Corporate Law Notification & Order Corporate Law

MCA Amends Accounting Standard AS-22: Pillar Two Income Taxes Exemption from Deferred Tax Recognition

CA Adityavikram Banka

The Ministry of Corporate Affairs (MCA) has issued a notification dated March 10, 2026, introducing the Companies (Accounting Standards) Amendment Rules, 2026. The amendment modifies AS-22 (Accounting for Taxes on Income) to provide specific treatment for income taxes arising from the OECD Pillar Two global minimum tax framework.

This is a significant development for multinational enterprises (MNEs) operating in India and for CA professionals advising them on financial reporting compliance.

Background: What is OECD Pillar Two?

The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) introduced the Pillar Two model rules to establish a global minimum effective tax rate of 15% for large multinational enterprises with consolidated revenues exceeding EUR 750 million.

Countries worldwide are enacting domestic legislation to implement these rules. India’s response includes both the enactment of domestic top-up tax provisions and corresponding amendments to accounting standards to address the financial reporting implications.

Key Changes to AS-22

1. Scope of the Amendment

The amended AS-22 now specifically applies to income taxes arising from tax law enacted or substantively enacted to implement the Pillar Two model rules published by the OECD. This includes tax law that implements qualified domestic minimum top-up taxes (QDMTT).

2. Exemption from Deferred Tax Recognition

The most significant change is that companies are exempted from recognizing deferred tax assets and liabilities related to Pillar Two income taxes. This is a mandatory exception, not an optional one. Companies subject to Pillar Two rules do not need to apply the standard deferred tax accounting requirements of AS-22 to these specific taxes.

3. Disclosure Requirements

While deferred tax recognition is exempted, companies must still provide specific disclosures in their financial statements regarding Pillar Two income taxes. However, the notification provides transitional relief: companies are not required to provide these disclosures for interim periods ending on or before March 31, 2026.

Legal Authority

The amendment was issued by the Central Government in exercise of powers conferred by Section 133 read with Section 469 of the Companies Act, 2013, in consultation with the National Financial Reporting Authority (NFRA) established under Section 132 of the Act.

Who is Affected?

The amendment primarily impacts:

  • Companies using AS (non-Ind AS): Companies that follow the Companies (Accounting Standards) Rules, 2021 and apply AS-22 for accounting for taxes on income.
  • Subsidiaries of MNEs: Indian subsidiaries of multinational groups with consolidated revenue exceeding EUR 750 million that fall within the scope of Pillar Two.
  • Companies with global operations: Indian companies with overseas subsidiaries in jurisdictions that have implemented Pillar Two top-up taxes.

Practical Implications

For Companies

Companies affected by Pillar Two should review their current deferred tax positions. If any deferred tax assets or liabilities have been recognized in relation to Pillar Two income taxes, these should be de-recognized in accordance with the amendment. Finance teams should update their tax accounting policies and ensure proper documentation.

For CA Professionals

Chartered Accountants auditing companies within the scope of Pillar Two must understand the exemption and its disclosure requirements. While the deferred tax exemption simplifies accounting, the disclosure requirements will require gathering additional information about the company’s Pillar Two exposure and compliance status.

For Startups and Growing Companies

While most startups will not immediately fall within the EUR 750 million revenue threshold, founders planning for rapid growth or those backed by large multinational investors should be aware of these developments. Understanding the Pillar Two framework early helps in structuring international operations efficiently.

For MSME Business Owners

MSMEs using AS-22 that are part of a larger multinational group structure should verify whether their parent entity falls within the Pillar Two scope. If so, the accounting treatment of top-up taxes at the subsidiary level needs to follow this amendment.

Key Takeaways

  1. MCA has amended AS-22 to address Pillar Two income taxes through the Companies (Accounting Standards) Amendment Rules, 2026.
  2. Companies are mandatorily exempted from recognizing deferred tax on Pillar Two income taxes.
  3. The amendment applies to taxes from laws implementing OECD Pillar Two rules, including qualified domestic minimum top-up taxes.
  4. Disclosure requirements apply, but transitional relief is available for interim periods ending on or before March 31, 2026.
  5. The notification was issued in consultation with NFRA, signaling the regulator’s active role in aligning Indian standards with global frameworks.

Action Items

  • Review whether your company or group falls within the scope of Pillar Two.
  • Update deferred tax accounting policies to reflect the AS-22 exemption.
  • Prepare for enhanced disclosure requirements from April 1, 2026.
  • Consult with your statutory auditor on the impact on current and upcoming financial statements.

Source: MCA Notification dated March 10, 2026 – Companies (Accounting Standards) Amendment Rules, 2026

Need help understanding Pillar Two implications for your business? Our advisory team helps companies navigate complex regulatory and compliance challenges. Book a free consultation call today.

Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. Readers are advised to consult a qualified professional before taking any action based on the information provided.

CA Adityavikram Banka
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