How India's AS‑22 Amendment and the OECD Pillar Two (globe) Rules Change Cross‑border Tax Planning in India, Practical 2026 Guide

Last reviewed: 31 May 2026 · Updated to reflect MCA G.S.R.169(E) and the OECD Side‑by‑Side package (January–March 2026)

Two developments in early 2026 have reshaped the compliance landscape for every multinational enterprise (MNE) operating in India. On 10 March 2026, the Ministry of Corporate Affairs (MCA) published the Companies (Accounting Standards) Amendment Rules, 2026, notification G. S. R. 169(E), amending AS‑22 to address the accounting treatment of OECD Pillar Two income taxes. Separately, the OECD released its Side‑by‑Side consolidated package of GloBE administrative guidance and transitional safe harbours during the first quarter of 2026. Together, these changes create urgent obligations for CFOs, group tax heads and in‑house counsel: immediate adjustments to deferred‑tax accounting, new qualitative and quantitative disclosure requirements, and the need to model how India’s global minimum tax rules interact with domestic incentives.

This guide provides a practical, India‑focused roadmap for OECD Pillar Two India compliance, from board‑level checklists through dispute‑risk mitigation.

Quick Action Checklist for FY2026 Close

Before reading the detailed analysis below, tax planning teams should confirm that these seven items are in progress or completed:

1. Confirm in‑scope status. Determine whether the Indian entity is a constituent entity of an MNE group with consolidated annual revenue of €750 million or more in at least two of the four preceding fiscal years.
2. Brief the board. Present a one‑page memorandum explaining the AS‑22 amendment and the Pillar Two top‑up tax exposure to the audit committee.
3. Suspend deferred‑tax recognition for Pillar Two taxes. Apply the mandatory exception introduced by G.S.R.169(E), no deferred tax asset or liability is recognised in respect of Pillar Two income taxes.
4. Draft AS‑22 disclosures. Prepare both qualitative and quantitative disclosures describing the group’s exposure to Pillar Two top‑up taxes, including the jurisdictional effective tax rate (ETR) analysis.
5. Model jurisdictional ETRs. Run a preliminary ETR calculation for every jurisdiction in which the group operates, identifying any below‑15% outcomes.
6. Co‑ordinate with the ultimate parent entity (UPE). Align GloBE Information Return (GIR) filing timelines, data templates and safe‑harbour elections with the group head office.
7. Review incentive structures. Assess whether SEZ income, PLI benefits or tax‑holiday profits could generate top‑up tax liability under an Income Inclusion Rule (IIR) or a future domestic Qualified Domestic Minimum Top‑up Tax (QDMTT).

OECD Pillar Two and the GloBE Rules, A Concise Primer

The Global Anti‑Base Erosion (GloBE) rules, often called Pillar Two, establish a global minimum tax of 15 percent on the income of large MNE groups. They operate through an interlocking set of mechanisms designed to ensure that, regardless of where profits are booked, a minimum level of taxation is collected.

The Income Inclusion Rule (IIR) is the primary rule. It requires the UPE, or, in some cases, an intermediate parent entity, to recognise a top‑up tax on the low‑taxed income of any constituent entity whose jurisdictional ETR falls below 15 percent. Where the IIR does not apply (for example, because the UPE jurisdiction has not adopted it), the Undertaxed Profits Rule (UTPR) acts as a backstop, reallocating top‑up tax to other implementing jurisdictions. A complementary Subject‑to‑Tax Rule (STTR) permits source countries to impose additional withholding tax on certain related‑party payments where the recipient jurisdiction taxes those payments below a minimum rate.

The jurisdictional ETR is calculated by dividing the adjusted covered taxes of all constituent entities in a jurisdiction by their net GloBE income. If the result is below 15 percent, a top‑up tax equal to the shortfall, multiplied by the excess profit (net GloBE income minus a substance‑based income exclusion), becomes payable.

Who Is in Scope?

The GloBE rules apply to MNE groups, and, in certain jurisdictions, large‑scale domestic groups, that have consolidated annual revenue of at least €750 million in at least two of the four fiscal years immediately preceding the tested year. Excluded entities include governmental entities, international organisations, non‑profit organisations and certain pension and investment funds. For India, this means that the Indian subsidiaries and permanent establishments of qualifying MNE groups are constituent entities whose income feeds into the jurisdictional ETR calculation, even though the top‑up tax itself may be collected at the parent level or through a future QDMTT.

The Side‑by‑Side Package, Safe Harbours and Administrative Updates

Between January and March 2026, the OECD released an updated consolidated administrative guidance package, frequently referred to as the Side‑by‑Side package, that integrates prior sets of administrative guidance with the GloBE model rules. Key elements relevant to OECD Pillar Two India compliance include the transitional Country‑by‑Country Reporting (CbCR) safe harbour, which allows MNE groups to use qualified CbCR data to demonstrate that a jurisdiction’s ETR meets or exceeds the 15 percent threshold without performing a full GloBE computation. The package also consolidated guidance on currency conversion, the treatment of deferred tax adjustments, and the operation of the QDMTT safe harbour.

Industry observers expect that MNE groups with straightforward Indian operations and ETRs well above 15 percent will rely heavily on these safe harbours to reduce initial compliance costs.

India’s AS‑22 Amendment, What Changed Under G.S.R.169(E)

The Companies (Accounting Standards) Amendment Rules, 2026, published by the MCA vide notification G.S.R.169(E) dated 10 March 2026, represent India’s first direct accounting‑standards response to the GloBE rules. The amendment modifies AS‑22 (Accounting for Taxes on Income) by introducing a definition of “Pillar Two income taxes”, taxes levied under laws enacted to implement the GloBE model rules, and inserting a mandatory exception to the general deferred‑tax recognition principles for those taxes.

In practical terms, the amendment does three things. First, it prohibits the recognition of deferred tax assets and deferred tax liabilities arising from Pillar Two income taxes. This means that entities cannot, under AS‑22, recognise a deferred tax liability for a potential future top‑up tax, nor book a deferred tax asset in anticipation of credits or adjustments related to GloBE charges. Second, it requires entities to recognise any Pillar Two current tax expense in the period in which it is incurred, using the standard current‑tax recognition framework. Third, it introduces new disclosure requirements to ensure that users of financial statements understand the entity’s exposure.

Effective Date and Applicability

The AS‑22 amendment took effect on the date of its publication in the Official Gazette, 10 March 2026. For most in‑scope companies preparing financial statements for the year ending 31 March 2026, the amendment applies immediately to the FY2025–26 year‑end close. Entities that follow a different financial year will apply the amendment from the first reporting period beginning on or after the notification date. The amendment applies to all companies required to use Indian Accounting Standards (AS) under the Companies Act, 2013, including subsidiaries of foreign MNE groups that prepare statutory accounts under Indian AS rather than Ind AS.

Required Disclosures, Qualitative and Quantitative

The amended AS‑22 introduces disclosure requirements aligned with the approach taken under IAS 12 amendments internationally. Entities must disclose:

• Qualitative disclosure. A description of the entity’s exposure to Pillar Two income taxes, including the jurisdictions in which the group operates and where the ETR may fall below 15 percent.
• Quantitative disclosure (current‑period). The amount of current tax expense recognised in respect of Pillar Two income taxes, separated from other income tax charges.
• Quantitative disclosure (forward‑looking). Where reasonably estimable, the proportion of the entity’s profits that may be subject to a top‑up tax, along with the weighted average ETR in the relevant jurisdictions.

A suggested board‑memo summary for inclusion in audit committee papers might read: “The Company is a constituent entity of [Group Name], an MNE group within the scope of the OECD GloBE rules. In accordance with AS‑22 as amended by G.S.R.169(E), the Company has applied the mandatory exception and has not recognised deferred tax assets or liabilities in respect of Pillar Two income taxes. The Company’s estimated jurisdictional ETR for India is [X] percent, which is [above / below] the 15 percent minimum rate.”

Accounting Versus Tax, QDMTT, Deferred Tax and Disclosure Interactions

A critical distinction that in‑house teams must internalise is the difference between the AS‑22 amendment’s impact on accounting treatment and the actual tax liability that may arise under domestic or foreign law. The AS‑22 amendment does not impose or create any new tax. It modifies how Pillar Two income taxes are accounted for in financial statements. The tax liability itself depends on whether, and how, jurisdictions legislate top‑up taxes, whether through a domestic QDMTT or through the IIR or UTPR applied by the parent jurisdiction.

A QDMTT is a domestic top‑up tax that a jurisdiction enacts to collect the top‑up tax itself, rather than ceding collection to the parent jurisdiction under the IIR. As of May 2026, India has not enacted a QDMTT. The likely practical effect is that, until India legislates one, top‑up tax on low‑taxed Indian income will be collected at the UPE level under the IIR (if the UPE jurisdiction has adopted it). Once India enacts a QDMTT, the domestic collection mechanism would take priority and reduce or eliminate any IIR top‑up charge at the parent level.

The absence of deferred‑tax recognition under the amended AS‑22 means the entire Pillar Two tax charge flows through as a current‑period expense. This shifts the informational burden onto the disclosure notes. Finance teams must therefore ensure that their ETR models and GloBE computations are robust enough to support precise disclosures, and to withstand scrutiny from auditors and, potentially, tax authorities.

Impact on Indian Tax Incentives and Structuring

One of the most consequential aspects of OECD Pillar Two India implementation concerns its interaction with domestic tax incentives. India offers a range of concessions, Special Economic Zone (SEZ) deductions under sections 10AA, tax holidays for infrastructure and power projects, Production‑Linked Incentive (PLI) scheme benefits, and concessional rates under section 115BAB for new manufacturing companies, that can reduce the effective tax rate well below the headline corporate rate of 25.17 percent (including surcharge and cess at general rates).

When an Indian entity’s jurisdictional ETR, calculated under the GloBE methodology, falls below 15 percent as a result of these incentives, the difference becomes a top‑up tax liability at the group level. The practical implication is that while the domestic law incentive remains valid, the global tax benefit is partially or fully clawed back through the IIR or a future QDMTT. This does not render incentives worthless, the benefit is still captured at the Indian entity level in the form of lower domestic tax, but the net group‑level tax saving is eroded.

Strategies to manage this interaction focus on compliance and risk mitigation rather than avoidance:

• Substance‑based income exclusion (SBIE). The GloBE rules allow a carve‑out equal to a percentage of eligible payroll costs and tangible asset carrying values. Entities with genuine operational substance in India, manufacturing plants, large workforces, can reduce the excess profit base subject to top‑up tax.
• Jurisdictional blending. Because the ETR is calculated at the jurisdictional level (not entity‑by‑entity), entities with different tax profiles in India are blended. A high‑tax entity can offset a low‑tax incentive entity, potentially keeping the overall Indian ETR above 15 percent.
• QDMTT anticipation. Early indications suggest that India is actively considering QDMTT legislation. If enacted, it would allow India to collect any top‑up tax domestically, keeping the revenue onshore. MNE groups should model both with‑QDMTT and without‑QDMTT scenarios to quantify the cash‑flow impact.
• Restructuring caution. Any restructuring undertaken solely to manipulate jurisdictional ETRs could trigger general anti‑avoidance rule (GAAR) scrutiny under Chapter X‑A of the Income Tax Act, 1961. Compliance‑oriented planning should be documented with clear commercial rationale.

Practical Compliance Roadmap for FY2026, Pillar Two Compliance Checklist

The following step‑by‑step roadmap is designed for Indian subsidiary CFOs and group tax teams coordinating their first full‑year OECD Pillar Two India compliance cycle.

Step 1, Identify in‑scope entities. Map every Indian entity against the €750 million consolidated revenue threshold. Include permanent establishments, joint ventures (where consolidation applies) and any special‑purpose vehicles. Confirm the UPE’s jurisdiction and whether it has adopted the IIR.

Step 2, Gather jurisdictional financial and tax data. Collect accounting profit (as per financial statements), covered taxes (current tax, deferred tax adjustments and withholding taxes) and details of all incentive income for each Indian entity. These data points feed into the GloBE ETR computation.

Step 3, Model ETRs and provisional top‑up exposures. Calculate the Indian jurisdictional ETR using the GloBE methodology (not the domestic statutory ETR). Apply substance‑based income exclusions and assess whether transitional safe harbours apply.

Step 4, Prepare AS‑22 disclosure drafts. Using the amended disclosure framework, draft the qualitative and quantitative notes for inclusion in the statutory financial statements. Circulate drafts to the audit committee and external auditors for review before sign‑off.

Step 5, Co‑ordinate GIR and CbCR filings. Confirm with the UPE or designated filing entity the GloBE Information Return filing jurisdiction, format (XML schema per the OECD template) and deadline. Ensure consistency between GIR data, CbCR filings and Indian statutory accounts.

Step 6, Update transfer pricing and tax provisioning processes. Pillar Two adjustments can interact with transfer pricing outcomes, a transfer pricing reassessment that shifts profit into or out of India changes the Indian jurisdictional ETR. Embed Pillar Two sensitivity analysis into the annual transfer pricing documentation cycle.

Data Collection Matrix and Sample GIR Fields

Sample AS‑22 disclosure language:

• “The Group is within the scope of the OECD Pillar Two GloBE rules. In accordance with AS‑22 as amended by G.S.R.169(E), the Company has applied the mandatory exception from recognising and disclosing information about deferred tax assets and liabilities related to Pillar Two income taxes.”
• “The Company’s estimated Indian jurisdictional ETR for FY2025–26, calculated under the GloBE methodology, is [X]%. Based on this estimate, the Company [does / does not] expect a material top‑up tax exposure in respect of its Indian operations.”
• “The Company has contributed data to the Group’s GloBE Information Return. The designated filing entity is [UPE Name], located in [Jurisdiction].”

Dispute Risk, Audits and Litigation Playbook, International Tax Controversy India

Pillar Two introduces novel grounds for international tax controversy in India. Tax teams should prepare for at least four dispute scenarios:

• Scenario 1, Jurisdictional ETR disagreement. Tax authorities in the UPE jurisdiction and Indian revenue authorities may calculate the Indian ETR differently, particularly where the treatment of timing differences, deferred tax adjustments or currency conversions diverges. Maintain a contemporaneous ETR computation file with full workings, and reconcile GloBE ETR to the domestic statutory ETR with a documented bridge schedule.
• Scenario 2, Classification of incentive income under QDMTT. If India enacts a QDMTT, disputes may arise over whether specific incentive income (for example, SEZ export profits) falls within or outside the QDMTT base. Collate all incentive‑related orders, approvals and tax returns to demonstrate the correct classification.
• Scenario 3, Transfer pricing adjustments altering ETR. A transfer pricing reassessment that increases Indian taxable income will change the covered taxes and the denominator in the ETR calculation. Ensure that Pillar Two impact analysis is included in the advance pricing agreement (APA) and mutual agreement procedure (MAP) submissions.
• Scenario 4, Retroactive legislative changes. Any domestic legislative amendment, such as a retrospective QDMTT or changes to incentive eligibility, could alter the ETR calculation for prior years. Track Finance Bill developments closely and, where appropriate, seek advance rulings or pre‑assessment engagement with the Central Board of Direct Taxes (CBDT).

For MNEs engaged in acquisitions, a protective clause in the share purchase agreement (SPA) is prudent. A sample tax‑indemnity provision might include: “The Seller shall indemnify the Buyer in respect of any Pillar Two top‑up tax, including any QDMTT, IIR or UTPR charge, attributable to pre‑completion periods, together with associated interest, penalties and professional costs incurred in connection with any assessment, audit or dispute arising from such charges.” This language should be tailored by qualified legal counsel to the specific transaction.

Conclusion, Preparing for OECD Pillar Two India Compliance Beyond FY2026

The convergence of the MCA’s AS‑22 amendment and the OECD’s expanding GloBE administrative framework means that OECD Pillar Two India compliance is no longer a future planning exercise, it is a current reporting obligation with real consequences for financial statements, tax provisioning and group structuring. For FY2025–26, the priority is clear: apply the deferred‑tax exception, prepare robust disclosures, model jurisdictional ETRs with care, and build the data infrastructure to support GIR filings and safe‑harbour elections. Beyond FY2026, tax heads should monitor the Union Budget cycle for any QDMTT or IIR implementation in domestic law, which would materially alter cash‑tax outcomes and transfer pricing dynamics across the group.

Early preparation, grounded in legal interpretation, not just accounting mechanics, will separate organisations that navigate Pillar Two smoothly from those that face audit friction and costly re‑statements.

This guide is for general informational purposes only and does not constitute legal or tax advice. Readers should consult qualified legal counsel for advice specific to their circumstances.

Sources

1. OECD, Global Anti‑Base Erosion Model Rules (Pillar Two)
2. OECD, Minimum Tax Implementation Handbook (Pillar Two)
3. MCA Notification, Companies (Accounting Standards) Amendment Rules, 2026 (G.S.R.169(E)) via IBCLaw
4. India Briefing, AS‑22 Amendment Explainer
5. KPMG India, Key Financial Reporting Updates (Q4 FY2026)
6. BDO, OECD Releases Additional Pillar Two Guidance
7. Income Tax India, Legislative References