Buried in a fairly technical Gazette notification from March 2026 is a change that finance teams at multinational and India-based groups alike need to understand — not because it’s complicated to implement, but because getting it wrong on the disclosure side could mean explaining an inconsistency to your auditor at the worst possible moment, right before your annual report goes to print.
The notification, in plain terms
On 10 March 2026, the Ministry of Corporate Affairs notified the Companies (Accounting Standards) Amendment Rules, 2026, under notification G.S.R. 169(E), published in the Official Gazette on 12 March 2026. It amends the Companies (Accounting Standards) Rules, 2021, and it was issued under Sections 133 and 469 of the Companies Act, 2013, in consultation with the National Financial Reporting Authority — the standard legal pathway MCA uses whenever it updates prescribed accounting standards.
The core of the amendment sits in Accounting Standard 22, Accounting for Taxes on Income, and it exists for one specific reason: the global rollout of the OECD’s Pillar Two Model Rules, the international framework designed to ensure large multinational groups pay a minimum effective tax rate across the jurisdictions they operate in.
What Pillar Two actually created a problem for
Pillar Two introduces a global minimum tax regime, including qualified domestic minimum top-up taxes that individual jurisdictions are implementing to capture any shortfall between a company’s effective tax rate and the agreed global minimum. The accounting problem this created is subtle but real: under the ordinary logic of deferred tax accounting, if a new tax regime creates timing differences between accounting profit and taxable profit, you’d normally be required to recognise deferred tax assets or liabilities reflecting those differences. But Pillar Two’s mechanics are so complex, and the top-up tax calculations so intertwined across multiple jurisdictions within a group, that requiring full deferred tax recognition for Pillar Two taxes would have been enormously burdensome and arguably not especially meaningful to readers of the financial statements. Accounting standard-setters globally — the IASB included, under its equivalent international standard — converged on the same practical answer: carve Pillar Two out of ordinary deferred tax recognition, but require robust disclosure instead so users of the financial statements still understand the exposure.
What the amendment specifically changes
The amendment introduces a mandatory exception: enterprises should neither recognise nor disclose deferred tax assets or liabilities specifically arising from Pillar Two income taxes, including qualified domestic minimum top-up taxes. In place of deferred tax recognition, the amendment layers in enhanced disclosure obligations. New paragraphs — 2A and 32A — take effect immediately and apply retrospectively from 10 March 2026. Paragraphs 32B through 32D, which deal with the substantive disclosure content, apply from annual reporting periods starting 1 April 2025 onwards, though notably with no interim disclosure required for periods up to 31 March 2026 — a practical grace period recognising that most companies wouldn’t have been tracking this granularly through the year the rule was notified.
The disclosure obligation under Paragraph 32C requires both qualitative and quantitative information about a company’s Pillar Two exposure. MCA has provided illustrative examples of what this can look like in practice — think jurisdiction-by-jurisdiction commentary on where top-up tax exposure exists, the current tax expense specifically attributable to Pillar Two legislation, and a clear statement that the recognition exception has been applied. Paragraph 32B, more narrowly, requires disclosure of the current tax expense related to Pillar Two taxes, separate from ordinary current tax disclosures.
There’s a size-based carve-out worth knowing: Small and Medium-sized Companies (SMCs) are exempt from the more elaborate Paragraph 32C and 32D disclosures. But even SMCs still need to comply with Paragraph 32A — disclosing that the recognition exception has been applied — and Paragraph 32B — the current tax expense disclosure — if they are actually paying Pillar Two-related taxes in any jurisdiction. In other words, “we’re an SMC” doesn’t automatically mean “we’re fully exempt” if Pillar Two taxes genuinely apply to your group; it only narrows which disclosures you need to make, not whether the topic touches you at all.
Why this matters even if you think Pillar Two doesn’t apply to you
Pillar Two rules generally target very large multinational groups — the OECD framework is built around a consolidated group revenue threshold in the hundreds of millions of euros. If your company is a purely domestic Indian entity with no cross-border operations, this amendment may genuinely have no practical impact on your financial statements this year. But don’t assume that too quickly if you’re part of a larger group structure. If your Indian entity is a subsidiary of a multinational parent that falls within Pillar Two’s scope, or if your own group has recently crossed the relevant revenue threshold through acquisitions or organic growth, this disclosure obligation could apply to your Indian standalone or consolidated financial statements even if you’d never previously thought about global minimum tax as an Indian GAAP issue.
What finance and tax teams should do before finalising FY 2025-26 accounts
Confirm your group’s Pillar Two status first, working with your group tax function or external tax advisors rather than assuming the Indian entity is insulated simply because the legislation originates internationally. If your parent group is within scope anywhere in the world, work backward to see whether Indian-incorporated entities carry any Pillar Two exposure.
Separate deferred tax working papers for Pillar Two items from your ordinary deferred tax computation. The exception means these items should be explicitly carved out and flagged, not silently absorbed into your usual deferred tax roll-forward — auditors will specifically want to see that the exception has been consciously applied and documented, not simply that no deferred tax happened to arise.
Build the qualitative and quantitative disclosure content early, using MCA’s illustrative examples as a template. Since this is a genuinely new disclosure category for most Indian filers, don’t leave drafting it to the final days before your audit sign-off — get a first draft in front of your auditors well ahead of time so any gaps in the information you’re tracking can be identified while there’s still time to fill them.
Verify your SMC classification carefully if you’re relying on the narrower exemption. The criteria for SMC status under Indian accounting standards are specific and not always intuitive, particularly for subsidiaries of larger groups — don’t assume SMC status without checking it against the current definition, since claiming an exemption you don’t actually qualify for is a much bigger problem to discover during an audit than simply doing the fuller disclosure.
Loop in your auditors and NFRA-facing compliance team early, given that this amendment was issued in consultation with NFRA and sits squarely in the kind of disclosure area regulators are paying closer attention to this cycle.
The bigger picture
This amendment is narrow in scope — it touches one accounting standard, addressing one specific international tax development — but it’s a good example of how quickly global tax reform now flows through into Indian domestic accounting rules. Pillar Two isn’t a distant international policy discussion anymore; it’s already sitting inside the Companies (Accounting Standards) Rules, with real disclosure obligations attaching to India-incorporated entities that are part of larger multinational structures. For groups with any cross-border footprint, treating this as a routine annual accounting update rather than a genuine compliance exercise would be a mistake.
This article summarises the Companies (Accounting Standards) Amendment Rules, 2026 as notified. Companies should consult their auditors and tax advisors to determine their specific Pillar Two exposure and applicable disclosure requirements.
