD 1 billion), with the number expected to reach 250 by 2030.
Recognized startups have created 17,69,605 direct jobs since 2016, with job growth exceeding 25% year-on-year.

Key Government Initiatives The Central Government has introduced several advanced measures to support this arena:

Funding Support: The Credit Guarantee Scheme for Startups (CGSS) has granted hundreds of crores in loans, and the Fund of Funds Scheme (FFS), managed by SIDBI, has a corpus of ₹10,000 crores.
Digital Platforms: The MAARG Portal provides expert guidance and mentorship, while BHASKAR (Bharat Startup Knowledge Access Registry) serves as a centralized database connecting founders, investors, and mentors.
Regulatory Ease: Measures include abolishing the Angel Tax from FY 2025-26, self-certification for labor and environmental laws, and an 80% reduction in patent filing costs.
Promotion: "National Startup Day" is celebrated annually on January 16th to foster a supportive entrepreneurial environment.

Emerging Trends

Tech-Driven Solutions: Startups are leveraging AI, blockchain, and IoT to transform sectors like q-commerce and logistics.
Women Leadership: As of June 2025, 87,285 startups have at least one woman director, accounting for nearly half of all recognized startups.
Capital Markets: In 2024 alone, 13 startups raised ₹29,000 crores through IPOs, signaling the maturity of the ecosystem.
Domestic Investment: Over 80% of funds are now being collected through domestic investors rather than relying solely on global venture capitalists.

Major Challenges Despite its growth, the ecosystem faces several operational hurdles:

Complexity in Compliance: Navigating various laws and obtaining permits remains time-consuming for new entrepreneurs.
Fund Management: Early-stage startups often struggle with a shortage of working and fixed capital.
Skilled Labor Shortage: There is a persistent deficiency of AI professionals, data scientists, and cybersecurity experts.
Intense Competition: Startups struggle to capture market share from well-established competitors while meeting increasing customer expectations.

Conclusion India’s startup ecosystem has emerged as a vital catalyst for the journey toward Viksit Bharat. While it has already achieved a leading global position, it is still in an "investigational stage" where existing financial and operational barriers must be addressed. Through continued long-term strategies and effective measures, this ecosystem will lead the effort to transform India into a global economic leader by 2047.

To visualize this growth, think of the startup ecosystem as a vast orchard; while the government provides the soil and irrigation (infrastructure and policy), the startups are the diverse trees providing the fruit of economic progress, and regular audits and governance serve as the pruning that ensures long-term health and a bountiful harvest for the entire nation.

IPO Surge and Public Market Evolution in Indian Startups: Structural Transformation of India’s Capital Markets By CA. Harsh Goel & Prof. Manoj Kumar Agarwal

Introduction The landscape of Indian initial public offerings (IPOs) has undergone a radical transformation since 2021, moving from a niche exit path for established firms to a mainstream capital-raising strategy for high-growth startups. This structural change is driven by a domestically rooted investor base, increased financial discipline, and active regulatory reforms. In the fiscal year 2025, India saw its strongest capital mobilization cycle with 80 mainboard IPOs raising a record ₹1.63 trillion. Notably, domestic investors now provide 75% of IPO funds, a complete reversal from a decade ago when they contributed only 25%.

The 2021 Inflection Point The year 2021 served as a critical testing ground for domestic market confidence in technology firms. Key listings included:

Zomato (July 2021): Raised ₹9,375 crores with an issue price of ₹76, yielding a 52.63% first-day return.
Nykaa (November 2021): Raised ₹5,349.72 crores, listing at ₹2,018 with a 79.38% return.
Paytm (November 2021): Raised ₹18,300 crores but listed at a 9.3% loss, signaling that market enthusiasm had definite boundaries regarding valuations without profitability.

The Profitability Pivot and Financial Discipline Following the 2021–2022 cycle, investor expectations shifted toward unit economics and sustainable business models rather than "growth at any cost". By 2024, startups planning listings—such as Swiggy, Ola Electric, and FirstCry—focused explicitly on profitability timelines. Regulatory guardrails were also strengthened; for instance, December 2024 SME IPO reforms proposed an explicit operating profit requirement of ₹1 crore in at least two of the three previous years.

The Domestic Investor Revolution A massive transformation in investor identity has occurred. Significant statistics include:

Demat Accounts: Reached 18.5 crore in December 2024, up from just 4 crore in 2020.
Demographics: Young investors (under 30) now comprise 48% of the base, and 25% of NSE investors are women.
Mutual Funds: Assets under management grew to ₹68.5 lakh crore in October 2024, a massive jump from ₹12 lakh crore in 2020.

Case Study Analysis: 2024 Trajectories Recent listings demonstrate a more mature and discriminating investor behavior:

Swiggy (Nov 2024): Raised ₹11,327 crore with a listing return of 7.69%; it was oversubscribed 3.59 times.
Ola Electric (Aug 2024): Raised ₹6,146 crore with a 19.97% listing return, despite concerns over increasing losses.
FirstCry (Aug 2024): Raised ₹4,194 crore, with shares soaring 40% to ₹651.

Market Evolution Metrics (2020–2025) The market has matured through speculative excess, disciplined correction, and sustainable expansion:

FY 2020-21: 35 IPOs raised ₹31,268 crore.
FY 2021-22: 53 IPOs raised ₹1,11,547 crore (the previous all-time high).
FY 2022-23: 37 IPOs raised ₹52,116 crore (driven largely by the ₹20,557 crore LIC IPO).
FY 2024-25: 80 IPOs raised ₹1,63,000 crore, the highest capital mobilization in any financial year.

Venture Capital and Regulatory Support The VC ecosystem has become symbiotic with public markets. In 2024, total VC/growth equity funding reached ₹1,19,437 crore ($13.7 billion) through 1,270 transactions. Regulatory ease has supported this, such as the September 2025 amendments that reduced minimum public float requirements for ultra-large caps to 2.5%.

Conclusion The 2024–2025 IPO boom represents a move toward stable market equilibrium. Thriving domestic markets have reduced reliance on foreign capital and allowed venture-funded entrepreneurs to find local liquidity. With future mega-listings anticipated from firms like PhonePe, Flipkart India, and Reliance Jio Infocomm, the Indian market has proven its infrastructure and investment savvy for transformational capital raises.

Analogy for Understanding: Think of the Indian IPO market as a local farmers' market that grew into a world-class supermarket. In the early days (pre-2021), local farmers (startups) felt they had to travel to the "big city" (the U.S. markets) to get a fair price for their premium goods. However, as local neighbors (domestic retail and mutual fund investors) saved more money and became more knowledgeable about quality, the local market expanded. Now, the market has strict quality controls (SEBI regulations) and shoppers who look past fancy packaging to check the actual nutrition facts (profitability and unit economics), making it the preferred destination for the best producers.

IPO Surge and Public Market Evolution in Indian Startups: Structural Transformation of India’s Capital Markets By CA. Harsh Goel & Prof. Manoj Kumar Agarwal

The 2021 Inflection Point The year 2021 served as a critical testing ground for domestic market confidence in technology firms. Key listings included:

Zomato (July 2021): Raised ₹9,375 crores with an issue price of ₹76, yielding a 52.63% first-day return.
Nykaa (November 2021): Raised ₹5,349.72 crores, listing at ₹2,018 with a 79.38% return.
Paytm (November 2021): Raised ₹18,300 crores but listed at a 9.3% loss, signaling that market enthusiasm had definite boundaries regarding valuations without profitability.

The Domestic Investor Revolution A massive transformation in investor identity has occurred. Significant statistics include:

Demat Accounts: Reached 18.5 crore in December 2024, up from just 4 crore in 2020.
Demographics: Young investors (under 30) now comprise 48% of the base, and 25% of NSE investors are women.
Mutual Funds: Assets under management grew to ₹68.5 lakh crore in October 2024, a massive jump from ₹12 lakh crore in 2020.

Case Study Analysis: 2024 Trajectories Recent listings demonstrate a more mature and discriminating investor behavior:

Swiggy (Nov 2024): Raised ₹11,327 crore with a listing return of 7.69%; it was oversubscribed 3.59 times.
Ola Electric (Aug 2024): Raised ₹6,146 crore with a 19.97% listing return, despite concerns over increasing losses.
FirstCry (Aug 2024): Raised ₹4,194 crore, with shares soaring 40% to ₹651.

Market Evolution Metrics (2020–2025) The market has matured through speculative excess, disciplined correction, and sustainable expansion:

FY 2020-21: 35 IPOs raised ₹31,268 crore.
FY 2021-22: 53 IPOs raised ₹1,11,547 crore (the previous all-time high).
FY 2022-23: 37 IPOs raised ₹52,116 crore (driven largely by the ₹20,557 crore LIC IPO).
FY 2024-25: 80 IPOs raised ₹1,63,000 crore, the highest capital mobilization in any financial year.

Fuelling the Future: Landscape, Challenges, and Tax Optimisation in the Oil and Gas Industry By CA. Akshay Vimal Sharma

Introduction India’s oil and gas sector is a critical linchpin of the national economic framework and is expected to reach a $8.6 trillion GDP by 2040. In recent years, the industry produced 261.546 MMT domestically and exported 64.7 MMT of products, supported by $8.22 billion in cumulative FDI inflows since 2000. As one of the eight core industries, it underpins foreign reserves and the industrial backbone of the nation.

The industry operates through three primary stages:

Upstream: Exploration, drilling, and production of crude oil and natural gas.
Midstream: Transportation and storage.
Downstream: Refining, processing, and distribution into end products.

The Indirect Taxation Landscape While the Goods and Services Tax (GST) Act of 2017 unified many taxes, the inclusion of petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel was deferred. Consequently, these products are still taxed under the older regime of Central Excise Duty and State VAT, often at varying rates across different states. This exclusion prevents the utilization of Input Tax Credit (ITC), leading to a cascading tax effect where input taxes are absorbed by the industry or passed to consumers.

In the state of Maharashtra, for example, the proportion of total tax to the final retail price is approximately 42.5% for petrol and 34.71% for diesel. The Federation of Indian Petroleum Industry (FIPI) has noted that this lack of GST integration can leave the industry stranded with taxes as high as 60%.

Tax Optimisation Strategies Given the capital-intensive nature of the industry and the current lack of ITC, the sources highlight several strategies and concessions provided by the CBIC to mitigate costs:

Concessional Rates on Specified Goods: Essential equipment for petroleum operations originally attracted a 5% concessional rate, which was updated to 12% in July 2022 (NN 08/2022-CTR). To claim this, companies must obtain an Essentiality Certificate from the Directorate General of Hydrocarbons.
IGST Relaxation for Leased Imports: Rigs imported for exploration under lease agreements can benefit from a Nil rate of duty, provided they are re-exported within three months of the lease expiry.
Offshore Works Contract Services: A concessional tax rate of 12% applies to composite supplies of works contracts related to exploration in offshore areas beyond 12 nautical miles.
MRO Services: Maintenance, Repair, or Overhaul (MRO) services for ships, vessels, and engines qualify for a concessional 5% rate.
Support Services: Professional and technical support services to the upstream sector may qualify for a 12% concessional rate, though the list of eligible services remains restrictive and subject to interpretation.

Recommendations and Conclusion The primary obstacle to GST integration is the significant revenue reliance of both Central and State governments on petroleum products; in F.Y. 2024-25, taxes on these products contributed ₹4,14,244 crores to the Central exchequer and ₹3,25,583.5 crores to the States.

Proposed interim solutions include:

Introducing a partial refund mechanism for Input Tax Credit, similar to the 50% refund granted to the Canteen Stores Department.
Extending the 12% concessional rate currently reserved for offshore contracts to onshore works contracts, such as the construction of refineries and pipelines.

While global peers like Canada, New Zealand, and Saudi Arabia have successfully unified their petroleum tax systems, India's transition remains an eventual necessity to ensure long-term economic stability and industrial competitiveness.

Lack of Exchangeability – What is Changing? By CA. Anjani Kumar Khetan

Introduction and Background Ind AS 21, The Effects of Changes in Foreign Exchange Rates, sets out the exchange rate an entity must use when reporting foreign currency transactions in its functional currency, translating results of foreign operations, or translating its own financial position into a presentation currency. Prior to recent amendments in May 2025, the standard provided guidance only for situations where exchangeability was temporarily lacking; it lacked explicit guidance for when the lack of exchangeability was not temporary, leading to significant diversity in professional practice.

Genesis of the Issue The need for this amendment arose from a submission to the IFRS Interpretations Committee regarding long-term lack of exchangeability, specifically triggered by a situation faced by an entity operating in Venezuela. Following this, the IASB issued amendments in August 2023, and the Ministry of Corporate Affairs (MCA) formally issued corresponding amendments to Ind AS 21 on May 7, 2025.

Key Requirements Under the Amendment The new framework requires entities to follow a two-step approach:

Assess when a currency is exchangeable into another currency.
Estimate the spot exchange rate when the currency is determined to be not exchangeable.

Step 1: Determining Exchangeability A currency is defined as exchangeable when an entity is able to obtain the other currency through a market or exchange mechanism that results in enforceable rights and obligations, within a timeframe reflecting a normal administrative delay. Conversely, a currency is not exchangeable if, for a specified purpose, the entity can obtain no more than an insignificant amount of the other currency.

Key factors in this assessment include:

Timeframe: Normal administrative delays do not prevent a currency from being considered exchangeable.
Ability to Obtain: The focus is on the entity's ability to obtain the currency, not its intention or decision to do so.
Purpose: Because multiple exchange rates may exist for different uses, exchangeability must be assessed separately for each purpose (e.g., settling liabilities vs. paying dividends).

Step 2: Estimating the Spot Exchange Rate When exchangeability is lacking, the entity must estimate a rate that reflects an orderly exchange transaction between market participants under prevailing economic conditions at the measurement date. The standard does not mandate a specific hierarchy but establishes a framework allowing for:

Observable exchange rates without adjustment (such as a rate for a different purpose or the first subsequent rate after exchangeability is restored).
Other estimation techniques, which may include using observable rates from unofficial or parallel markets with appropriate adjustments.

Key Disclosure Requirements The overarching objective of the new disclosures is to help users understand how the lack of exchangeability affects the entity’s financial performance, position, and cash flows. Entities must disclose:

The nature and description of the currency restriction.
The spot rates used and whether they were observable or estimated.
A description of the estimation technique and the qualitative/quantitative information regarding inputs and assumptions.
Qualitative information about the risks the entity is exposed to due to the lack of exchangeability.

Effective Date and Impact For those applying Ind AS 21, these amendments are mandatory for annual reporting periods beginning on or after April 1, 2025. The amendment is expected to reduce diversity in practice and increase the comparability of financial statements, though it will require significant professional judgment and robust documentation of assumptions.

Navigating Global Divergence and Convergence in Sustainable Finance Taxonomies: A Comparative Analysis Beyond the European Union By CA. (Dr.) Chethan Jayantha

Introduction to Sustainable Finance Taxonomies Sustainable finance taxonomies are classification systems designed to provide standardized definitions for economic activities and investments that can be considered environmentally sustainable. These frameworks are vital for enhancing market transparency, offering a standardized language for green investments, and guiding the allocation of capital toward projects that support climate goals. Furthermore, they serve as a critical tool to mitigate the risks of greenwashing, where companies might falsely claim environmental credentials. The European Union (EU) taxonomy, launched in 2020, stands as a pioneering and highly influential, legally binding framework that has inspired various countries to develop their own systems.

Country-Specific Analysis The sources highlight the diverse approaches taken by various nations and regions:

China: China has established the “Guiding Catalogue for the Green Industry” and the “Green Bond Endorsed Projects Catalogue,” which are mandatory for sustainable financing activities. China’s approach primarily focuses on climate change response, environmental improvement, and efficient resource utilization. Notably, China has collaborated with the EU to develop a Common Ground Taxonomy to increase international alignment.
Canada: Following a “made-in-Canada” approach, its taxonomy is proposed to be voluntary and includes a unique “transition” category. This recognizes the nation's reliance on resource-intensive industries and aims to facilitate their gradual decarbonization toward a net-zero goal by 2050.
Malaysia: This nation uses a dual-taxonomy approach: the Climate Change and Principle-based Taxonomy (CCPT) overseen by the central bank, and the Sustainable and Responsible Investment (SRI) Taxonomy overseen by the Securities Commission. These adopt a principles-based approach to offer flexibility in assessing economic activities.
Singapore: The Singapore-Asia Taxonomy (SAT), launched in 2023, utilizes a “traffic light” system (Green, Amber, Red). It focuses on climate change mitigation across eight focus sectors and provides specific guidance for the early phase-out of coal-fired power plants.
South Africa: Launched in 2022, its Green Finance Taxonomy identifies a minimum set of green assets aligned with international best practices. It shows strong alignment with the EU taxonomy, particularly regarding the “Do No Significant Harm” (DNSH) and Minimum Social Safeguards (MSS) pillars.
Colombia: The Taxonomía Verde de Colombia is the first of its kind in Latin America. While modeled on the EU framework, it is uniquely tailored to prioritize land-use sectors such as forestry, agriculture, and livestock.
ASEAN Region: The ASEAN Taxonomy for Sustainable Finance features a multi-tiered framework designed to accommodate the diverse economic development levels of its member states. It uses both principles-based and technical screening criteria across objectives like biodiversity protection and circular economy.

Comparative Assessment with the EU Taxonomy While most global taxonomies are inspired by the EU, significant areas of alignment and divergence exist:

Climate Dominance: Nearly all frameworks prioritize climate change mitigation as an urgent global need.
Transition Activities: There is a notable divergence in how "transition" activities are handled, with countries like Canada and Singapore adopting specific categories to facilitate the decarbonization of high-emitting sectors, a feature less pronounced in the EU model.
Binding Nature: While the EU and China have mandatory applications for certain market participants, most other national taxonomies currently remain voluntary.
Governance: Structures vary from government-led models (China, Colombia) to those driven by central banks (Singapore, Malaysia) or multi-stakeholder collaborations (EU, Canada).

The State of Sustainable Finance in India India’s climate finance taxonomy is currently in the development phase. Following an announcement in the Union Budget 2025, it is expected that a draft covering six key sectors will be ready before the end of 2025. The Indian taxonomy is expected to be tailored to the nation's specific socio-economic priorities while remaining aligned with international standards to attract necessary green investment.

Conclusion While there is no "one-size-fits-all" solution, there is an increasing trend toward global collaboration and harmonization. This interoperability is a fundamental requirement for facilitating cross-border green investments and ensuring a consistent global response to the climate imperative.

The Silent Slices: A Tale of Salami Slicing Fraud By CA. Soham Govardhane

Raghav, a junior software developer at an Indian fintech startup, used a secret script to divert tiny fractions of paise from millions of customer transactions into a personal account. Because the individual amounts were so small, the theft initially went unnoticed until the company's internal audit team spotted unusual patterns and the scheme unraveled. This method of embezzlement is known as salami slicing fraud, where a fraudster siphons minuscule amounts that are individually insignificant but accumulate into substantial sums over time. Historically, this practice began with manual rounding adjustments but has evolved with digital systems to target high-volume sectors like banking, e-commerce, telecom, and insurance.

Modus Operandi and Examples The success of this fraud relies on stealth and high-volume transactions, as individuals are unlikely to notice a missing fraction of a rupee. Common techniques used in the Indian context include:

Bank Interest Rounding: Siphoning the extra fractions created when rounding daily interest on millions of accounts.
Salary Rounding: Transferring the rounded-off fractions of paise from thousands of employee salaries into a private account.
Transaction Fee Manipulation: Diverting tiny extra fractions from automated payment processing fees.
Utility Bill Payments: Siphoning small overcharges intended for refund or credit.

The Role of Stakeholders Investors can mitigate these risks through rigorous due diligence, demanding regular financial and operational audits, and supporting corporate investments in advanced fraud detection technology. Chartered Accountants (CAs) serve as the first line of defense by conducting granular transactional audits and using data analytics to identify irregular patterns. CAs also recommend strengthening internal controls, such as Multi-Factor Authentication (MFA) and Role-Based Access Control (RBAC), and collaborating with IT auditors to ensure transaction systems are free from malicious scripts.

Detection Technologies Modern defense mechanisms include Machine Learning and AI algorithms that analyze large datasets to flag suspicious anomalies that are invisible to human auditors. Blockchain technology provides a secure, immutable ledger that makes it nearly impossible for insiders to manipulate records without detection. Additionally, forensic accounting software can process thousands of records simultaneously to highlight systematic rounding errors.

Broader Implications Beyond direct financial loss, salami slicing fraud causes an erosion of internal and external trust, significant reputational damage, and legal or regulatory consequences. It can lead to operational disruption, compromised system integrity, and a hit to employee morale. As India's fintech landscape continues to grow, addressable through legislation and corporate policies, the proactive vigilance of CAs and investors remains essential to protect businesses and consumers.

Robo-Advisory: Audit Framework, Tax Implications & Practice Opportunities for Indian CAs By Dr. Shruti Singh & Dr. Anindita Chakraborty

Introduction and Regulatory Primer Robo-advisors are automated online investment platforms that utilize algorithms to provide financial advice and manage portfolios. These platforms have significantly increased accessibility to financial planning in India, though they bring unique regulatory and operational challenges. The SEBI (Investment Advisers) Amendment of December 2024 has clarified that advisers are held accountable for algorithm-driven recommendations and must adhere to stringent disclosure and registration standards. Furthermore, the updated RBI KYC Master Directions 2023 and the CBDT’s 2025 guidelines on TDS defaults due to technical glitches have created a more robust regulatory framework for these digital services.

Primary Case Studies and Market Trends Recent studies show that the primary users of robo-advisors in India are investors between the ages of 20 and 40, who prioritize ease of use over traditional trust. Currently, domestic robo-advisors manage only about 29% of Indian investor assets, largely due to lingering concerns regarding data privacy and security. There is an increasing demand for hybrid advisory models, which combine automated algorithmic analysis with the ability to consult a human expert during times of market volatility.

The Expanding Role of Chartered Accountants As the robo-advisory field matures, Chartered Accountants (CAs) are moving beyond simple compliance into strategic advisory roles. CAs must ensure platforms comply with SEBI regulations regarding algorithmic transparency, suitability testing, and data retention. A critical part of the audit involves algorithmic assurance, where CAs review the design, testing, and validation of models to mitigate "model risk"—the danger of an algorithm providing incorrect advice or mis-selling products.

Taxation and Financial Reporting Robo-advisory fees are subject to an 18% GST rate, and CAs must verify the accuracy of digital invoices and input tax credits. Effective in 2025, the TDS system applies to platform-based digital receipts under Sections 194-O and 194R, requiring CAs to manage technical defaults and reconciliations. For platforms operating within IFSCA GIFT City, CAs play a vital role in documenting eligibility for 10-year income tax holidays and GST exemptions.

The Robo-Advisory Assurance Model (RAAM) The sources propose the Robo-Advisory Assurance Model (RAAM), a risk-based framework for CAs to systematically assess digital platforms. This model focuses on several key areas:

Algorithmic Integrity: Periodic independent validation to prevent model drift.
Cybersecurity: Implementation of firewalls, encryption, and regular penetration testing.
Data Privacy: Strict access controls and adherence to the SOC 2 framework.
Revenue Compliance: Ensuring advisory fee income is recorded on an accrual basis with proper GST treatment.

Conclusion and Practice Opportunities The transition to digital advisory represents a significant practice opportunity for Indian CAs to offer value-added services such as cyber-assurance and algorithm auditing. CAs serve as the first line of defense against fraud and money laundering by conducting robust KYC/AML compliance audits. By mastering complex funding schemes and future-ready domains like AI governance, CAs act as the architects of trust in India's fast-evolving financial ecosystem.

Behavioral Finance Demystified: Essential Insights for Everyone By Dr. Parvathy P R & Prof. (Dr.) Satheesh E K

Introduction Behavioral finance adds a human perspective to the study of financial markets by recognizing that the complex human mind, with its attitudes and habits, significantly influences investment patterns. While traditional finance relies on the hypothetical "rational man," behavioral finance acknowledges that market participant biases have foreseeable impacts on prices. This field gained significant prominence following major market disruptions, such as the tech bubble burst in 2000 and the 2008 global financial crisis.

The Two Pillars of Behavioral Finance The field is primarily divided into two categories:

Behavioral Finance Micro (BFMI): Examines the irrational behaviors and cognitive biases of individual investors, comparing them to the perfectly rational "economic man" envisioned in classical theory.
Behavioral Finance Macro (BFMA): Focuses on the collective behavior of groups to detect and describe anomalies and irregularities in the efficient market hypothesis.

Foundations and "Normal" Investors Traditional theories like the Efficient Market Hypothesis struggle to explain real-world marketplace chaos. Behavioral finance assumes that people are "normal" rather than "rational". While rational investors are considered immune to emotional errors, normal investors possess three types of needs: utilitarian (financial well-being), expressive (choices reflecting status/values), and emotional (how an investment makes them feel).

A key foundation is Prospect Theory, which suggests that individuals feel the pain of a loss more strongly than the pleasure of an equal gain, leading to risk aversion in gains and risk-seeking in losses.

Market Anomalies Anomalies are empirical findings that challenge market efficiency. Key types include:

Fundamental Anomalies: Overestimating growth companies and underestimating undervalued ones.
Technical Anomalies: Patterns in past price movements that contradict the efficient market hypothesis.
Calendar Anomalies: Patterns like the "January Effect" (high returns in January) and the "Turn-of-the-Month Effect" (higher returns during the final and first few days of a month).

Understanding Behavioral Biases Biases are errors in judgment caused by imperfect mental shortcuts (heuristics).

Cognitive Biases: Arising from flawed reasoning, these include overconfidence (overestimating one's abilities), hindsight bias (believing past events were predictable), and confirmation bias (focusing only on success stories).
Emotional Biases: Driven by impulse and intuition, these include loss aversion (holding losing stocks too long) and regret aversion.

Behavioral Portfolio and Investing Unlike standard mean-variance theory, Behavioral Portfolio Theory suggests that investors structure their portfolios based on specific goals, such as retirement or education, rather than solely on maximum returns. Investors use mental accounting "buckets"—often visualized as a portfolio pyramid—to divide assets between "downside-protection" (guarding against hardship) and "upside-potential" (pursuing wealth).

Conclusion Human beings are imperfect, and misleading emotions like fear or exuberance can compel suboptimal choices at market lows or tops. Understanding these psychological factors allows investors to make smarter, more informed choices and better comprehend the behavior of the markets.

The following is the reproduction of the Expert Advisory Committee (EAC) opinion regarding the accounting treatment of interest cost and interest income related to interest-free subordinated debt provided by the Government of India (GoI), GNCTD, and other agencies for metro projects.

Facts of the Case

A joint venture company (the Company) with equal participation from the GoI and the Government of National Capital Territory of Delhi (GNCTD) is responsible for constructing and operating the Mass Rapid Transit System (MRTS) in Delhi/NCR. Financing for the project includes interest-free subordinate debts used for land acquisition, rehabilitation, and taxes, which are repayable after 30 years.

Following Ind AS requirements, the Company measured these debts at fair value at initial recognition, recognizing the difference between carrying value and fair value as a government grant. The Company followed these treatments:

Interest Cost: Calculated using the effective interest method (Ind AS 109); for Phase-IV (under construction), this cost was capitalized as Capital Work-in-Progress (CWIP).
Interest Income: Income earned from temporary deployment of these funds in flexi-deposits was recognized in the Statement of Profit and Loss.

The Comptroller and Auditor General of India (C&AG) issued a provisional comment stating that since the interest is "notional," it should not be capitalized under Ind AS 23, and that any income earned should be adjusted against the borrowing cost rather than credited to the P&L.

The Query

The Company sought the EAC's opinion on:

Whether the accounting treatment of capitalizing notional interest cost arising from fair valuation of subordinate debts is correct.
Whether the treatment of actual interest income earned on the temporary investment of these funds in the Statement of Profit and Loss is correct.

Considerations of the Committee

Effective Interest vs. Notional Interest: The Committee clarified that interest accrued in financial statements as per the effective interest rate (Ind AS 109) is a requirement of the accounting standard and should not be considered notional interest.
Qualifying Asset: Under Ind AS 23, a metro project is considered a qualifying asset as it necessarily takes a substantial period to get ready for use.
Capitalization of Costs: Ind AS 23 explicitly states that borrowing costs include interest expense calculated using the effective interest method. Therefore, these costs directly attributable to the construction of the qualifying asset must be capitalized.
Treatment of Income: Paragraph 12 of Ind AS 23 requires that when funds are borrowed specifically for a qualifying asset, the amount of borrowing cost eligible for capitalization should be the actual borrowing costs incurred less any investment income earned on the temporary investment of those borrowings.

The Final Opinion

The Committee expressed the following opinion:

Interest Cost Treatment: The Company's treatment of capitalizing the interest cost (calculated via the effective interest method) as Capital Work-in-Progress (CWIP) is appropriate in accordance with Ind AS 23.
Interest Income Treatment: The Company’s treatment of recognizing interest income in the Statement of Profit and Loss is NOT appropriate. This income must be set off against the borrowing costs being capitalized for the project.

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Tuesday, January 06, 2026

ICAI Journal Jan26

Facts of the Case

The Query

Considerations of the Committee

The Final Opinion

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