Ministry of Corporate Affairs notifies changes in Indian Accounting rules
The Ministry of Corporate Affairs (MCA) notified changes to Indian accounting rules, reported to take effect August 12 [Unverified — effective date not independently confirmed]
The changes align Indian accounting standards with the OECD's Pillar Two global minimum tax framework
The stated objective is to enhance business transparency and compliance for companies affected by the global minimum tax regime
The changes affect how companies recognize and disclose taxes arising from Pillar Two-linked legislation in their financial statements
OECD Pillar Two — Global Minimum Corporate Tax Framework
Pillar Two is part of the OECD/G20 Base Erosion and Profit Shifting (BEPS) 2.0 project, designed to ensure large multinational enterprises pay a minimum effective tax rate regardless of where they book profits. It introduces a global minimum effective tax rate and mechanisms such as the Income Inclusion Rule (IIR), Undertaxed Payments Rule (UTPR), and Qualified Domestic Minimum Top-up Tax (QDMTT) to claw back tax revenue from low-tax jurisdictions.
Key Details
- Global minimum effective tax rate under Pillar Two: 15%
- Applies to multinational enterprise groups with annual consolidated revenue exceeding EUR 750 million
- Agreed under the OECD/G20 Inclusive Framework on BEPS (140+ member jurisdictions); India is a member of this Inclusive Framework
- QDMTT allows the jurisdiction where low-taxed profit arises to itself collect the top-up tax, rather than ceding that revenue to another country's IIR
The MCA's accounting rule changes operationalize India's alignment with Pillar Two by requiring Indian companies within the scope of large multinational groups to recognize and disclose their exposure to top-up taxes arising from this framework.
Amendment to AS 22 and Ind AS 12 — Accounting for Taxes on Income
India maintains two parallel accounting standard tracks: Accounting Standards (AS), issued under the Companies (Accounting Standards) Rules, 2021 and applicable mainly to smaller companies; and Indian Accounting Standards (Ind AS), converged with IFRS and applicable to listed companies and large unlisted companies, issued under the Companies (Indian Accounting Standards) Rules, 2015. Both AS 22 and Ind AS 12 deal with accounting for taxes on income, and both have been amended to address Pillar Two.
Key Details
- AS 22 amendment (Companies (Accounting Standards) Amendment Rules, 2026): inserted a new paragraph 2A bringing Pillar Two-linked taxes, including QDMTT, within the standard's scope, while creating a specific exception barring recognition of deferred tax assets/liabilities on such taxes; new disclosure paragraphs 32A-32D require enterprises to state their exposure to Pillar Two income taxes and the main jurisdictions involved
- Ind AS 12 amendment (Companies (Indian Accounting Standards) Second Amendment Rules): inserted a comparable paragraph 4A, similarly excluding deferred tax recognition for Pillar Two taxes while mandating disclosure
- Small and medium-sized companies (SMCs) are exempted from the Pillar Two exposure disclosure requirements under the AS track
- The exception from recognizing deferred tax on Pillar Two taxes follows the approach recommended internationally by the International Accounting Standards Board (IASB) in its own amendments to IAS 12
These accounting rule changes are the domestic implementation mechanism through which Indian companies report their Pillar Two tax exposure, translating an international tax agreement into enforceable disclosure obligations under Indian company law.
National Financial Reporting Authority (NFRA) and Standard-Setting Process
Accounting standards in India are recommended by the Institute of Chartered Accountants of India (ICAI) and its standard-setting arm, examined by the National Financial Reporting Authority (NFRA), and notified by the Ministry of Corporate Affairs (MCA) under the Companies Act, 2013. NFRA was established to strengthen independent oversight of auditing and accounting standards after previous corporate governance lapses.
Key Details
- NFRA established under Section 132 of the Companies Act, 2013, operationalized in 2018 following the National Financial Reporting Authority Rules, 2018
- NFRA recommends accounting and auditing standards to the Central Government for notification; it also monitors compliance and can investigate professional misconduct by chartered accountants/auditors of certain classes of companies
- The Companies (Indian Accounting Standards) Rules, 2015 and the Companies (Accounting Standards) Rules, 2021 are the two notified rule frameworks under which Ind AS and AS respectively operate
The MCA notification followed the standard institutional process of NFRA examination before Central Government notification, reflecting how India formally incorporates international tax and accounting developments into domestic company law.
- OECD Pillar Two global minimum effective tax rate: 15%
- Pillar Two applicability threshold: multinational groups with annual consolidated revenue above EUR 750 million
- AS 22 amendment: new paragraph 2A (scope) and paragraphs 32A-32D (disclosure)
- Ind AS 12 amendment: new paragraph 4A (scope), with parallel disclosure requirements
- NFRA established under Section 132, Companies Act, 2013; operational since 2018
- SMCs are exempt from Pillar Two disclosure requirements under the AS framework