GLOBAL MINIMUM TAX EFFECT: MCA’S NEW RULE TO RAISE EFFECTIVE TAX RATES FOR INDIAN MULTINATIONALS ABROAD
The Ministry of Corporate Affairs has amended Ind AS 12 (Income Taxes) to align with OECD’s Pillar Two global minimum tax from April 1, 2025. By ending deferred tax accounting for top-up taxes, the move raises two questions: how exposed are Indian multinationals, and how should CFOs prepare?
The Ministry of Corporate Affairs (MCA) has amended Ind AS 12 (Income Taxes) to bring Indian accounting norms in line with the Organisation for Economic Co-operation and Development (OECD) Pillar Two framework, which mandates a 15 percent global minimum tax for large multinational enterprises. The change, notified under the Companies (Indian Accounting Standards) Second Amendment Rules, 2025, will take effect from April 1, 2025.
NEW RULES ON TAX ACCOUNTING
The amendment introduces new paragraphs 4A and 88A–88D into Ind AS 12. It provides that companies should not recognise deferred tax assets or liabilities arising from Pillar Two related taxes. Instead, such top-up taxes will have to be recorded as current tax expenses in the period in which they arise.
This move removes the possibility of using deferred-tax accounting to smooth effective tax rates (ETRs). Companies will also be required to disclose whether they are applying this exception and, once legislation is enacted abroad, provide qualitative and quantitative details of their exposure to Pillar Two taxes.
The MCA has notified amendments across Ind AS 1, Ind AS 7, Ind AS 12, Ind AS 101 and Ind AS 107, issued in consultation with the National Financial Reporting Authority (NFRA). The most consequential change concerns Ind AS 12 (Income Taxes), amended through insertion of paragraphs 4A and 88A–88D.
Under the amendment, companies will not be required to recognise deferred tax assets or liabilities on Pillar Two related top-up taxes. Instead, such amounts must be recorded as current tax expense in the reporting period. Entities must also disclose their application of the exception, and once legislation is enacted in a jurisdiction, provide qualitative and quantitative exposure details.
This treatment mirrors global practice under the International Accounting Standards Board (IASB) and removes the scope for smoothing effective tax rates (ETRs) through deferred tax accounting.
LEAST IMPACT IN INDIA FOR NOW
Former president of the Institute of Chartered Accountants of India (ICAI), Amarjit Chopra, said the immediate effect on India Inc would be limited.
“Pillar Two has only been adopted by a few countries and the turnover threshold is very high. Very frankly, this particular amendment may have the least of the effects in Indian conditions. But yes, if you have subsidiaries operating in jurisdictions where Pillar Two has already been adopted, there could be some impact,” Chopra told ETCFO.
CFOS TOLD TO BUILD GLOBE DATA PIPELINES
Jamil Khatri, Co-Founder and Chief Executive Officer of Uniqus Consultech and former Head of Audit at KPMG India, said the change will reshape how companies report and explain their tax outcomes.
“Pillar Two reshapes tax reporting. CFOs must invest in Global Anti-Base Erosion (GloBE) data pipelines, model exposures, and prepare investors for effective tax rate volatility without deferred tax smoothening. This will create new line items in ETR bridges and could increase fluctuations across reporting periods,”
Team- Intellex Strategic Consulting Private Limited
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