India Updates AS-22 to Align with OECD Pillar Two: Key Accounting and Tax Implications for Multinationals
March 17, 2026
Posted by India BriefingWritten by
India updates AS-22 under MCA rules to align with OECD Pillar Two. Learn key changes, disclosure rules, and implications for multinational companies operating in India.
India’s Ministry of Corporate Affairs (MCA) has introduced the Companies (Accounting Standards) Amendment Rules, 2026, updating the existing framework under the Companies Act 2013.
The amendment revises Accounting Standard (AS) 22 to incorporate global tax developments arising from the Organisation for Economic Co-operation and Development (OECD)’s Pillar Two Model Rules, marking a significant step in India’s alignment with international tax norms.
For multinational enterprises (MNEs), this change directly impacts tax accounting, disclosure requirements, and financial reporting strategy.
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What is changing in AS-22?
The revised AS-22 introduces targeted provisions for accounting treatment of taxes under the global minimum tax regime, which ensures large multinational groups pay a minimum level of tax across jurisdictions.
1. Exception for deferred tax recognition
Under the amendment:
- Companies are not required to recognize deferred tax assets or liabilities related to Pillar Two taxes.
- This creates a specific carve-out from the standard AS-22 requirement on timing differences.
Why this matters:This reduces complexity for companies navigating uncertain and evolving global tax rules, especially as jurisdictions adopt Pillar Two at different speeds.
2. New disclosure requirements
Despite the exemption on deferred tax, companies must enhance financial transparency through additional disclosures:
Mandatory disclosures include:
- Application of the accounting exception
- Separate reporting of current tax related to Pillar Two
- Disclosure of potential exposure, where applicable
Companies must disclose:
- Jurisdictions where Pillar Two may apply
- Share of profits exposed to minimum tax
- Expected impact on effective tax rate (ETR)
If estimates are not available, companies must:
- State this clearly
- Explain the status of their internal assessment
3. Relief for small and medium-sized companies
To ease compliance, small and medium-sized companies (SMCs) are exempt from Pillar Two exposure disclosures.
Effective date and applicability of the AS-22 amendment
The amendment became effective upon publication in the Official Gazette.
However:
- Disclosure requirements apply from April 1, 2025 onward
- No requirement for such disclosures in interim financial statements until March 31, 2026
Why this matters for foreign investors and multinationals
This update is particularly relevant for:
- Global companies with Indian subsidiaries or operations
- Groups falling within the OECD Pillar Two threshold (EUR 750 million revenue)
Key business implications:
- Reassessment of global tax exposure under minimum tax rules
- Upgrades to tax reporting and financial disclosure systems
- Increased focus on effective tax rate management
- Greater transparency obligations in financial statements
From a strategic standpoint, this signals India’s intent to align accounting standards with global tax governance frameworks, reinforcing its position as a compliant and investor-aligned jurisdiction.
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Understanding AS-22: Core concepts for businesses
What is AS-22?
AS-22 governs how companies account for income taxes in financial statements, ensuring alignment between:
- Reported accounting profits
- Taxable income under applicable laws
Key definitions
- Accounting income (PBT): Profit before tax in financial statements
- Taxable income: Income computed under tax laws
- Current tax: Tax payable for the current year
- Deferred tax: Future tax impact of timing differences
Timing vs permanent differences
- Timing differences: Reverse over time (e.g., depreciation methods)
- Permanent differences: Do not reverse (e.g., disallowed expenses)
Timing differences vs permanent differences
Timing differences occur when income or expenses are recognized in different periods for accounting and tax purposes, but these differences reverse in future periods.
Example: Using different depreciation methods for accounting and tax calculations.
Permanent differences arise when certain items are treated differently for accounting and tax purposes and never reverse.
Example: Expenses that are disallowed under tax laws.
Recognition principle
Under AS-22:
- Total tax expense includes current + deferred tax
- Deferred tax assets must follow prudence principle (reasonable certainty of realization)
Strategic takeaway
India’s AS-22 amendment reflects a broader global shift toward minimum tax enforcement and financial transparency.
For multinational businesses, the priority is no longer just compliance—but proactive tax structuring, disclosure readiness, and cross-border alignment.
ALSO READ:Virtual CFO Services in India: A Strategic Finance Solution for Foreign Investors and Growing Businesses
About Us
India Briefing is one of five regional publications under the Asia Briefing brand. It is supported by Dezan Shira & Associates, a pan-Asia, multi-disciplinary professional services firm that assists foreign investors throughout Asia, including through offices in Delhi, Mumbai, and Bengaluru in India. Dezan Shira & Associates also maintains offices or has alliance partners assisting foreign investors in China, Hong Kong SAR, Vietnam, Indonesia, Singapore, Malaysia, Mongolia, Dubai (UAE),Japan, South Korea, Nepal, The Philippines, Sri Lanka, Thailand, Italy, Germany, Bangladesh, Australia, United States, and United Kingdom and Ireland.
For a complimentary subscription to India Briefing’s content products, please click here. For support with establishing a business in India or for assistance in analyzing and entering markets, please contact the firm at india@dezshira.com or visit our website at www.dezshira.com.
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