Global Minimum Tax QDMTT IIR Law India Bangalore | Pillar Two India

An Indian-headquartered IT services group with consolidated global revenue of EUR 1.2 billion has been comfortable with its low effective tax rate. The Indian parent benefits from concessional tax regimes (Section 115BAA at 22%) and SEZ tax holidays for its export-oriented units. The group’s Irish subsidiary operates at a 12.5% statutory rate, the Mauritius holding company pays minimal tax on dividend flows, and the global effective tax rate hovers around 13%.

Then the group’s auditor flags that, under the OECD’s Pillar Two Global Anti-Base Erosion (GloBE) Rules now in force in the UK, EU, and several other jurisdictions, the group is in scope and the effective rate gap below 15% triggers top-up tax in jurisdictions where Pillar Two has been adopted.

The group has Indian tax certainty, but it has Pillar Two exposure that will be collected elsewhere unless India introduces its own Qualified Domestic Minimum Top-up Tax. Pillar Two and India is a topic that affects many Indian groups even though India has not yet enacted IIR or QDMTT domestically.

For Indian headquartered groups and multinational businesses operating across jurisdictions, understanding global minimum tax QDMTT IIR Law India Bangalore is important when assessing whether existing tax incentives may result in additional top-up tax exposure outside India.

What’s the Pillar Two Framework and Where Does India Stand?

The Pillar Two framework, agreed under the OECD/G20 Inclusive Framework, applies to multinational groups with consolidated revenue exceeding EUR 750 million. The framework imposes a minimum effective tax rate of 15% on a jurisdiction-by-jurisdiction basis. Where the effective tax rate in a particular jurisdiction is below 15%, a “top-up tax” is charged to bring the rate to the minimum.

Three Collection Mechanisms

The Qualified Domestic Minimum Top-up Tax (QDMTT) is charged by the source jurisdiction itself, allowing the source country to collect the top-up tax domestically.

The Income Inclusion Rule (IIR) is charged by the parent jurisdiction on its subsidiary’s undertaxed profits where no QDMTT applies.

The Undertaxed Profits Rule (UTPR) is a backstop charged by other jurisdictions in the group where neither QDMTT nor IIR collects the top-up tax.

The mechanisms operate in priority sequence: QDMTT first, IIR second, UTPR third.

India’s Position

India is part of the OECD Inclusive Framework and has agreed to the two-pillar package in principle. India has not yet enacted IIR, UTPR, or QDMTT in domestic law.

The Income-tax Act, 2025 does not implement Pillar Two. Budget 2026 did not introduce QDMTT either.

The Ministry of Corporate Affairs notified the Companies (Accounting Standards) Amendment Rules, 2026 in March 2026, amending AS-22 (Accounting for Taxes on Income) to align with Pillar Two by exempting Indian companies from recognising deferred tax assets and liabilities specifically related to Pillar Two income taxes and mandating Pillar Two-specific disclosures.

The Practical Position

Indian subsidiaries of in-scope foreign MNEs (consolidated revenue ≥ EUR 750 mn) are exposed to top-up tax through their parent jurisdiction’s IIR.

The UK, EU member states, Japan, South Korea, and several others have IIR in effect.

India-headquartered MNEs with operations in jurisdictions that have implemented IIR may have to pay top-up tax there for low-tax operations elsewhere in the group.

Pillar Two India operates through cross-border effect even without domestic implementation.

How Does the Exposure Actually Crystallise?

For Indian-Headquartered MNEs

If the Indian parent has subsidiaries in jurisdictions where the effective tax rate is below 15%, top-up tax becomes payable.

Where the source jurisdiction has a QDMTT, the source collects. Where it doesn’t, and a treaty partner with an IIR sits between the Indian parent and the low-tax subsidiary, the IIR jurisdiction collects. Where neither, the UTPR can be triggered.

The mechanics are designed so that the top-up tax is collected somewhere, regardless of the source country’s domestic position.

For Foreign MNEs With Indian Subsidiaries

The question is whether the Indian subsidiary’s effective tax rate is below 15%.

The starting point is the headline corporate tax rate (22% under Section 115BAA, 25% under standard regime, 15% for new manufacturing under Section 115BAB) — these are above 15% on a statutory basis.

The question is what the effective rate is after deductions, SEZ exemptions, tax holidays, weighted deductions, and timing differences.

SEZ units, units availing 80LA in IFSC, and units benefiting from SDDC reductions may produce an effective tax rate below 15%, exposing the group to top-up tax via the parent’s IIR.

For Groups With India IFSC Operations

Units in GIFT IFSC benefiting from the 10-year Section 80LA tax holiday may operate at low or zero effective tax rate.

For in-scope groups, this benefit is largely neutralised by Pillar Two: the top-up tax brings the rate back to 15% in the parent jurisdiction.

India is one of several jurisdictions whose targeted tax incentives have been substantially undermined by Pillar Two, and the policy response is still under deliberation.

Pillar Two and India will require a coherent domestic response if India is to preserve the value of its incentive regime for in-scope groups.

The Side-by-Side Package and US Position

In January 2026, the OECD released a Side-by-Side package with two safe harbours intended to address concerns about overlap between Pillar Two and the US corporate tax system.

Around the same time, the US Treasury announced that US-headquartered companies would be exempt from Pillar Two requirements (the US has not implemented IIR or UTPR).

The Side-by-Side Package exempts groups headquartered in jurisdictions recognised as having an eligible tax regime from IIR and UTPR in other jurisdictions, while preserving QDMTT.

The framework is still being calibrated.

What Should Indian and Multinational Groups Actually Do?

Determine In-Scope Status

The first question is whether the group is in scope (consolidated revenue ≥ EUR 750 mn in at least two of the preceding four years).

Groups below this threshold have no Pillar Two exposure currently, though the threshold may be revisited in future iterations.

Compute Jurisdictional Effective Tax Rates

For in-scope groups, the effective tax rate per jurisdiction must be calculated using the GloBE methodology (which differs from financial accounting ETR).

The calculation involves adjusted covered taxes (numerator) and GloBE income (denominator), with extensive adjustments for items like deferred taxes, equity gains/losses, and excluded income.

Identify Low-Taxed Jurisdictions and the Collection Mechanism

Once low-taxed jurisdictions are identified, determine whether QDMTT applies (the source collects), whether IIR applies (the parent jurisdiction collects), or whether UTPR applies (another group jurisdiction collects).

This drives the cash flow and reporting implications.

Update Accounting and Disclosure

Under the MCA’s March 2026 amendments to AS-22, Indian companies in in-scope groups must disclose Pillar Two exposure across jurisdictions and the indicative effective tax rate impact, even though India has not enacted Pillar Two.

Disclosure obligations precede the substantive tax obligation by some period, companies should not wait for domestic Indian implementation to begin Pillar Two analysis and disclosure preparation.

Pillar Two India for in-scope groups is an active compliance area, with the largest unresolved question being whether and when India will introduce QDMTT to capture the top-up tax domestically rather than ceding it to other jurisdictions.

The global minimum tax QDMTT IIR Law India Bangalore framework therefore becomes relevant to both Indian headquartered MNEs and foreign groups with Indian operations when assessing cross-border tax exposure.

Frequently Asked Questions

Q1. Has India Introduced QDMTT?

Not as of the date of this note. India is part of the OECD Inclusive Framework and has agreed to the Pillar Two package, but neither the Income-tax Act, 2025 nor Budget 2026 introduced QDMTT, IIR, or UTPR in domestic law.

The MCA has amended AS-22 for accounting disclosure purposes. Future budgets may introduce these provisions.

Q2. Does Pillar Two Affect Indian Groups With Operations Only in India?

For groups with operations only in India and no foreign subsidiaries or operations, Pillar Two does not currently apply (the framework is for cross-border MNE groups).

For Indian groups with even one foreign subsidiary, in-scope status needs to be tested against the EUR 750 mn revenue threshold.

Q3. Does the SEZ or 80LA Tax Holiday Survive Pillar Two?

The headline benefit (zero or low Indian tax) survives under Indian law.

But for in-scope groups, the benefit may be effectively offset by top-up tax in another jurisdiction.

The economic value of the incentive shrinks for groups in scope, for groups below the EUR 750 mn threshold, it remains fully available.

Q4. What’s the Timeline for Pillar Two Implementation in India?

There’s no announced timeline. Budget 2026 did not introduce Pillar Two provisions.

The MCA’s AS-22 amendment was an accounting-side response, not a tax-law implementation.

Industry expects domestic enactment in a future budget, with the timing depending on US developments, OECD calibration, and Indian fiscal considerations. Companies should monitor closely.