Companies (Accounting Standards) Amendment Rules, 2026 – AS 22 Updated for OECD Pillar Two Model Rules

Key changes to accounting standards 2026 – AS 22 Pillar Two Amendment

🏛️ What Is This Amendment About?

The Ministry of Corporate Affairs (MCA) has amended the Companies (Accounting Standards) Rules, 2021 through a Gazette notification dated March 10, 2026. The amendment specifically updates Accounting Standard (AS) 22 — Accounting for Taxes on Income to incorporate the international tax reform framework commonly known as the OECD Pillar Two Model Rules, also referred to as the Global Minimum Tax framework.

This is a significant update for Indian companies — particularly large multinationals — as it changes how they must recognise, disclose, and report deferred taxes and current tax expenses arising from Pillar Two income taxes in their financial statements.

💡 Quick Context — What Is OECD Pillar Two?

The OECD's Pillar Two framework establishes a global minimum effective tax rate of 15% for large multinational enterprises (MNEs) with annual revenues exceeding €750 million. Countries that adopt Pillar Two legislation impose a "top-up tax" to bring the effective tax rate of MNEs operating in low-tax jurisdictions up to this 15% floor. India is among the countries aligning its accounting standards with these global rules.

📋 Key Changes at a Glance

What Changed	Old Position	New Position (2026)
Deferred Tax — Pillar Two	No specific guidance	✅ Mandatory Exception — do NOT recognise or disclose deferred tax assets/liabilities for Pillar Two income taxes
Current Tax Disclosure	No separate disclosure required	✅ Must disclose Pillar Two current tax expense separately (Para 32B)
Future Exposure Disclosure	Not required	✅ Must disclose known or estimable exposure to Pillar Two taxes even before legislation takes effect (Para 32C)
Qualitative + Quantitative Info	Not required	✅ Must provide qualitative and quantitative information about Pillar Two exposure (Para 32D)
SMC Exemption	—	✅ Small and Medium Companies exempt from Para 32C and 32D disclosure requirements

📌 Change 1 — New Paragraph 2A: Exception for Deferred Tax Recognition

The most important and immediate change is the insertion of new Paragraph 2A in AS 22. This paragraph creates a mandatory exception to the general deferred tax accounting rules.

What does it say? When Pillar Two legislation is enacted or substantively enacted, enterprises must neither recognise nor disclose any deferred tax assets or liabilities arising specifically from Pillar Two income taxes. This is a deliberate carve-out from the usual AS 22 framework.

✅ Why Is This Exception Given?

Pillar Two taxes are calculated on a consolidated group basis using complex "top-up" calculations — not on the basis of individual deferred tax positions. Applying standard deferred tax accounting to Pillar Two would produce misleading and highly complex figures in financial statements. This exception aligns with the approach adopted internationally under IFRS (IAS 12 amendment) and ensures consistency in financial reporting globally.

Applicability: Para 2A and Para 32A (the related disclosure) must be applied immediately upon issue of these amendments and applied retrospectively.

📌 Change 2 — New Paragraphs 32A to 32D: Disclosure Requirements

Four new disclosure paragraphs have been inserted after Paragraph 32 of AS 22, under the heading "International Tax Reform — Pillar Two Model Rules".

Para 32A — Disclosure of Exception Applied

An enterprise must disclose in its financial statements that it has applied the exception under Para 2A (i.e., it has not recognised or disclosed deferred tax assets/liabilities related to Pillar Two income taxes). This is a simple but mandatory disclosure note.

Para 32B — Separate Disclosure of Current Tax Expense

Enterprises must separately disclose the current tax expense (or income) related specifically to Pillar Two income taxes. This ensures that users of financial statements can isolate the actual tax cost imposed by Pillar Two legislation from other regular income taxes.

Para 32C — Disclosure During Transitional Period (Enacted but Not Yet Effective)

In periods where Pillar Two legislation has been enacted or substantively enacted but not yet in effect, enterprises must disclose known or reasonably estimable information that helps financial statement users understand their exposure to Pillar Two income taxes.

This is a forward-looking disclosure — ensuring that investors and stakeholders are not caught off-guard when Pillar Two taxes become effective.

Para 32D — Qualitative and Quantitative Disclosures

To meet the disclosure objective of Para 32C, enterprises must provide both qualitative and quantitative information about their Pillar Two exposure. The MCA has also provided illustrative examples of what this could include:

Type of Information	Examples to Disclose
Qualitative	How the enterprise is affected by Pillar Two legislation; the main jurisdictions where Pillar Two income tax exposure exists
Quantitative (Option A)	The proportion of profits potentially subject to Pillar Two income taxes, and the average effective tax rate on those profits
Quantitative (Option B)	An indication of how the company's average effective tax rate would have changed if Pillar Two legislation had already been in effect during the reporting period

⚠️ Important — SMC Exemption

Small and Medium-sized Companies (SMCs) are exempt from Para 32C and 32D disclosures. However, Para 32A (disclosure of exception applied) and Para 32B (current tax expense disclosure) still apply to SMCs where Pillar Two taxes are actually paid. SMCs should verify their classification carefully before claiming this exemption.

📅 Effective Dates — What Applies When?

Paragraph	Effective Date	How Applied
Para 2A & Para 32A	Immediately upon issue (March 10, 2026)	Retrospective application
Para 32B, 32C & 32D	Annual reporting periods beginning on or after April 1, 2025	Prospective
Interim Periods	Periods ending on or before March 31, 2026	Para 32B–32D disclosures NOT required for these interim periods

💼 Who Does This Impact?

Stakeholder	Impact
🏢 Large Multinational Companies	Must assess Pillar Two exposure, update note disclosures in financials, and confirm no deferred tax has been recognised on Pillar Two taxes
📊 CFOs and Finance Teams	Need to calculate Pillar Two current tax expense separately, identify jurisdictions with exposure, and prepare qualitative and quantitative disclosures
🔍 Statutory Auditors	Must verify that the Pillar Two exception has been applied correctly and that required disclosures are included in the financial statements
🏦 Small & Medium Companies (SMCs)	Exempt from Para 32C and 32D disclosures, but still need to apply the deferred tax exception (Para 2A) and disclose exception applied (Para 32A)
📋 Tax Consultants & Advisors	Immediate action needed to advise clients on Pillar Two exposure assessment, disclosure preparation, and compliance for FY 2025-26 annual reports

⚖️ Legal Authority

This notification has been issued under:

Section 133 read with Section 469 of the Companies Act, 2013 — empowers the Central Government to prescribe accounting standards
Section 132 of the Companies Act, 2013 — establishes the National Financial Reporting Authority (NFRA), in consultation with which this notification has been issued

The notification amends the Companies (Accounting Standards) Rules, 2021, originally published via G.S.R. 432(E) dated June 23, 2021.

❓ Frequently Asked Questions (FAQ)

Q1. Which companies are affected by this AS 22 amendment?

All companies that follow Indian Accounting Standards (AS) as prescribed under the Companies (Accounting Standards) Rules, 2021 are affected. However, the most significant impact is on large multinational enterprises (MNEs) with revenues exceeding €750 million — those that fall within the OECD Pillar Two framework. Smaller domestic-only companies are unlikely to have Pillar Two exposure, though the accounting standard applies to them as well.

Q2. Why is there an exception for deferred tax recognition on Pillar Two taxes?

Pillar Two taxes are computed using a complex international formula that considers global profits and effective tax rates across jurisdictions — not on temporary differences between book and tax values of assets/liabilities (which is the basis for regular deferred tax accounting). Applying standard deferred tax accounting to Pillar Two would generate figures that are difficult to calculate, misleading, and incomparable across companies. The exception avoids this complexity and aligns India with the international approach under IFRS (IAS 12 amendment).

Q3. Does this amendment apply to companies using Ind AS?

No. This amendment is specifically to the Companies (Accounting Standards) Rules, 2021 which prescribes AS (Accounting Standards) — applicable to companies that do not follow Ind AS. Companies following Ind AS are governed by separate rules and standards (Ind AS 12), which had a similar amendment aligned with the IASB's amendment to IAS 12. If your company follows Ind AS, please refer to the relevant Ind AS 12 guidance.

Q4. What is the difference between Para 2A (exception) and Para 32A (disclosure)?

Para 2A is the accounting exception — it says don't recognise or disclose deferred tax assets/liabilities for Pillar Two taxes. Para 32A is the disclosure requirement — it says you must inform your financial statement readers that you have applied this exception. Both are mandatory and must be applied immediately and retrospectively from the date of notification (March 10, 2026).

Q5. My company hasn't yet paid any Pillar Two tax. Do we still need to disclose anything?

Yes — Para 32C requires disclosure even in periods where Pillar Two legislation has been enacted but not yet in effect. If your country of operation has passed Pillar Two laws (even if not yet effective), you need to disclose your known or estimated exposure. If the information is genuinely not known or estimable, you may disclose a statement to that effect along with your progress in assessing your exposure.

Q6. Are Small and Medium Companies (SMCs) fully exempt from this amendment?

Not fully. SMCs are exempt only from Para 32C and 32D (the detailed qualitative and quantitative exposure disclosures). They must still apply Para 2A (the deferred tax exception), and Para 32A and 32B (disclosure that the exception was applied, and separate disclosure of current Pillar Two tax expense). Given that most SMCs are unlikely to have significant Pillar Two exposure, the practical impact on them is minimal, but the exception and basic disclosures still apply.

Q7. What action should companies take right now?

Companies should immediately: (1) assess whether they fall within the Pillar Two framework based on revenue thresholds and jurisdictions of operation; (2) confirm no deferred tax has been recognised on Pillar Two taxes (and reverse if it has); (3) prepare notes for FY 2025-26 financial statements disclosing the exception applied (Para 32A), current Pillar Two tax expense (Para 32B), and qualitative/quantitative exposure information (Para 32C and 32D, for non-SMCs); and (4) engage their statutory auditors early to align on the disclosure approach.

✅ Bottom Line

📝 Summary

The MCA's amendment to AS 22 through the Companies (Accounting Standards) Amendment Rules, 2026 is India's accounting standards response to the global Pillar Two tax reform. It introduces a mandatory exception from recognising deferred taxes on Pillar Two income taxes, while simultaneously requiring enhanced disclosures about Pillar Two exposure and current tax expense. Para 2A and Para 32A take effect immediately and retrospectively from March 10, 2026. Para 32B to 32D apply from annual reporting periods starting April 1, 2025 onwards, with no interim disclosure required up to March 31, 2026. Companies — especially large MNEs operating across multiple jurisdictions — should treat this as an urgent compliance item for their FY 2025-26 annual reports.

Source: Ministry of Corporate Affairs Notification G.S.R. 169(E) dated March 10, 2026, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i). Available at mca.gov.in. This article is for informational purposes only and does not constitute legal or financial advice.