Branch Office in India 2026 with RBI Rules, Tax Rate and Project Office

Written by CA Nandini, Krystal7 Consultants. Last updated 2 October 2026.

A branch office (BO) lets a foreign company earn income in India without forming an Indian company. An Authorised Dealer Category I bank approves it under FEMA 22(R)/2016-RB, and RBI approves listed cases. The parent needs five years of profit and a net worth of at least USD 100,000. A branch may do only eight listed activities. It pays tax at 35 percent plus surcharge and cess, and files its Annual Activity Certificate by 30 September.

This page covers the branch office and the project office (PO): activities, eligibility, approval, bank accounts, tax, profit remittance, annual filings, GST and closure. Rupee figures use Indian grouping: INR 1,00,00,000 is one crore (10 million).

What is a branch office in India?

A branch office is a place of business in India that belongs to a foreign company. It is not a separate legal person. Its contracts, staff, income and liabilities are those of the foreign company. FEMA 22(R)/2016-RB (FEMA 22(R) on this page) defines it simply as "any establishment described as such by the company".

Regulation 3 of FEMA 22(R) bars a person resident outside India from opening any such office without approval, except as the regulations allow. So the foreign company needs FEMA approval before it signs a lease or hires anyone. It then registers with the Registrar of Companies under Chapter XXII of the Companies Act, 2013, and with the tax authorities.

Instrument	What it covers for a BO or PO	Date or status on 2 Oct 2026
FEMA 22(R)/2016-RB	Eligibility, approval route, permitted activities, project office conditions, AAC, closure	Dated 31 Mar 2016; amended 31 Aug 2018 and 21 Jan 2019
RBI Master Direction on BO, LO and PO	Form FNC, UIN, bank accounts, profit remittance, extra offices, closure	Dated 1 Jan 2016; updated as on 18 May 2021
RBI FAQs on LO, BO and PO	Property, accounts, upgrade, police registration, remittances	Dated 26 Dec 2016
Companies Act, 2013, Chapter XXII (sections 379 to 393)	FC-1 registration, accounts, annual return, penalties	In force
Companies (Registration of Foreign Companies) Rules, 2014	Forms FC-1 to FC-4 and their time limits	In force, as amended
Income Tax Act, 2025 and Income Tax Rules, 2026	Tax on branch profit, head office costs, returns, audits	In force from 1 Apr 2026
Finance Act, 2026, First Schedule	35 percent rate for a company other than a domestic company	Tax year 2026-27
Draft FEMA (Establishment in India of a branch or office) Regulations, 2025	Proposed replacement for FEMA 22(R)	Released 3 Oct 2025; not notified on 2 Oct 2026

A branch suits a foreign company that wants to bill Indian customers under its own name, inside a narrow list of activities. If the plan is open ended, a subsidiary usually fits better. Our liaison office guide covers the non earning option under the same regulations.

What can a branch office do in India?

A branch office may do only the eight activities in Annex C of the RBI Master Direction. These are trade in goods, professional services, research, collaboration, agency, IT services, product support and airline or shipping representation.

Permitted activity (Annex C of the Master Direction)	What it covers in practice	Limit or note
Export and import of goods	Importing the parent's goods and exporting Indian goods	Domestic buying and selling is not on the list
Professional or consultancy services	Advisory, engineering or other consulting for Indian clients	Not the practice of law
Research work	Research in areas in which the parent is engaged	Must match the parent's field
Promoting technical or financial collaboration	Linking Indian companies with the parent or group	Same as an LO activity
Representing the parent and acting as buying or selling agent	Agency work for the parent in India	The parent remains the principal
IT services and software development	Software and IT services from India	Often for the parent; see the GST section
Technical support for the parent's or group's products	Installation support, warranty and service	Only for products the group supplied
Representing a foreign airline or shipping company	Sales and operations of the carrier	FAQ 8 keeps BO transactions in its INR account

The 2016 version of the Master Direction said in plain words that a branch cannot do retail trading of any kind. It also barred manufacturing or processing in India, directly or indirectly, and said a branch should normally do what its parent does. The current version keeps only the list above, and neither activity is on it. So a branch cannot open shops, sell online to Indian consumers or run a factory outside a Special Economic Zone (SEZ).

Branch office in a Special Economic Zone

Regulation 3 of FEMA 22(R) gives general permission for a branch in an SEZ to do manufacturing and service activities. Three conditions apply:

1. The sector allows 100 percent foreign direct investment.
2. The branch complies with Chapter XXII of the Companies Act, 2013.
3. The branch functions on a stand alone basis.

A stand alone SEZ branch needs no AD bank approval under this proviso. It still registers with the Registrar and the tax authorities. On closure it follows the same AD bank procedure as any branch.

Activities that need a different vehicle

Foreign law firms cannot open a branch, liaison or project office to practise law (A.P. (DIR Series) Circular No. 07 of 23 Nov 2020). Banks open branches under the Banking Regulation Act, 1949 with RBI's banking approval, outside this route. Insurers follow IRDAI. Activities covered by the Foreign Contribution (Regulation) Act, 2010 need FCRA registration instead.

Who is eligible to open a branch office in India?

The foreign company needs a profit making track record in its home country during the immediately preceding five financial years. It also needs a net worth of at least USD 100,000 or its equivalent. Regulation 4(a) of FEMA 22(R) sets both tests. A company that fails can use a Letter of Comfort from a parent that passes.

Test	Branch office	Liaison office (for comparison)	Source
Profit record	Profit making track record in the immediately preceding 5 financial years, home country	Same, over 3 financial years	FEMA 22(R), regulation 4(a)
Net worth	At least USD 100,000 or equivalent	At least USD 50,000 or equivalent	FEMA 22(R), regulation 4(a)
Net worth formula	Paid up capital plus free reserves, less intangible assets	Same	Master Direction
Evidence	Latest audited balance sheet, or an account statement certified by a CPA or registered accounts practitioner	Same	Master Direction
Fallback	Letter of Comfort from a parent or group company that meets both tests	Same	FEMA 22(R), regulation 4(a); Master Direction, Annex A
Applicant that cannot use the AD bank route	A foreign subsidiary of an Indian company	Same for its Letter of Comfort from the Indian parent	RBI FAQ 15 and FAQ 16

Regulation 4(a) does not say whether one loss year breaks a "profit making track record". Our reading, the safe one, is a profit in each of the five years. If one year shows a loss, we ask the AD bank early whether it wants a Letter of Comfort.

In the Letter of Comfort (Annex A of the Master Direction), the parent undertakes to fund the Indian office and meet its liabilities. The AD bank may convert net worth at its own rate on the application date. Leave headroom if the figure sits close to USD 100,000.

RBI's FAQ 15 says a foreign subsidiary of an Indian company cannot open a branch in India under the automatic route. FAQ 16 adds that it cannot rely on a Letter of Comfort from its Indian parent. Such a group should talk to the AD bank about an RBI reference before it plans anything.

When does a branch office need RBI approval?

Most branches need only the approval of an Authorised Dealer Category I bank (AD bank). Regulation 5 of FEMA 22(R) sends four kinds of case to RBI, which decides them in consultation with the Government of India. The list is the same for branch and liaison offices.

Applicant or case	Who approves	Condition or note	Source
Any applicant not listed below that meets the tests	Designated AD bank	Five year profit and USD 100,000 net worth	FEMA 22(R), regulation 4
Citizen of or entity registered in Pakistan	RBI, with the Government of India	Anywhere in India	Regulation 5(a)
Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau, office in Jammu and Kashmir, the North East or Andaman and Nicobar	RBI, with the Government of India	Region specific	Regulation 5(b)
Same seven countries, office anywhere else	AD bank	Police registration; approval copied to the Home Ministry	RBI FAQ 13; Master Direction
Principal business in defence, telecom, private security, or information and broadcasting	RBI	Not needed if the ministry or regulator has already approved or licensed it	Regulation 5(c)
NGO, non profit body or foreign government body	RBI	FCRA registration where the work falls under FCRA	Regulation 5(d)
More than four offices in India	RBI, through the AD bank	Applicant must justify the need	Master Direction
Banking or insurance company	Banking regulator or IRDAI	Outside the AD bank route	Regulation 3, provisos

Many websites say every Chinese applicant needs RBI approval for a branch. Regulation 5(b) limits that to the three named regions, and RBI's FAQ 13 lets the AD bank approve the rest. The applicant then registers with the state police, and the AD bank copies its approval to the Ministry of Home Affairs.

The Cabinet decision of 10 Mar 2026 on investment from land border countries deals with shares in Indian companies. It allows non controlling beneficial ownership of up to 10 percent on the automatic route. It does not mention branch offices, and our reading is that it does not change regulation 5.

How is a branch office approved?

The foreign company files Form FNC with one AD bank, which it designates for all its dealings. After due diligence, the AD bank sends the form to RBI's CO Cell in New Delhi for a Unique Identification Number (UIN). The AD bank then issues the approval letter. The office must open within six months.

Annex B of the Master Direction lists the documents that go with Form FNC:

1. The certificate of incorporation and the memorandum and articles, attested by a notary in the home country.
2. English translations of documents in other languages, notarised and attested by the Indian Embassy or Consulate.
3. The audited balance sheets of the last five years.
4. A bankers' report on how long the applicant has banked with them.
5. A power of attorney for the signatory, where the head of the entity does not sign.
6. Any Letter of Comfort.

Attestation abroad usually takes longest, so we start it before the AD bank file.

Step	Who acts	Time limit	Source
1. File Form FNC with one designated AD bank	Foreign company	None	Master Direction, Annex B
2. Due diligence and KYC	AD bank	No time limit set	Master Direction, guidance note for AD banks
3. Refer regulation 5 cases	AD bank to RBI	No time limit set	FEMA 22(R), regulation 5
4. Obtain the UIN	AD bank from RBI, CO Cell, New Delhi	No time limit set	Master Direction
5. Issue the approval letter	AD bank	After the UIN	Master Direction
6. Open the office	Foreign company	Within 6 months, or the approval lapses	FEMA 22(R), regulation 4(c)
7. Extra time to open	AD bank for one further 6 months; then RBI	Before the lapse	Regulation 4(c)
8. Register the place of business	Foreign company, Form FC-1	Within 30 days of setting up	Companies Act, 2013, section 380(1)
9. Apply for PAN and TAN	Foreign company	On setting up; TAN before the first deduction	Master Direction, guidance note for AD banks; Income Tax Rules, 2026
10. Register with the state police	Applicants from the eight listed countries	After the AD bank approval	Regulation 4(g); RBI FAQ 3 and FAQ 9

The Master Direction sets no validity period for a branch approval, unlike the three years for a liaison office. The branch runs as long as it keeps within its activities and files its certificates.

A foreign company can ask for more offices on a fresh Form FNC, without resubmitting unchanged documents. Up to four offices, one in each of the north, south, east and west zones, stay with the AD bank. Beyond four, RBI's prior approval is needed. One office can be named the nodal office to file a combined Annual Activity Certificate.

What is a project office and who can open one?

A project office is a place of business that represents a foreign company executing a project in India. It needs no AD bank approval when the foreign company holds a contract from an Indian company and one funding or clearance condition holds. It lives only for the project.

Regulation 4(f) of FEMA 22(R) gives the general permission. The foreign company must have secured a contract from an Indian company to execute a project in India. In addition, one of four conditions must hold:

1. Inward remittance from abroad funds the project directly.
2. A bilateral or multilateral international financing agency funds the project.
3. The appropriate authority has cleared the project.
4. A public financial institution or a bank in India has granted the Indian company a term loan for the project.

Point	Project office rule	Source
Approval	General permission if regulation 4(f) holds; no AD bank approval letter	FEMA 22(R), regulation 4(f)
Pakistan applicants, and the seven listed countries for the three named regions	RBI's prior approval	Regulation 5(a) and 5(b)
Defence contract with the Ministry of Defence, a Service Headquarters or a defence PSU	No separate Government of India reference	Regulation 5(c), proviso
UIN from RBI	Not needed	RBI FAQ 12
Validity	Tenure of the project	Master Direction
Activities	Only the contracted project	FEMA 22(R), regulation 2
Annual Activity Certificate	To the AD bank only, with project status	Master Direction; regulation 4(l)
Bank accounts	INR account plus up to two foreign currency accounts at one AD bank	Master Direction; RBI FAQ 7 and FAQ 20
Remittance before completion	Intermittent remittances with an auditor's certificate and an undertaking	Master Direction, paragraph 9
Property	Purchase for own use allowed	RBI FAQ 4

The project office cannot take a second contract on the same footing. Each project needs its own office and its own account. RBI's FAQ 7 says bank account rules apply at project level, not at the entity level.

A project office is almost always a permanent establishment for tax. Most Indian tax treaties treat a building site or a construction, installation or assembly project as one once it passes a day count. The India US treaty, for example, sets 120 days in any twelve month period (Article 5(2)(k)). Even below the treaty count, an office with a fixed place usually meets the general PE test. So the project office files an Indian return and pays tax on the profit attributable to it.

How do branch and project office bank accounts work?

A branch can open its account with any AD bank. It must transact through that one designated AD bank, which runs its KYC and checks its filings. A second account needs RBI's prior permission, except for one extra account at a tax agency bank for statutory payments.

Point	Branch office	Project office	Source
Main account	INR account with the designated AD bank	INR account with the designated AD bank	Master Direction, guidance note for AD banks
What can be credited	Head office funds and legitimate receivables from business	Head office funds and receipts from the project	Master Direction; RBI FAQ 20
What can be debited	Branch expenses, profit remittance and winding up proceeds	Local expenses and intermittent remittances	Master Direction; RBI FAQ 20
Second account	Only with RBI's prior permission	Account per project	RBI FAQ 2 and FAQ 7
Tax payment account	One more account at an agency bank	Same	RBI FAQ 19
Foreign currency account	Not for normal business (FAQ 18)	Up to two non interest bearing accounts at the same AD bank, if the contract pays in foreign currency	Master Direction; RBI FAQ 18
Term deposit	Up to 6 months from temporary surplus	Same	Master Direction, guidance note for AD banks
Credit facilities	Fund and non fund facilities under RBI rules	Same; foreign currency credit allowed	Regulation 4(h); RBI FAQ 6
Outward remittance through another bank	Allowed with an NOC from the designated bank	Same	RBI FAQ 22
Change of designated bank	Both banks consent in writing; all AACs filed	Same	Master Direction, guidance note for AD banks

The project office's foreign currency accounts take receipts from the project sanctioning authority and remittances from the parent or a financing agency. They pay project expenses only. The AD bank's concurrent auditor checks every entry, and the accounts close when the project ends. RBI's FAQ 17 lets the AD bank keep a project account open beyond the tenure for genuine reasons, under intimation to RBI.

A branch can work from leased premises if the lease does not exceed five years (Master Direction). A branch or project office can also buy property for its own use and permitted activities (RBI FAQ 4). It cannot buy to rent out. Applicants from the listed countries need RBI's prior approval for a purchase.

How is a branch office taxed in India?

A branch office pays tax as part of a foreign company. For tax year 2026-27, the Finance Act, 2026 sets 35 percent on the total income of a company other than a domestic company. Surcharge is 2 percent above INR 1 crore of income and 5 percent above INR 10 crore. Health and education cess of 4 percent applies on top.

The branch is usually a permanent establishment (PE) under the tax treaty and a business connection under section 9 of the Income Tax Act, 2025. So India taxes the profit attributable to the branch. A treaty does not lower the 35 percent rate on business profit. It decides only how much profit belongs to India.

Total income of the foreign company in India	Base rate	Surcharge	Cess	Effective rate
Up to INR 1 crore	35%	Nil	4%	36.40%
Above INR 1 crore, up to INR 10 crore	35%	2%	4%	37.128%
Above INR 10 crore	35%	5%	4%	38.22%
Domestic company under section 200 (for comparison)	22%	10%	4%	25.168%

Source: Finance Act, 2026, First Schedule, read 2 Oct 2026; our arithmetic. Marginal relief applies just above each surcharge threshold.

The rate gap with a domestic company is the main tax cost of the branch route. Our corporate tax rate guide for foreign companies sets out the other special rates.

The sections that apply to a branch

Topic	Income Tax Act, 2025	Old section (1961 Act)	What it means for a branch
Income deemed to accrue in India	Section 9	Section 9	Business connection through the branch
Head office expenditure	Section 60	Section 44C	Deduction capped at 5 percent of adjusted total income
Royalty or fees for technical services through a PE	Section 59, report in Form 24	Section 44DA, Form 3CE	Net basis taxation; accountant's report one month before the return date
Minimum alternate tax	Section 206	Section 115JB	Can apply to a foreign company with a PE; 14 percent from tax year 2026-27
Tax audit	Section 63, Form 26	Section 44AB, Forms 3CA and 3CD	If turnover exceeds the section 63 limits
Transfer pricing report	Section 172, Form 48	Section 92E, Form 3CEB	For international transactions with group companies
Return due date	Section 263(1)(c)	Section 139(1)	31 Oct, or 30 Nov with a transfer pricing report
Tax deducted on receipts from Indian customers	Section 393(2), Table serial 17	Section 195	Customers deduct tax unless a certificate applies
Lower deduction certificate	Section 395(1), Form 128	Section 197, Form 13	Cuts tax deducted at source on branch receipts
Advance tax	Section 408	Section 208	Quarterly instalments

Head office expenditure under section 60

Section 60 limits the deduction for head office expenditure of a non resident. The cap is 5 percent of adjusted total income, or of average adjusted total income in a loss year. Head office expenditure means executive and general administration costs incurred outside India. It includes rent, salaries and travel of staff who manage the business from offices abroad.

Adjusted total income is total income computed before this deduction, carried forward losses and some other allowances. A branch that books a large head office allocation often finds part of it disallowed. We cap the allocation in the branch accounts at the start, so the tax return does not surprise anyone.

Minimum alternate tax

Section 206(1)(l) switches off minimum alternate tax (MAT) for a treaty country company with no PE in India. It also switches it off for a non treaty company not required to register under Indian company law. A branch is usually a PE and registers under Chapter XXII. So MAT can apply to it. The department's MAT and AMT page gives 14 percent of book profit from tax year 2026-27. MAT bites only when it exceeds tax at 35 percent, which is rare for a profitable branch.

Tax deducted by Indian customers

Indian customers deduct tax when they pay a foreign company, including its branch. Section 393(2), Table serial 17, covers payments to non residents. The rate in force can be 20 percent for fees for technical services and 35 percent for other income, plus surcharge and cess. A branch that earns a thin margin can end up with tax deducted far above its final liability.

The fix is a lower deduction certificate in Form 128 under section 395(1). Our Form 128 guide covers the application. The branch also needs a PAN, which a foreign company now gets in Form 96, as our PAN guide explains.

How does a branch office send profits to the head office?

A branch can remit its profit abroad, net of applicable Indian taxes, through its AD bank. Regulation 4(i) of FEMA 22(R) and paragraph 9 of the Master Direction set the documents. India levies no separate tax on the remittance itself.

The AD bank asks for:

1. A certified copy of the audited balance sheet and profit and loss account for the year.
2. A Chartered Accountant's certificate on how the remittable profit was worked out.
3. The same certificate confirming that the whole profit came from permitted activities.
4. The same certificate confirming that the profit includes no gain on revaluation of branch assets.

Point	Rule	Source
What can be remitted	Profit of the branch net of applicable Indian taxes	FEMA 22(R), regulation 4(i)
Who approves	AD bank, on documents	Master Direction, paragraph 9
Revaluation gain	Cannot be included	Master Direction, paragraph 9
RBI purpose code	S1408, remittance of profit by branches	RBI purpose code list
Tax on the remittance	None in the Income Tax Act, 2025; profit is taxed when earned	Our reading of the Act
Form 145	Part D, as a sum not chargeable to tax, on our reading	Rule 220(2), Income Tax Rules, 2026
Through another AD bank	Allowed with an NOC from the designated bank	RBI FAQ 22

The Act has no branch profits tax. A subsidiary's dividend bears withholding tax in India, while a branch's remittance does not. That partly offsets the higher branch rate. The worked example below sets the two side by side.

We file Part D of Form 145, because S1408 is not in the rule 220(3) exempt list and the remittance is not income. Some banks still ask for a Form 146; we give it when the bank insists. Our Form 145 and 146 guide covers the parts.

A project office remits its surplus differently. The AD bank can allow intermittent remittances before completion with two papers. One is an auditor's certificate that Indian liabilities, including income tax, are provided for. The other is an undertaking that the remittance will not affect completion and that any shortfall will be met from abroad.

What annual filings does a branch office have?

By 30 September, the branch sends its Annual Activity Certificate (AAC) and audited financial statements to two places. They go to the AD bank and to the Director General of Income Tax (International Taxation), New Delhi. It also files Forms FC-3 and FC-4 with the Registrar, an income tax return, and, where needed, tax audit and transfer pricing reports.

The AAC is certified by a Chartered Accountant. It confirms that the branch did only permitted activities and met the terms of its approval. Regulation 4(l) asks for it as at 31 March, with audited financial statements including a receipt and payment account. Where the office closes its accounts on another date, the AAC is due within six months of that balance sheet date. A project office sends its AAC to the AD bank only.

Filing	Law	Due date for the year ending 31 Mar 2027	Filed with
AAC with audited financial statements	FEMA 22(R), regulation 4(l)	30 Sep 2027	AD bank and DGIT (International Taxation); PO to AD bank only
Form FC-3, accounts of the Indian business with a list of places of business	Companies Act, 2013, section 381; rules 4 and 6	30 Sep 2027 (six months from the year end)	Registrar
Form FC-4, annual return	Companies Act, 2013, section 384; rule 7	30 May 2027 (60 days from the year end)	Registrar
Form 26, tax audit report, if turnover exceeds the limit	Income Tax Act, 2025, section 63	30 Sep 2027, or 31 Oct 2027 with Form 48	Income Tax Department
Form 48, transfer pricing report	Section 172; rule 85	31 Oct 2027	Income Tax Department
Form 24, royalty or fees for technical services through a PE	Section 59; rule 43	One month before the return due date	Income Tax Department
Income tax return	Section 263(1)(c)	31 Oct 2027, or 30 Nov 2027 with Form 48	Income Tax Department
Quarterly TDS statements	Section 397; rule 219	31 Jul, 31 Oct, 31 Jan, 31 May	Income Tax Department
Advance tax	Section 408	15 Jun, 15 Sep, 15 Dec, 15 Mar	Bank challan

Rule 5 of the same 2014 Rules has a practising Chartered Accountant in India audit the accounts of the Indian business. Rule 4 asks the financial statements to disclose related party transactions, profit repatriation and fund transfers. We prepare the AAC, FC-3 and the tax return from one audited set, because a mismatch invites questions.

Form 162 does not apply to a branch. Section 505 limits it to a non resident with a liaison office. If the AAC is late, RBI's FAQ 1 tells the AD bank to report the default to RBI immediately.

Filings for the year that ended on 31 Mar 2026

For FY 2025-26, the AAC and Form FC-3 were due on 30 Sep 2026. Form FC-4 was due on 30 May 2026. The tax filings stay under the Income Tax Act, 1961, because section 536 of the 2025 Act saves them. CBDT Circular No. 07/2026 moved the tax audit report to 21 Oct 2026 and the return to 21 Nov 2026. Transfer pricing cases keep 31 Oct 2026 for Form 3CEB and the audit, and 30 Nov 2026 for the return.

CSR for a branch

Section 135 of the Companies Act, 2013 can apply to a foreign company with a branch or project office in India. Rule 3(1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 brings it in. Section 135(1) sets three tests for the preceding financial year. They are net worth of INR 500 crore, turnover of INR 1,000 crore or net profit of INR 5 crore. On our reading, the rule measures them on the Indian accounts prepared under section 381, not on the group's global figures. Read the current rule on the MCA site before you act on a borderline case.

Penalty for missing Chapter XXII filings

Section 392 of the Companies Act, 2013 punishes a breach of Chapter XXII with fines. The foreign company faces a fine of INR 1,00,000 to INR 3,00,000. A continuing offence adds up to INR 50,000 for every day after the first. Every officer in default faces a fine of INR 25,000 to INR 5,00,000. The section as it now reads carries no prison term, which the Companies (Amendment) Act, 2020 took out. We read the text hosted on incometaxindia.gov.in on 2 Oct 2026.

Does GST treat a branch office's services to its head office as exports?

No. Section 2(6)(v) of the IGST Act, 2017 excludes supplies between establishments of the same person from export of services. CBIC Circular No. 161/17/2021-GST of 20 Sep 2021 confirms that a branch in India supplying its head office abroad does not export. A subsidiary supplying its foreign parent can.

This trips many IT and support branches. A branch that builds software for its parent cannot treat the invoices as zero rated under a Letter of Undertaking. Section 7(5)(a) of the IGST Act treats a supply from India with a place of supply outside India as inter State. So IGST applies to the branch's invoices. We check the place of supply and the value before the first invoice.

Explanation 1 to section 8 of the IGST Act treats an establishment in India and one outside as establishments of distinct persons. Condition (v) of section 2(6) then blocks export status between them. A company incorporated in India is a separate person from its foreign parent, so condition (v) does not bite.

A branch registers for GST in each state from which it makes taxable supplies.

How do you close a branch office or project office?

The branch applies to its designated AD bank with the closure documents. The AD bank then allows the final remittance of winding up proceeds. A project office closes the same way when the project ends.

Closure item	Who provides it	Source
Copy of the RBI or AD bank approval	Branch or nodal office	Master Direction
Auditor's certificate on the remittable amount, with a statement of assets and liabilities and the disposal of assets	Statutory auditor	Master Direction; regulation 4(m)
Auditor's confirmation that all Indian liabilities, including gratuity and employee dues, are met or provided for	Statutory auditor	Master Direction
Auditor's confirmation that no income from outside India, including export proceeds, is unrepatriated	Statutory auditor	Master Direction
Confirmation of no pending legal proceedings in any Indian court	Branch or parent	Master Direction
Registrar of Companies report on Companies Act compliance, where applicable	Branch obtains	Master Direction
Confirmation that all AACs were filed	AD bank checks	Master Direction
Final audited project accounts	Project office only	FEMA 22(R), regulation 4
Forms 145 and 146 for the final remittance, where required	Branch and a Chartered Accountant	Income Tax Rules, 2026

The AD bank can approve a sale of branch assets to a resident third party (RBI FAQ 14). A transfer to a joint venture or wholly owned subsidiary is allowed only on closure, under regulation 4(k). The price cannot exceed book value, certified by the statutory auditor. Intangibles and capitalised expenses are left out.

Section 380(3) of the Companies Act, 2013 asks for a return of alterations within 30 days, in Form FC-2. We treat the closure of the place of business as an alteration and file it. Employee dues and the last tax assessment take longest, so we start the auditor's certificate early.

Branch office vs subsidiary vs liaison office

Pick a liaison office to study the market, and a project office for one contract. Pick a branch to bill Indian customers within the eight activities without forming a company. Pick a subsidiary for anything else, including manufacturing, retail or services to the parent as zero rated exports.

Point	Branch office	Project office	Liaison office	Subsidiary (Private Limited)
Legal status	Office of the foreign company	Office of the foreign company	Office of the foreign company	Separate Indian company
FEMA approval	AD bank, or RBI in regulation 5 cases	General permission if conditions met	AD bank, or RBI in regulation 5 cases	FDI automatic or government route by sector
Financial test	5 years of profit; USD 100,000 net worth	Indian contract plus one funding or clearance condition	3 years of profit; USD 50,000 net worth	None under FEMA
What it can do	Eight Annex C activities	The contracted project	Four liaison activities	Any business allowed under FDI rules
Income in India	Yes	Project income	None	Yes
Income tax rate	35% plus surcharge and cess	35% plus surcharge and cess	No income; Form 162	22% under section 200, plus 10% surcharge and cess
Tax on sending profit home	None	None	Not applicable	Withholding tax on dividends
Services to the parent under GST	Not export of services	Not export of services	No supplies	Export if other conditions hold
Validity	No fixed period	Project tenure	3 years, renewable	Perpetual
Liability	Foreign company is fully liable	Foreign company is fully liable	Foreign company is fully liable	Limited to the subsidiary
AAC	AD bank and DGIT (International Taxation)	AD bank only	AD bank and DGIT (International Taxation)	Not applicable; FLA return instead
Registrar filings	FC-1, FC-3, FC-4	FC-1, FC-3, FC-4	FC-1, FC-3, FC-4	AOC-4, MGT-7 and others
Exit	AD bank closure	Closure on completion	AD bank closure	Strike off or winding up

The branch exposes the foreign company to every Indian liability, because there is no separate entity in between. The subsidiary ring fences that risk. A branch is also harder to sell or bring in an Indian investor, because there are no shares. Our branch vs subsidiary guide for UAE companies runs the same choice for a Gulf parent. Our dividend guide covers withholding on the subsidiary route.

To have us test your company against the branch office criteria, send your last five audited balance sheets through our FEMA compliance team.

What changed in 2026

The RBI rules for branch and project offices did not change in 2026. FEMA 22(R) and the Master Direction still apply, and the 2025 draft replacement is not notified. The tax side changed: from 1 Apr 2026, the Income Tax Act, 2025 renumbered every section and form a branch uses.

Area	Old rule	New rule	Date	Instrument
Income tax law	Income Tax Act, 1961	Income Tax Act, 2025	1 Apr 2026	Act 30 of 2025; Rules, G.S.R. 198(E) of 20 Mar 2026
Head office expenditure cap	Section 44C	Section 60, same 5 percent cap	Tax year 2026-27	Income Tax Act, 2025
Royalty and fees through a PE	Section 44DA, Form 3CE	Section 59, Form 24 under rule 43	Tax year 2026-27	Income Tax Act, 2025; Income Tax Rules, 2026
Minimum alternate tax	15 percent under section 115JB	14 percent under section 206; no new credit	Tax year 2026-27	Finance Act, 2026
Audit, transfer pricing, lower deduction and PAN forms	Forms 3CA and 3CD, 3CEB, 13 and 49AA	Forms 26, 48, 128 and 96	1 Apr 2026	Income Tax Rules, 2026
Remittance forms	Forms 15CA and 15CB	Forms 145 and 146	Money remitted from 1 Apr 2026	Income Tax Rules, 2026, rule 220
AY 2026-27 tax audit and return	30 Sep 2026 and 31 Oct 2026	21 Oct 2026 and 21 Nov 2026 (non transfer pricing cases)	29 Sep 2026	CBDT Circular No. 07/2026
Foreign company tax rate	35 percent	35 percent, unchanged	Tax year 2026-27	Finance Act, 2026, First Schedule
RBI branch and office regulations	FEMA 22(R)/2016-RB	Draft regulations proposed; FEMA 22(R) still in force	Draft released 3 Oct 2025; comments closed 24 Oct 2025	RBI press release 2025-2026/1232

RBI's press release of 3 Oct 2025 said the draft would relax eligibility, move to a principle based framework and simplify closure of inactive offices. RBI's list of FEMA notifications, checked on 2 Oct 2026, shows no final regulation. So the five year profit test, the USD 100,000 net worth test and the 30 September AAC date still apply. Our Income Tax Act, 2025 guide maps the other renumbered forms.

Worked example

A UK engineering consultancy, UK Ltd, wants a Pune branch to serve Indian manufacturers from tax year 2026-27. Its year ends on 31 December. Figures are illustrative. We assume GBP 1 = USD 1.30.

The eligibility test

UK Ltd made a profit in each of the last five years. Its balance sheet is lean, because it pays most profit out as dividends. Its parent, UK Holdings Ltd, is larger.

Item (GBP)	UK Ltd	UK Holdings Ltd (parent)
Paid up capital	100,000	2,000,000
Free reserves	60,000	3,400,000
Intangible assets	90,000	250,000
Net worth (capital plus reserves, less intangibles)	70,000	5,150,000
Net worth in USD at 1.30	91,000	6,695,000
Five year profit test	Passes	Passes
USD 100,000 net worth test	Fails	Passes

UK Ltd files Form FNC with a Letter of Comfort from UK Holdings Ltd and both companies' audited accounts. The United Kingdom is not a listed country and engineering consultancy is not a regulation 5 sector, so the AD bank approves without RBI.

The branch tax computation

In tax year 2026-27, the branch earns fees from Indian clients. Its books show a profit of INR 5,00,00,000 after a head office charge of INR 40,00,000.

Step	Working	INR
Profit after head office charge	From the branch accounts	5,00,00,000
Add back head office charge	To find adjusted total income	40,00,000
Adjusted total income	5,00,00,000 + 40,00,000	5,40,00,000
Section 60 cap	5% × 5,40,00,000	27,00,000
Disallowed head office charge	40,00,000 − 27,00,000	13,00,000
Total income	5,00,00,000 + 13,00,000	5,13,00,000
Tax at 35%	35% × 5,13,00,000	1,79,55,000
Surcharge at 2% (income above INR 1 crore, up to INR 10 crore)	2% × 1,79,55,000	3,59,100
Cess at 4%	4% × (1,79,55,000 + 3,59,100)	7,32,564
Total tax	1,79,55,000 + 3,59,100 + 7,32,564	1,90,46,664
Profit remittable after tax	5,00,00,000 − 1,90,46,664	3,09,53,336

The disallowed INR 13,00,000 cost INR 4,82,664 in extra tax (13,00,000 × 37.128 percent). MAT at 14 percent of book profit stays well below the normal tax, so it does not apply. The branch pays advance tax in four instalments by 15 Mar 2027. A profit of INR 5 crore also meets the section 135 net profit test, so UK Ltd should check CSR for the next year.

Branch or subsidiary on the same profit

Now compare a branch and a subsidiary on a taxable profit of INR 5,00,00,000, with no head office charge. The subsidiary opts for section 200 and pays out all its post tax profit as a dividend. We use the India UK treaty rate of 10 percent on dividends (2013 protocol). We apply the treaty rate without surcharge and cess, which rests on tribunal rulings rather than the Act.

Item	Branch (INR)	Subsidiary (INR)
Taxable profit	5,00,00,000	5,00,00,000
Tax rate with surcharge and cess	37.128%	25.168%
Corporate tax	1,85,64,000	1,25,84,000
Profit after tax	3,14,36,000	3,74,16,000
Tax on sending it home	Nil	10% × 3,74,16,000 = 37,41,600
Cash reaching the UK	3,14,36,000	3,36,74,400
Total Indian tax	1,85,64,000	1,63,25,600
Total Indian tax as a share of profit	37.13%	32.65%

The branch pays 35 percent of INR 5,00,00,000, which is INR 1,75,00,000. Surcharge at 2 percent adds INR 3,50,000 and cess at 4 percent adds INR 7,14,000. The subsidiary pays 22 percent, which is INR 1,10,00,000. Surcharge at 10 percent adds INR 11,00,000 and cess at 4 percent adds INR 4,84,000.

On these figures, the subsidiary leaves INR 22,38,400 more in the UK each year. The gap narrows if the subsidiary keeps profit in India. It also depends on the credit UK Ltd gets at home for Indian tax, which this example ignores. If the branch did software work for UK Ltd, GST would widen the gap, because the subsidiary could export and the branch could not.

The filing calendar for the branch

Event	Rule	Date
Approval letter	Master Direction	14 Oct 2026
Last day to open the office	6 months from approval (conservative count)	13 Apr 2027
Office opens	Plan	1 Jan 2027
Form FC-1	30 days from setting up	30 Jan 2027
Advance tax, final instalment	Section 408	15 Mar 2027
Form FC-4 for the year to 31 Mar 2027	Rule 7: 60 days	30 May 2027
AAC with audited accounts, to the AD bank and DGIT (International Taxation)	FEMA 22(R), regulation 4(l)	30 Sep 2027
Form FC-3 for the year to 31 Mar 2027	Rule 4: six months	30 Sep 2027
Form 26 tax audit report, no transfer pricing report	Section 63	30 Sep 2027
Return of income	Section 263(1)(c)	31 Oct 2027

The Indian books close on 31 March, even though UK Ltd closes on 31 December. One audit then serves the AAC, Form FC-3 and the tax return.

Common mistakes

1. Running a branch outside the eight activities. A branch that trades locally or sells to consumers breaches its approval. Fix: map every revenue line to Annex C before filing Form FNC.
2. Treating services to the head office as exports. CBIC Circular No. 161/17/2021-GST rules this out for a branch. Fix: price GST into the plan, or use a subsidiary for captive services.
3. Booking the full head office charge as a deduction. Section 60 caps it at 5 percent of adjusted total income. Fix: cap the allocation in the branch accounts.
4. Letting customers deduct tax at the full rate all year. The branch then waits for refunds. Fix: apply for a Form 128 certificate early in the tax year.
5. Missing the AAC. The AD bank reports the default to RBI. Fix: finish the audit by August and file by 30 September.
6. Opening a second bank account. FAQ 2 needs RBI permission for it. Fix: keep one account, plus one tax payment account at an agency bank if needed.
7. Skipping Forms FC-1, FC-3 and FC-4. Fix: file FC-1 within 30 days of opening. Diarise both annual forms.
8. Assuming a Chinese parent always needs RBI. Fix: apply through the AD bank outside the three named regions. Register with the police.
9. Filing Form 162 for a branch. Section 505 covers only liaison offices. Fix: file the branch's income tax return and audit reports instead.

Checklist for opening and running a branch office

1. Map the planned revenue to the eight Annex C activities, and move retail, local trading or manufacturing elsewhere.
2. Test five years of profit and USD 100,000 net worth, and arrange a Letter of Comfort if either fails.
3. Check regulation 5 for the approval route: country, region, sector and type of entity.
4. Choose one designated AD bank and ask for its Form FNC checklist.
5. Notarise and attest the charter, incorporation certificate, five years of accounts, bankers' report and power of attorney.
6. File Form FNC and track the UIN request to RBI's CO Cell.
7. Lease premises for five years or less, and open the office within six months of approval.
8. File Form FC-1 with the Registrar within 30 days of opening.
9. Apply for PAN in Form 96, a TAN before the first payroll, and GST registration before the first taxable supply.
10. Register with the state police if the parent comes from a listed country.
11. Open the INR account with the designated AD bank and route all business through it.
12. Apply for a Form 128 lower deduction certificate if customers will deduct tax above the expected liability.
13. Pay advance tax by 15 June, 15 September, 15 December and 15 March.
14. Close the Indian books on 31 March and finish the audit before September.
15. File Form FC-4 within 60 days of the year end.
16. File Form FC-3 and the AAC by 30 September.
17. File the tax audit report, any Form 48 or Form 24, and the return by their section 63, 172 and 263 dates.
18. Remit profit with audited accounts and the CA certificate, and file Form 145 before each remittance.
19. Plan closure or conversion early, starting with the auditor's certificate on liabilities.

Frequently Asked Questions

Can a branch office sell goods to Indian customers?+

Only as import and export of goods, or as buying or selling agent for its parent. Annex C of the RBI Master Direction lists no domestic trading activity. The 2016 version of the Master Direction expressly barred retail trading of any kind. A foreign company that wants to sell to Indian consumers, online or in shops, needs an Indian subsidiary under the FDI rules.

Can a branch office manufacture in India?+

Not outside a Special Economic Zone. Manufacturing is not one of the eight Annex C activities, and the 2016 Master Direction expressly barred it. Regulation 3 of FEMA 22(R) allows a branch in an SEZ to manufacture. The sector must permit 100 percent FDI, and the branch must run on a stand alone basis. Elsewhere, manufacturing needs a subsidiary.

Which RBI purpose code applies to branch profit remittance?+

S1408, remittance of profit by branches of FDI enterprises in India. A subsidiary's dividend uses S1409 instead. S1408 is not in the rule 220(3) list of codes exempt from Form 145. On our reading, the branch files Part D of Form 145, because the remittance is not income chargeable to tax.

Can a branch office buy property in India?+

Yes. RBI's FAQ 4 allows a branch or project office to buy property for its own use and its permitted or incidental activities. It cannot buy property to lease or rent out. Applicants from the listed countries, including China and Pakistan, need RBI's prior approval for a purchase. Leases of up to five years need no approval.

Can a branch office open a foreign currency account?+

No, not for normal business. RBI's FAQ 18 says a branch cannot open a foreign currency account for its normal transactions. It keeps one INR account with its designated AD bank. A project office may hold up to two non interest bearing foreign currency accounts at one AD bank. Its contract must provide for payment in foreign currency.

Does a branch office have a validity period?+

No fixed period. The Master Direction sets three years for a liaison office and the project tenure for a project office, but none for a branch. The branch must open within six months of approval, file its AAC every year and stay within its activities.

Can a project office execute more than one project?+

No. Each project needs its own project office under regulation 4(f) of FEMA 22(R), tested against its own contract and funding condition. RBI's FAQ 7 says bank accounts must be kept at project level, not at the entity level. A foreign company with several Indian contracts usually ends up with several project offices.

Does a project office need a UIN from RBI?+

No. RBI's FAQ 12 says the AD bank need not obtain a UIN for a project office. The project office relies on the general permission in regulation 4(f). Applicants from Pakistan, and from the seven listed countries for the three named regions, still need RBI's prior approval.

Can a Chinese company open a branch office in Bengaluru without RBI approval?+

Yes, through the AD bank. Regulation 5(b) of FEMA 22(R) covers applicants from China, Hong Kong, Macau and four other countries. It needs RBI approval only for offices in Jammu and Kashmir, the North East or the Andaman and Nicobar Islands. RBI's FAQ 13 confirms that the AD bank can approve other locations. The company must register with the state police.

Does a branch office need a transfer pricing report?+

Yes, if it has international transactions with associated enterprises. A branch that buys from or sells to a group company abroad files Form 48 under section 172 of the Income Tax Act, 2025. For tax year 2026-27 it is due by 31 Oct 2027. On our reading, dealings with its own head office are not between two enterprises, though treaty profit attribution still follows arm's length rules.

Can a liaison office be upgraded to a branch office?+

Yes. RBI's FAQ 10 lets the AD bank upgrade a liaison office to a branch under advice to RBI's CO Cell. The foreign company must meet the five year profit and USD 100,000 net worth tests. FAQ 5 lets the branch keep the same PAN and bank account, redesignated as a branch account. The new activities need a fresh look for tax.

Who certifies the Annual Activity Certificate of a branch office?+

A Chartered Accountant certifies it. Regulation 4(l) of FEMA 22(R) asks for the AAC as at 31 March, by 30 September. Audited financial statements, including a receipt and payment account, go with it. The branch sends it to its AD bank and the DGIT (International Taxation), New Delhi. Several offices can file one combined AAC through a nodal office.

What forms does a branch office file with the Registrar of Companies?+

Form FC-1 within 30 days of setting up the place of business, under section 380(1) of the Companies Act, 2013. Form FC-2 within 30 days of any change in those particulars. Form FC-3 with audited accounts within six months of the year end. Form FC-4, the annual return, within 60 days of the year end.

Is the RBI draft regulation of 2025 for branch offices in force?+

No. RBI released the draft Foreign Exchange Management (Establishment in India of a branch or office) Regulations, 2025 on 3 Oct 2025. Comments closed on 24 Oct 2025. RBI's list of FEMA notifications, checked on 2 Oct 2026, shows no final version. FEMA 22(R)/2016-RB and its eligibility tests still apply.

Sources

• Reserve Bank of India, Notification No. FEMA 22(R)/2016-RB, Foreign Exchange Management (Establishment in India of a Branch Office or a Liaison Office or a Project Office or any other place of business) Regulations, 2016, 31 Mar 2016, with amendments of 31 Aug 2018 and 21 Jan 2019, https://rbi.org.in/scripts/NotificationUser.aspx?Id=10327&Mode=0
• Income Tax Department, text of FEMA 22(R)/2016-RB as hosted, https://incometaxindia.gov.in/Documents/Provisions%20for%20NR/FEM-Establishment-in-India-of-a-Branch-Office-Regulations-2016.htm
• Reserve Bank of India, Master Direction on Establishment of Branch Office (BO), Liaison Office (LO), Project Office (PO) or any other place of business in India by foreign entities, 1 Jan 2016, updated as on 18 May 2021, https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10404
• Reserve Bank of India, Master Direction on Establishment of Liaison, Branch and Project Offices, original version of 1 Jan 2016, https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=10195
• Reserve Bank of India, FAQs on Liaison, Branch and Project Offices of foreign entities in India, 26 Dec 2016, https://www.rbi.org.in/commonman/english/Scripts/FAQs.aspx?Id=1303
• Reserve Bank of India, Press release 2025-2026/1232, Draft Foreign Exchange Management (Establishment in India of a branch or office) Regulations, 2025, 3 Oct 2025, https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=61348
• Reserve Bank of India, FEMA notifications list, checked 2 Oct 2026, https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx
• Income Tax Department, First Schedule to the Finance Act, 2026, read 2 Oct 2026, https://www.incometaxindia.gov.in/w/first-schedule-104
• Income Tax Department, Income Tax Act, 2025, section 60, deduction of head office expenditure in case of non residents, https://www.incometaxindia.gov.in/w/section-60-138
• Income Tax Department, Income Tax Act, 2025, section 59, computation of royalty and fee for technical services of non residents, https://www.incometaxindia.gov.in/w/section-59-141
• Income Tax Department, Guidance note on Form 24 (old Form 3CE), https://www.incometaxindia.gov.in/documents/d/guest/fn-24
• Income Tax Department, Income Tax Act, 2025, section 206, https://www.incometaxindia.gov.in/w/section-206-75
• Income Tax Department, MAT and AMT, https://www.incometaxindia.gov.in/w/mat-and-amt
• Income Tax Department, FAQs and Guidance Notes on Forms as per Income Tax Rules, 2026, https://www.incometaxindia.gov.in/faqs-and-guidance-notes-on-forms-as-per-income-tax-rules-2026
• Central Board of Direct Taxes, Circular No. 07/2026 on due dates for AY 2026-27, income tax portal news item of 29 Sep 2026, https://www.incometax.gov.in/
• Companies Act, 2013, section 392 (punishment for contravention by a foreign company), as hosted by the Income Tax Department, read 2 Oct 2026, https://www.incometaxindia.gov.in/w/section-392-2
• Ministry of Corporate Affairs, Companies Act, 2013 and rules, including the Companies (Registration of Foreign Companies) Rules, 2014 and the Companies (Corporate Social Responsibility Policy) Rules, 2014, https://www.mca.gov.in/content/mca/global/en/acts-rules/companies-act/companies-act-2013.html
• Central Board of Indirect Taxes and Customs, Circular No. 161/17/2021-GST, 20 Sep 2021, https://cbic-gst.gov.in/pdf/Circular-No-161-14-2021-GST.pdf
• Internal Revenue Service, India United States income tax treaty, Article 5, https://www.irs.gov/pub/irs-trty/india.pdf