Establishing a foreign subsidiary in India is a bold step into one of the world’s fastest-growing economies. But incorporation is just the beginning. Ongoing compliance with Indian regulations is what ensures the subsidiary’s continued legal standing, financial health, and operational credibility.
Let’s explore the core compliance responsibilities that every foreign subsidiary must fulfill from corporate filings to tax and RBI obligations.
Every Indian subsidiary is required to file annual documents with the Registrar of Companies (ROC). Two of the most important filings are the Annual Return (Form MGT-7) and the Financial Statement (Form AOC-4).
These submissions record the company’s ownership, capital structure, and financial performance. They are due within 30 and 60 days respectively from the Annual General Meeting (AGM). Late filing can lead to hefty penalties and reputational risks, especially when investors or authorities conduct due diligence.
Foreign subsidiaries are taxed as Indian companies. Even if the company is not yet profitable, it must file its annual income tax return using Form ITR-6.
If the company’s turnover exceeds the prescribed limit (₹10 crore for non-cash-based businesses), a statutory tax audit under Section 44AB becomes mandatory.
Additionally, if the Indian subsidiary engages in any transaction with its foreign parent such as royalty payments, inter-company services, or licensing agreements then Form 3CEB must be filed to comply with India’s transfer pricing rules. This form discloses the nature and value of cross-border transactions, along with a justification that prices were set at arm’s length.
Once the business crosses the minimum turnover threshold, it must register for Goods and Services Tax (GST). After registration, the company is required to file GST returns usually monthly even if there is no revenue.
Two common forms are GSTR-1, which reports sales, and GSTR-3B, which summarizes total tax liability and input credit. Late or incorrect GST filings can result in penalties and blockage of Input Tax Credit, directly impacting your cash flow.
As foreign capital enters the Indian subsidiary, certain disclosures must be made to the Reserve Bank of India (RBI). The two most crucial filings are:
Form FC-GPR, which must be filed within 30 days of issuing shares to the foreign investor.
Annual FLA Return, submitted each year by July 15 to disclose foreign liabilities and assets.
These filings are made through the RBI’s FIRMS portal. Failure to report within the deadlines may lead to regulatory action and impact the subsidiary’s ability to receive further foreign funds.
Compliance in India isn’t just about filings it also involves maintaining proper records. The company must keep updated share registers, issue timely share certificates, record board resolutions, and maintain audited books of account at its registered office.
These documents can be requested by government agencies during inspections or audits. Inconsistent or missing records can cause complications during fundraising, restructuring, or exit.
If your subsidiary hires local staff, it must comply with labour-related regulations. This includes obtaining PF and ESI registrations, paying statutory dues, issuing salary slips, deducting TDS, and filing professional tax if applicable.
Many of these rules are state-specific, so it’s important to ensure your HR and payroll operations are in sync with both national and local laws. Ignorance of labour laws is not a valid defence and non-compliance can attract penalties or employee grievances.
Not all compliance is annual or monthly, some are triggered by specific business events. For example, appointing or removing a director requires filing DIR-12. Changing your company’s registered office address? You’ll need to file INC-22. Issuing new shares? That needs PAS-3.
Each of these filings has a deadline and a process under Indian law. Overlooking them may invite fines or cause administrative delays during expansion or fundraising.
Compliance isn’t just a legal formality. For foreign-owned businesses, it plays a critical role in maintaining smooth operations, accessing financial services, and retaining the trust of partners and regulators. Any delay in filings or reporting can result in blocked remittances, director disqualifications, or even temporary restrictions on foreign transactions.
For example, if a subsidiary fails to file its FC-GPR within 30 days, RBI may not permit further capital inflow until the issue is resolved. Similarly, missing the FLA return deadline may affect the company’s future dealings with banks and credit ratings.
Setting up your Indian subsidiary is a big win but staying compliant is what keeps you operational, credible, and scalable. By proactively meeting these requirements, you protect your business from legal trouble and establish a foundation for long-term success in India.
📘 Complete Guide to Setting Up a Foreign Subsidiary in India
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