Hello Aanchal,
The error AADSTS50076 is expected behavior when Conditional Access or security defaults enforce MFA for the "Azure Windows VM Sign-In" application. Unlike browser-based sign-ins, the AVD session host logon flow is non-interactive and cannot surface an MFA prompt. That’s why one user succeeds (likely exempt from MFA or already has a valid PRT with MFA satisfied), while the other fails because their token request requires MFA but cannot complete it during the RDP handshake.
To resolve this, you need to adjust Conditional Access or security defaults so that the affected user can obtain a valid token without MFA being required at the VM sign-in stage. The two supported approaches are:
Exclude the "Azure Windows VM Sign-In" application from MFA enforcement in Conditional Access. This is the recommended path documented by Microsoft for Entra-joined AVD scenarios. You can do this by editing the Conditional Access policy that enforces MFA and adding an exclusion for the application “Azure Windows VM Sign-In” (App ID: 9a4e2f1c-2b3f-4e0a-9f5d-3f2f7f3e9c6d). This ensures that interactive MFA is not required during the VM logon flow.
Alternatively, if you are using security defaults instead of Conditional Access, you cannot configure exclusions. In that case, you must disable security defaults and replace them with Conditional Access policies that explicitly exclude the AVD sign-in application from MFA.
Once this exclusion is in place, the affected user should be able to sign in normally, as the token request will succeed without requiring MFA. If you want MFA protection for AVD, Microsoft’s guidance is to enforce MFA at the point of accessing the AVD client (web or Windows app) rather than at the VM sign-in stage.
I recommend reviewing your Conditional Access policies in Entra admin center under Security > Conditional Access, and confirming whether the “Azure Windows VM Sign-In” application is included in MFA enforcement. Adjusting that will resolve the AADSTS50076 error.
I hope you've found something useful here. If it helps you get more insight into the issue, it's appreciated to accept the answer. Should you have more questions, feel free to leave a message. Have a nice day!HP.