Lease classification determines if risks and rewards transfer, driving lessee and lessor accounting and disclosure obligations. Ind AS 17 requires classifying leases as finance or operating at inception based on whether substantially all risks and rewards transfer; lessees recognise finance leases as assets and liabilities measured at fair value or present value of minimum lease payments and allocate payments between finance charge and liability reduction while depreciating the asset; operating lease payments are expensed systematically. Lessors recognise finance lease receivables equal to net investment and allocate finance income on a constant rate, whereas operating lease income is recognised systematically; both parties must disclose prescribed future minimum payments, contingent rents and material leasing terms.