AS-22 Update India: OECD Pillar Two Rules and Accounting & Tax Implications for Multinational (MNCs)

AS-22 Update India: OECD Pillar Two Rules and Accounting & Tax Implications for Multinational (MNCs)

India has taken a firm step toward global tax transparency. The Ministry of Corporate Affairs has formally notified the Companies (Accounting Standards) Amendment Rules, 2026 — bringing Accounting Standard AS-22 in line with the OECD Pillar Two framework, also known as the Global Minimum Tax. For any Multinational Enterprise operating in India, or a tax professional handling cross-border compliance, understanding what this update means in practice is no longer optional.

Why Was AS-22 Amended? What Has Changed — Explained Simply

Let us start with the obvious question — why now, and why AS-22?

The amendment is essentially India's response to the OECD Pillar Two Model Rules, which introduced the concept of a Global Minimum Tax (GMT). In simple terms, Pillar Two says that large multinational groups — those with global revenues above EUR 750 million — must pay a minimum effective tax rate of 15% in every country where they do business. No exceptions, no clever routing.

Now, as more countries start adopting these rules at their own pace, India's existing AS-22 framework was simply not equipped to handle the accounting complexity that comes with it. Rather than wait for problems to surface in financial statements, the MCA stepped in and revised the standard — so that companies have clear guidance on how to treat and disclose Pillar Two taxes without creating unnecessary disruption.

This move also sends a clear signal about where India stands — it wants to be seen as a jurisdiction that takes global tax governance seriously, and this amendment is a part of that larger picture.

Key changes in AS-22 — what every MNE needs to know

A. The deferred tax exception — the relief for CFOs and tax teams

Out of all the changes introduced, this one is getting the most attention — and rightly so.

Under the revised AS-22, companies are not required to recognise deferred tax assets or liabilities that arise specifically from Pillar Two income taxes. This is a deliberate carve-out from the standard deferred tax rules.

Think about the situation practically. Different countries are rolling out Pillar Two at completely different timelines. In such a scenario, asking companies to calculate "timing differences" for deferred tax purposes would mean working with numbers that are, at best, educated guesses. It would add enormous complexity without actually making financial statements more useful. The MCA has acknowledged this reality and given companies the breathing room they need.

For finance teams already stretched thin by global compliance demands, this exception removes one very significant reporting burden — at least for now.

B. Mandatory disclosure requirements — transparency is non-negotiable

That said, the deferred tax relief does not mean companies can simply stay quiet about their Pillar Two situation. The flip side of the exception is a set of clear disclosure obligations that companies must meet in their financial statements.

Here is what the revised AS-22 specifically requires:

1. State the exception clearly: If your company has applied the Pillar Two deferred tax exemption, you must say so explicitly in the financial statements. No ambiguity.
2. Report Pillar Two current tax separately: Any current tax expense that is directly linked to Pillar Two must be disclosed on its own — it cannot simply be absorbed into the general tax line.
3. Disclose your future exposure: Where Pillar Two legislation has been enacted but is not yet in effect, companies need to put a number to their potential exposure. This means disclosing the anticipated impact on the Effective Tax Rate (ETR) and how much of the company's profits could fall under the minimum tax.
4. Be transparent about what you do not know: If your company has not yet been able to calculate these estimates — which is a perfectly valid situation — you still need to say so, and explain where your internal Pillar Two assessment currently stands.

None of this is unreasonable. In fact, for investors and stakeholders trying to understand a company's true tax position, these disclosures are genuinely useful.

C. Relief for small and medium-sized companies (SMCs)

Not every company in India runs a EUR 750 million global operation. Recognising this, the amendment sensibly exempts Small and Medium-sized Companies (SMCs) from the Pillar Two exposure disclosure requirements altogether. This keeps the compliance burden proportionate and avoids applying global tax rules to businesses that were never meant to be in their scope.

Who is impacted by this AS-22 amendment?

To be clear, this update is not something every Indian company needs to lose sleep over. The actual impact is concentrated on a specific category of businesses.

Entity type	Impact level	Key obligation
Indian MNEs with global turnover > €750 million	High	Full disclosure + ETR reporting
Indian subsidiaries of global MNE groups	High	Pillar Two exposure & current tax reporting
Mid-sized Indian companies (below €750M)	Low–Medium	Monitor for future applicability
Small and Medium-sized Companies (SMCs)	Exempt	No Pillar Two exposure disclosures required

If your company is an Indian subsidiary of a global group that crosses the EUR 750 million threshold, do not assume this only applies to the parent entity. The Indian arm has its own disclosure obligations under the revised AS-22, and those need to be addressed in the Indian financial statements independently.

Important timelines and compliance deadlines

Dates matter here, so let us lay them out plainly.

Effective immediately - The amendment came into force the moment it was published in the Official Gazette — there is no grace period for the rule itself.

From 1 April 2025 - The mandatory disclosure requirements kick in for all financial years starting on or after this date. If your FY begins 1 April 2025, your next annual statements need to comply.

Until 31 March 2026 - There is an interim relief window — no mandatory Pillar Two disclosures are needed in interim financial statements until this date. This gives companies time to prepare their systems and processes.

The transition window until March 2026 exists to help companies get their reporting infrastructure in order — but it is not an invitation to delay. The sooner your finance and tax teams start building Pillar Two data capture into your processes, the better placed you will be.

AS-22 at a glance — standard rules vs. 2026 Pillar Two amendment

Feature	Standard AS-22	New 2026 amendment (Pillar Two)
Current tax	Mandatory recognition	Mandatory — with separate reporting for Pillar Two
Deferred tax	Mandatory for all timing differences	Exception — not required for Pillar Two
Applicability	All companies	Primarily MNEs with >€750M global turnover
Disclosure level	General tax expense reporting	Detailed ETR impact + Pillar Two exposure
SMC exemption	N/A	Exempt from Pillar Two disclosures

Understanding AS-22 — core concepts refresher for businesses

For those who want a quick grounding before diving into the implications, here is what AS-22 fundamentally does. It governs how companies account for income taxes in their financial statements — specifically, it tries to make sure that what you report as your tax expense is consistent with what you actually owe under the law, even when the two do not always match up perfectly.

Key definitions under AS-22

• Accounting income (PBT): This is your profit before tax as it appears in the books — calculated using accounting rules.
• Taxable income: This is what the Income Tax Act says you earned — often a different number from accounting income, because the two frameworks do not always treat the same items the same way.
• Current tax: The straightforward one — the actual tax you owe for the current financial year.
• Deferred tax: This is where it gets interesting. When accounting and tax treatments diverge on the timing of recognising income or expenses, a deferred tax arises — it is essentially the future tax impact of today's difference.

Timing differences vs. permanent differences

Timing differences happen when income or expenses land in different periods for accounting versus tax purposes — but they eventually even out. The most common example is depreciation: a company might use straight-line depreciation in its accounts but written-down value method for tax, creating a gap that narrows over the asset's life.

Permanent differences, on the other hand, never reverse. If a particular expense is permanently disallowed under income tax law — say, certain penalties or fines — there is no future period where that difference will come back. It just stays.

Under the amended AS-22, the total tax expense still equals current tax plus deferred tax — the Pillar Two deferred tax exception is carved out as a specific, limited relief, not a change to the fundamental structure of the standard.

Strategic takeaway — what MNEs should do right now

Here is the honest reality: companies that treat this update as just another compliance checkbox are going to find themselves scrambling when the full force of Pillar Two hits. The businesses that will come out ahead are the ones that start preparing now — mapping their ETR across jurisdictions, upgrading their data systems, and getting their disclosure frameworks in order before the deadlines arrive.

India's AS-22 amendment is part of a much broader global shift. The era of managing tax as a back-office function is quietly ending. What replaces it is a far more integrated approach — where tax strategy, financial reporting, and investor communication all need to move together.

Action points for multinational enterprises

• Map your Effective Tax Rate (ETR) across every jurisdiction where you operate — identify where your exposure to Pillar Two is highest.
• Review and upgrade your ERP and accounting systems so that Pillar Two-related tax data can be captured and reported separately from your general tax figures.
• Go through your financial statement disclosures with your team and check them against the new MCA requirements — starting from FY 2025–26.
• Commission a structured internal Pillar Two assessment — even where final estimates are not ready, you need to be able to describe where that assessment stands.
• Work with LegalDev's tax and compliance experts to build a reporting framework that keeps your India operations aligned with your global Pillar Two obligations — before the window closes.

This article is for general informational purposes and does not constitute legal or tax advice. For guidance specific to your company's Pillar Two compliance obligations, With a team of experienced Chartered Accountants (CAs - Chartered Accountants) and compliance professionals, LegalDev provides reliable and expert-driven tax solutions. The LegalDev team recommends consulting a qualified tax professional for expert guidance.