Rules explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The Companies (Accounting Standards) Rules, 2021 tell every company that is not on Indian Accounting Standards which standards to follow in preparing financial statements, and they define the Small and Medium Sized Company (SMC) that enjoys relaxations. In March 2026 the rules were amended to add Pillar Two paragraphs to AS 22. This article is as amended up to G.S.R. 169(E) dated 10 March 2026; the rule text is per the MCA e-book. Later amendments should be checked before you rely on it. For help with accounts and standards, see our books of accounts compliance service.
The rules specify Accounting Standards 1 to 5, 7 and 9 to 29 for accounting periods commencing on or after 1 April 2021, and bind every company other than companies on Indian Accounting Standards, and its auditors. An SMC is an unlisted company, not a bank, financial institution or insurer, with turnover (excluding other income) up to two hundred and fifty crore rupees and borrowings up to fifty crore rupees, and not a holding or subsidiary of a non-SMC. A company that newly becomes an SMC must stay one for two consecutive accounting periods before it gets the relaxations.
Rule 1: short title and commencement
The rules may be called the Companies (Accounting Standards) Rules, 2021 and came into force on the date of publication in the Official Gazette. They were notified on 23 June 2021 under section 133 read with section 469 of the Act, after consultation with the National Financial Reporting Authority, and they supersede the Companies (Accounting Standards) Rules, 2006 except for things done or omitted before the supersession. Section 133 itself is explained in our post on section 133 of the Companies Act, 2013.
Rule 2: definitions
Rule 2(1) defines "Accounting Standards" (the standards specified in rule 3), "Act", "Annexure" (the Annexure containing the Accounting Standards), "Enterprise" (a company as defined in section 2(20) of the Act) and "Small and Medium Sized Company".
The SMC tests
| Condition | What the rule prints |
|---|---|
| Listing | Equity or debt securities are not listed or in the process of listing on any stock exchange, in India or outside |
| Type | Not a bank, financial institution or insurance company |
| Turnover | Turnover (excluding other income) does not exceed two hundred and fifty crore rupees in the immediately preceding accounting year |
| Borrowings | No borrowings (including public deposits) in excess of fifty crore rupees at any time during the immediately preceding accounting year |
| Group | Not a holding or subsidiary company of a company which is not an SMC |
All five conditions must be satisfied. The Explanation adds that a company qualifies as an SMC if the conditions are satisfied as at the end of the relevant accounting period.
Rule 3: which standards
Rule 3(1) specifies Accounting Standards 1 to 5, 7 and 9 to 29, as recommended by the Institute of Chartered Accountants of India, in the Annexure. Rule 3(2) says they apply to accounting periods commencing on or after 1 April 2021.
Rule 4: who must comply
Every company, other than companies on which Indian Accounting Standards under the Companies (Indian Accounting Standards) Rules, 2015 are applicable, and its auditors must comply with the Accounting Standards in the manner specified in the Annexure. The standards are applied in preparing financial statements. A company on Ind AS therefore sits outside these rules.
Rule 5: the two-period waiting rule
An existing company that was not an SMC and later becomes one is not qualified for the exemption or relaxation available to an SMC until it remains an SMC for two consecutive accounting periods. The rule is one-way: it delays the relaxation after a company moves down into SMC status.
Annexure A: the general instructions
Annexure A, headed "General Instructions", has these main points for SMCs:
- A company that does not disclose some information because of an exemption must disclose, by a note, that it is an SMC under the 2021 Rules and has complied with the standards as applicable to an SMC. The Annexure prints the form of this note.
- A company that was an SMC and has used an exemption but no longer qualifies must apply the relevant requirements from the current period; the previous period's figures need not be revised merely because it ceased to be an SMC, and the earlier use of the exemption must be disclosed.
- An SMC that does not use some exemptions must disclose the standards for which it has used them.
- An SMC wishing to disclose information it is not required to disclose must do so in compliance with the relevant standard.
- Partial exemption is allowed, provided it does not mislead any person or the public.
Further instructions say the standards are intended to be in conformity with the law, and where a later change in law makes a standard inconsistent, the law prevails; that the standards apply only to material items; and that paragraphs in bold italic type and plain type have equal authority. Annexure B is headed "Accounting Standards" and is where the standards themselves sit. This article does not summarise the other standards.
The 2026 change: AS 22 and Pillar Two
G.S.R. 169(E), dated 10 March 2026 and in force on its publication, amended Accounting Standard (AS) 22 in the Annexure.
| New paragraph | What it provides |
|---|---|
| 2A | AS 22 applies to taxes on income from tax law enacted or substantively enacted to implement the OECD Pillar Two model rules, including qualified domestic minimum top-up taxes ("Pillar Two income taxes"). As an exception, an enterprise should neither recognise nor disclose deferred tax assets and liabilities related to Pillar Two income taxes |
| 32A | Disclose that the exception in paragraph 2A has been applied |
| 32B | Disclose separately the current tax expense (income) related to Pillar Two income taxes |
| 32C | Where Pillar Two legislation is enacted or substantively enacted but not yet in effect, disclose known or reasonably estimable information that helps users understand the exposure |
| 32D | Give qualitative and quantitative information about the exposure at the reporting date; it may be an indicative range, and if information is not known, say so and describe progress in assessing the exposure |
| 35 | Effective date, below |
A proviso says that a Small and Medium-sized Company may not apply the disclosure requirements of paragraphs 32C and 32D. Paragraph 35 provides that paragraphs 2A and 32A apply immediately and retrospectively, while paragraphs 32B to 32D apply for annual reporting periods beginning on or after 1 April 2025, with no requirement to give the information for any interim period ending on or before 31 March 2026. For the income-tax side, see our income-tax guides.
A worked example
Kaveri Foods Private Limited is unlisted, not a bank or insurer, had turnover of rupees one hundred and eighty crore and peak borrowings of rupees forty crore, and has no non-SMC holding company. It is an SMC at the year-end. Last year it was not an SMC, so under rule 5 it waits until it has been an SMC for two consecutive accounting periods before using relaxations. A company that is on Ind AS, by contrast, is outside rule 4 altogether.
For how the accounts rules use these standards, see our articles on rules 4 to 7 of the Accounts Rules and the XBRL filing rules.
Need help with accounting standards?
Whether a company is an SMC, and which relaxations it can use, depends on year-end numbers and group structure. Our books of accounts compliance team can test your position and prepare the notes to the accounts.
Key takeaways
- Accounting Standards 1 to 5, 7 and 9 to 29 apply to companies not on Ind AS, for periods from 1 April 2021.
- An SMC must be unlisted, not a bank or insurer, within two hundred and fifty crore rupees of turnover and fifty crore rupees of borrowings, and not linked to a non-SMC.
- A company that newly becomes an SMC waits two consecutive periods for relaxations.
- AS 22 now carries Pillar Two paragraphs 2A, 32A to 32D and 35 from 10 March 2026.
- An SMC need not apply paragraphs 32C and 32D.
Read next
- Rules 4-7 of the Accounts Rules: consolidation and AOC-1
- Rules 1-4 of the XBRL Filing Rules, 2015
- Section 133 of the Companies Act, 2013: accounting standards
Disclaimer: Based on the Companies Act, 2013 rules (and the Companies (Auditor's Report) Order, 2020) named above as consolidated in the MCA e-book (consulted on 3 October 2026), with the later notifications the article names. Later amendments, fees, forms and the Companies Act, 2013 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.