Borrowing Cost Calculator (Ind AS 23)

What Is Borrowing Cost Calculator?

A Borrowing Cost Calculator works out how much interest on your loans you can add to the cost of an asset instead of expensing it in profit or loss. It applies Ind AS 23, the accounting standard on borrowing costs. This tool is built for accountants, finance managers, CFOs of companies following Ind AS, and CAs preparing financial statements or tax audit workings. Getting this split wrong understates or overstates both your profit for the year and the carrying value of the asset on your balance sheet, so it's worth getting the calculation right the first time rather than fixing it during audit.

Borrowing Cost Calculator Formula (as per Ind AS 23, Companies (Indian Accounting Standards) Rules, 2015)

For general (pooled) borrowings used to fund a qualifying asset, Ind AS 23 requires this formula:

Capitalisation Rate = Total borrowing cost on general borrowings ÷ Weighted average general borrowings outstanding

Eligible Borrowing Cost = Capitalisation Rate × Expenditure incurred on the qualifying asset

(capped at the actual total borrowing cost incurred during the period)

A qualifying asset is one that takes substantial time to get ready for its intended use or sale, such as a plant under construction or a building being developed.

How This Calculator Works

1. Enter the total interest and finance costs you paid on general borrowings during the period.
2. Enter the weighted average amount of general borrowings outstanding during that same period.
3. Enter how much you actually spent on the qualifying asset during the period.
4. The calculator divides step 1 by step 2 to get your capitalisation rate.
5. It multiplies that rate by your asset expenditure, then caps the result at your actual borrowing cost, so you never capitalise more interest than you really incurred.

Step-by-Step Example Calculation

Suppose a company is building a factory shed (a qualifying asset) and does not have a loan taken specifically for it — it funds the shed from its general pool of borrowings.

• Total borrowing cost on general borrowings for the year: ₹18,00,000
• Weighted average general borrowings outstanding: ₹2,00,00,000
• Expenditure incurred on the factory shed during the year: ₹75,00,000

Step 1 — Capitalisation rate: ₹18,00,000 ÷ ₹2,00,00,000 = 0.09, or 9%

Step 2 — Eligible borrowing cost: 9% × ₹75,00,000 = ₹6,75,000

Step 3 — Cap check: ₹6,75,000 is less than the total borrowing cost of ₹18,00,000, so the entire ₹6,75,000 gets capitalised into the cost of the factory shed. The remaining ₹11,25,000 of interest is expensed in the profit and loss statement for the year.

Who Should Use Borrowing Cost Calculator

• Accountants and finance managers at companies preparing Ind AS financial statements, who need to split interest between P&L and the balance sheet
• CAs and audit teams reviewing capital work-in-progress and checking whether capitalised interest is correctly computed before sign-off
• CFOs and controllers at manufacturing, real estate, or infrastructure companies with long construction cycles
• Company secretaries cross-checking how borrowing costs are disclosed in the company's financial statements before board sign-off

Latest Rules You Should Know (2026)

Ind AS 23 hasn't seen a rate or formula change in recent Company Law amendments. It isn't tied to the annual Budget the way tax provisions are. What changes case to case is your capitalisation period. Capitalisation starts only once expenditure, borrowing costs, and construction activity are all happening at the same time. It stops once the asset is substantially ready for use — final touch-ups don't extend it. If your company recently crossed an Ind AS applicability threshold under the 2015 roadmap, check whether you now fall under Ind AS 23 or the older AS 16. The two are similar, but not identical.

Common Mistakes People Make

• Mixing specific and general borrowings in one pool. Interest on a loan taken specifically for the asset should be capped at actual cost incurred on that loan (less any temporary investment income), not blended into the weighted-average general rate.
• Forgetting to net off investment income. If specific borrowed funds are parked temporarily and earn interest, that income must be deducted before capitalising.
• Capitalising after the asset is ready for use. Capitalisation stops once the asset is substantially complete, even if commercial production or occupation hasn't started yet.
• Ignoring the "substantial period" test. Assets ready for use quickly, even if expensive, typically don't qualify as a qualifying asset — check the facts of your case rather than assuming a fixed cutoff.
• Treating this as an income-tax deduction. Ind AS 23 capitalisation is an accounting treatment. It doesn't decide what you can claim as an interest deduction under the Income-tax Act, 1961 — that's a separate computation.

FAQs

Is borrowing cost capitalisation compulsory under Ind AS 23?

Yes. Ind AS 23 mandates capitalisation of borrowing costs directly attributable to a qualifying asset — there's no accounting policy choice to expense them instead, unlike the earlier AS 16 regime for some companies.

What counts as a "qualifying asset" under Ind AS 23?

Any asset that necessarily takes a substantial period to get ready for its intended use or sale. Ind AS 23 doesn't fix an exact number of months — 12 months or more is a common working guideline, but check your own facts. Common examples include factories under construction, large real estate projects, and power plants.

Does capitalised borrowing cost affect capital gains tax later?

Yes, indirectly. Capitalised interest increases the asset's cost of acquisition, which can affect gains computed later. Use the Capital Gains Tax Calculator when the asset is eventually sold.

Is capitalised interest the same as the interest deduction under Section 24(b)?

No. Ind AS 23 capitalisation is a financial-reporting treatment for companies. Section 24(b) is a separate income-tax deduction for house property interest — see our Section 24(b) home loan guide for that computation.

Do all companies need to follow Ind AS 23?

Only companies covered under the Companies (Indian Accounting Standards) Rules, 2015 roadmap must apply Ind AS 23. Smaller companies not covered by the roadmap follow AS 16 instead, which has broadly similar but not identical rules.

Does capitalising borrowing cost change my tax audit requirement?

Not directly — tax audit applicability under Section 44AB depends on turnover and presumptive-scheme conditions, not on how you treat borrowing costs in your books. Check your position with the Tax Audit Applicability Checker.

What if I have both a specific loan and general borrowings for the same asset?

Compute them separately. Capitalise actual interest (net of any temporary investment income) on the specific loan first, then apply the weighted-average capitalisation rate only to the remaining expenditure funded from general borrowings. Don't add the specific loan's balance into your general-borrowings pool — that double-counts the same funds and inflates the capitalisation rate for every other qualifying asset your company is funding from general borrowings that year.

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