Dormant Company Audit in India for Foreign Owned Subsidiaries (2026)

Written by CA Nandini Hasija, Krystal7 Consultants. Last updated 23 October 2026.

Yes. Every Indian company needs a statutory audit under section 139 of the Companies Act, 2013, whatever its revenue. A dormant subsidiary is no exception. If it obtains dormant status under section 455 through Form MSC-1, it files Form MSC-3 each year, audited by a Chartered Accountant in practice. It still files its income tax return and, with foreign investment outstanding, the FLA return by 15 July.

This page is for foreign parents with an Indian subsidiary that has stopped trading or never started. It covers the audit, dormant status, the filings that never stop, the cost of doing nothing and strike off.

Does a dormant or low revenue Indian subsidiary still need an audit?

Yes. Section 139(1) of the Companies Act, 2013 requires every company to appoint an auditor, and section 143 requires a report on every financial statement. Neither section sets a revenue or activity threshold. A subsidiary with nil revenue, or one that only holds its share capital in a bank account, still has its accounts audited.

The Act itself assumes that a dormant company prepares and files financial statements. Section 2(40) says the financial statement of a one person company, small company or dormant company "may not include the cash flow statement". That proviso drops one statement. It leaves the balance sheet, the profit and loss account and the audit in place.

Dormant status changes the annual filing, not the audit. Rule 7 of the Companies (Miscellaneous) Rules, 2014 (the Miscellaneous Rules) requires a "Return of Dormant Company" showing the financial position. The return must be "duly audited by a chartered accountant in practice".

So the realistic choice is between three routes, and each one has an audit or an exit:

1. Keep the subsidiary active at low cost, with the full annual cycle and a short audit.
2. Apply for dormant status, and file an audited MSC-3 each year.
3. Close the company through strike off or voluntary liquidation.

Our guide to the statutory audit of a foreign owned subsidiary covers the full audit cycle. Our note on the first auditor and Form ADT-1 covers how the auditor is appointed in the first place.

Is there any revenue or size threshold for a statutory audit?

No. The thresholds people quote belong to other audits or reports. The tax audit starts at INR 1 crore of turnover. CARO 2020 reporting has its own private company exemption. Neither removes the statutory audit, which every company needs from its first financial year.

Small company relief does not help a subsidiary either. Section 2(85) excludes every holding and subsidiary company from the definition. G.S.R. 880(E) of 1 Dec 2025 raised the small company limits to INR 10 crore of paid up capital and INR 100 crore of turnover. A wholly owned subsidiary of a foreign company stays outside them at any size.

Requirement	Threshold	Applies to a dormant or low revenue subsidiary?	Rule
Statutory audit	None	Yes, every year	Companies Act, 2013, sections 139 and 143
CARO 2020 reporting	Private company exemption: capital plus reserves and bank borrowings each INR 1 crore or less, revenue INR 10 crore or less, not linked to an Indian public company	Often exempt, if all four tests are met	CARO 2020, paragraph 1(2)(v)
Cash flow statement	Not required for dormant companies	Optional once dormant status is granted	Companies Act, 2013, proviso to section 2(40)
Tax audit	Turnover above INR 1 crore, or INR 10 crore where cash is 5% or less	No, unless turnover crosses the limit	Section 44AB (FY 2025-26); section 63, Income Tax Act, 2025
Transfer pricing report	Any international transaction with an associated enterprise	Yes, if the parent lends to it or pays its costs	Section 92E and Form 3CEB (FY 2025-26); section 172 and Form 48

The transfer pricing row catches many dormant subsidiaries. A parent that lends money to keep the company alive, or pays its Indian bills, creates an international transaction. Our guide to Form 3CEB covers the report. Section 63 of the Income Tax Act, 2025 and Form 26 take over the tax audit from tax year 2026-27, so read the section 63 test for later years.

What is a dormant company under section 455?

A company that the Registrar has recorded as dormant on its own application. Section 455(1) of the Companies Act, 2013 lets two kinds of company apply. One is a company formed for a future project, or to hold an asset or intellectual property, with no significant accounting transaction. The other is an inactive company.

The Explanation to section 455 defines an inactive company. It is a company that, during the last two financial years, has done any of these:

1. It carried on no business or operation.
2. It made no significant accounting transaction.
3. It filed no financial statements and annual returns.

A significant accounting transaction is any transaction other than four kinds of payment or allotment:

1. Fees paid to the Registrar.
2. Payments to meet the requirements of the Act or any other law.
3. Allotment of shares to meet the requirements of the Act.
4. Payments for keeping the company's office and records.

So a subsidiary that only pays its ROC fees, its auditor and its rent for a registered office can still qualify. A subsidiary that pays salaries, buys services or raises invoices cannot.

The first limb suits foreign groups well. A parent that incorporates an Indian company ahead of a project, or to hold a trademark, can seek dormant status from the start. It does not have to wait two years.

Section 455(4) also works the other way. Take a company that files no financial statements or annual returns for two financial years in a row. The Registrar issues it a notice and enters it in the register of dormant companies. Strike off under section 248 is the other power the ROC holds over such a company.

How does a subsidiary apply for dormant status in Form MSC-1?

The company files Form MSC-1 with the Registrar under rule 3 of the Miscellaneous Rules. Before filing, it passes a special resolution at a general meeting. The alternative is a notice to all shareholders and the consent of at least three fourths of shareholders by value. Rule 3 also asks for the lender's concurrence on an unsecured loan and a certificate that no dispute exists in management or ownership. The Ministry substituted Form MSC-1 in 2023, so read the attachment list in the current form on the MCA portal.

For a subsidiary owned by a foreign parent and one nominee, either route works. We usually take the special resolution at a short notice general meeting, because the parent's authorised representative can sign the consent and attend by video conference. Section 101(1) allows the shorter notice with the consent of a majority in number of members holding at least 95 percent of the paid up voting capital.

Rule 3 bars a company from applying in eight cases:

1. An inspection, inquiry or investigation has been ordered, taken up or carried out against it.
2. A prosecution under any law has started and is pending.
3. It has outstanding public deposits, or has defaulted on deposits or interest on them.
4. It has an outstanding loan, secured or unsecured. An unsecured loan is allowed with the lender's concurrence.
5. There is a dispute in its management or ownership.
6. It has outstanding statutory taxes, dues or duties payable to the Central or State Governments or local authorities.
7. It has defaulted on workmen's dues.
8. Its securities are listed on any stock exchange in or outside India.

The loan bar matters for foreign owned companies. Many dormant subsidiaries owe money to the parent. An unsecured loan from the parent does not block MSC-1 if the parent signs a written concurrence. A secured loan does, until the charge is satisfied.

The Registrar considers the application and issues a certificate in Form MSC-2. The company then appears in the register of dormant companies that MCA keeps on its portal under rule 5. Our company dormancy service runs the MSC-1 filing from the resolution to the certificate.

What must a dormant company file each year?

Form MSC-3, the Return of Dormant Company, within 30 days of the end of each financial year. Rule 7 of the Miscellaneous Rules requires the return to show the financial position, audited by a Chartered Accountant in practice. The annual fee under the Companies (Registration Offices and Fees) Rules, 2014 goes with it.

For a 31 March year end, MSC-3 falls due by 30 April. That is much earlier than the AOC-4 date for an active company. The audit therefore has to finish within a month of the year end, which is easy for a company with almost no transactions.

The proviso to rule 7 keeps two event filings. The company must still file returns of allotment, and returns of changes in directors, within the time the Act sets. A parent that injects fresh capital files PAS-3 on time. An allotment made for any purpose other than meeting the Act's requirements is a significant accounting transaction. It affects the dormant status and starts the seven day clock in rule 8(3).

Whether MSC-3 replaces AOC-4 and MGT-7 for a dormant company is not settled in the text. Rule 7 makes MSC-3 the annual return for the dormant period, and its proviso names only the event filings that continue. Section 455 and rules 3 to 8 do not switch off sections 92 and 137, and we found no MCA circular that says MSC-3 replaces AOC-4 and MGT-7. Before you rely on MSC-3 alone, check the company's filing status on MCA V3 and ask the ROC in writing. We file MSC-3 each year and decide on AOC-4 and MGT-7 after that check.

Requirement for a dormant company	Detail	Rule
Annual return	Form MSC-3, within 30 days of the year end, audited by a Chartered Accountant in practice, with the annual fee	Miscellaneous Rules, rule 7
Minimum directors	Two for a private company, three for a public company, one for a one person company	Miscellaneous Rules, rule 6
Board meetings	At least one in each half of the calendar year, at least 90 days apart	Companies Act, 2013, section 173(5)
Allotment and director changes	File the usual returns on time	Proviso to rule 7
Change in circumstances	Apply for active status within seven days of an event that affects dormant status	Miscellaneous Rules, rule 8(3)
Auditor	Stays in office under section 139	Companies Act, 2013, section 139

Rule 6 needs a closer look for foreign owned companies. A private company needs two directors, and section 149(3) still requires one director resident in India. Our note on the resident director requirement covers who qualifies.

The annual fee under section 455(5) depends on authorised capital. The fee table in the Companies (Registration Offices and Fees) Rules, 2014 sets INR 2,000 up to INR 25,00,000 of capital and INR 5,000 up to INR 50,00,000. It then sets INR 10,000 up to INR 5 crore, INR 15,000 up to INR 10 crore and INR 20,000 above that. One person companies and small companies pay less in the lower bands. The same schedule sets the MSC-1 and MSC-4 fees, so check the current amounts on the MCA fee page before you budget.

How does a dormant company become active again in Form MSC-4?

It applies to the Registrar in Form MSC-4 under section 455(5) and rule 8 of the Miscellaneous Rules. The Registrar then issues a certificate of active status in Form MSC-5. The application goes with the fee and a return for the financial year in which the company applies.

The directors cannot wait for a convenient moment. Rule 8(3) requires them to apply within seven days of any event that affects the dormant status. A new customer contract, a hire or a fresh allotment can each be such an event.

The Registrar can also act on its own. Under rule 8(4), if the Registrar has reason to believe a dormant company is functioning, it may start an enquiry under section 206. After a hearing, it may remove the company from the dormant register and treat it as active.

Dormancy also has a time limit. The proviso to rule 8(1) says the Registrar shall start striking off the company if it remains dormant for five consecutive years. Section 455(6) separately lets the Registrar strike a company off the register of dormant companies if it fails to meet the section's requirements.

So dormant status suits a pause, not a permanent parking place. If the parent has no plan to restart within five years, strike off is usually the better route.

What is the minimum compliance for an inactive subsidiary that is not dormant?

The full annual cycle, on smaller numbers. An inactive subsidiary that never applies for dormant status is an ordinary company. It holds board meetings and an AGM, has its accounts audited, and files AOC-4 and MGT-7. It also files its income tax return and any FEMA returns.

Filing	Active but inactive subsidiary	Dormant company under section 455	Rule
Statutory audit	Yes	Yes; MSC-3 audited by a Chartered Accountant	Sections 139, 143; rule 7
Annual ROC filing	AOC-4 within 30 days of the AGM; MGT-7 within 60 days	MSC-3 within 30 days of the year end; check whether AOC-4 and MGT-7 also apply	Sections 137, 92; rule 7
Board meetings	Four a year, no more than 120 days apart	One in each half year	Section 173(1) and (5)
AGM	By 30 September	Section 455 does not exempt it	Section 96
Income tax return	ITR-6 by the due date	ITR-6 by the due date	Income Tax Act, 1961, section 139(1)
FLA return	By 15 July, if FDI is outstanding	By 15 July, if FDI is outstanding	RBI FLA FAQs
DIR-3 KYC for directors	Next due by 30 Jun 2028 for directors already compliant	Same	G.S.R. 943(E)
Resident director	At least one	At least one	Section 149(3)
Registered office	Must remain able to receive notices	Same	Section 12
GST registration	Nil returns, or cancel the registration	Same	GST law

A registered GST number keeps generating returns even with no supplies. We cancel it once the parent confirms the pause, through our GST cancellation service. A later restart can take a fresh registration.

Two event filings catch subsidiaries that look inactive. A loan from the parent that counts as external commercial borrowing needs a monthly ECB 2 return within seven days after each month end while it is outstanding. A loan from the parent can also bring a DPT-3 return by 30 June for money received that is not a deposit.

Our guide to AOC-4 and MGT-7 for foreign owned companies sets out the annual ROC cycle and its fees.

Does a dormant subsidiary still file an income tax return?

Yes. Section 139(1) of the Income Tax Act, 1961 requires every company to file a return, whatever its income or loss. For tax year 2026-27 onwards, section 263(1) of the Income Tax Act, 2025 carries the same duty. ROC dormant status has no effect on it.

For FY 2025-26 (AY 2026-27), the company files ITR-6. CBDT Circular No. 07/2026 of 28 Sep 2026 moved the due date for companies without a transfer pricing report from 31 Oct 2026 to 21 Nov 2026. A company that files Form 3CEB keeps 31 Oct 2026 for the report and 30 Nov 2026 for the return.

Item	Income Tax Act, 1961 (AY 2026-27)	Income Tax Act, 2025 (tax year 2026-27)
Duty to file a return	Section 139(1)	Section 263(1)
Due date for FY 2025-26	21 Nov 2026, or 30 Nov 2026 with Form 3CEB	Not applicable
Belated return	Section 139(4), by 31 Dec 2026	Section 263(4)
Updated return	Section 139(8A)	Section 263(6)
Late return fee	Section 234F	Section 428
Transfer pricing report	Section 92E, Form 3CEB	Section 172, Form 48
Tax audit	Section 44AB, Forms 3CA and 3CD	Section 63, Form 26

A late return costs more than the fee. Section 234F charges INR 5,000, or INR 1,000 where total income is up to INR 5,00,000. A business loss for the year also cannot be carried forward if the return misses the due date, under section 139(3) read with section 80.

That loss rule hurts a dormant subsidiary most. Its audit, ROC and office costs create a loss every year. A parent that plans to restart wants those losses available against future profits. Filing on time keeps them.

Our ITR-6 guide covers the return form and its schedules.

Does a dormant subsidiary still file the FLA return?

Yes, if it has foreign direct investment outstanding at the end of March of the reporting year or the previous year. RBI's FAQs on the Foreign Liabilities and Assets (FLA) return, updated as on 1 Jul 2026, set the due date as 15 July. The company files on the FLAIR portal.

The FAQs answer the dormant case directly. Q11 and Q12 excuse an entity with no outstanding FDI or overseas investment at the end of March of both years. Q13 requires a return from an entity with "any outstanding foreign direct investment" at the end of March of either year. A subsidiary whose share capital came from the parent has FDI outstanding for as long as it exists.

Unaudited figures are acceptable by the due date. Under Q35, the company then revises the return with RBI approval once the audit is done, whatever the variation. A dormant company with an MSC-3 audit by 30 April has audited figures well before 15 July.

Under Q3, a late or missed return is treated as a violation of FEMA. Q9 provides for a Late Submission Fee, paid through the RBI Regional Office where the registered office sits. Our note on FDI reporting requirements covers the FEMA calendar.

What does doing nothing cost?

More than any of the three routes. An inactive subsidiary that files nothing builds up additional fees with no cap. It also builds penalty exposure for the company and each officer, and puts its directors' other board seats at risk. After two years without business, the ROC can also strike it off.

Consequence	Trigger	Amount or effect	Rule
Additional fee on AOC-4 and MGT-7	Each form filed late	INR 100 a day per form, no cap	Section 403; Fees Rules
Penalty for late AOC-4	Adjudication by the ROC	Company INR 10,000 plus INR 100 a day, up to INR 2,00,000; officers up to INR 50,000 each	Section 137(3)
Penalty for late MGT-7	Adjudication by the ROC	Company and each officer INR 10,000 plus INR 100 a day after the first; caps INR 2,00,000 and INR 50,000	Section 92(5)
Director disqualification	Accounts or annual returns unfiled for three continuous financial years	Every director ineligible for five years, at this and every other company	Section 164(2)(a); proviso to section 167(1)(a)
Strike off by the ROC	No business for two preceding financial years, and no dormant application	Company dissolved; liability of directors and members continues	Sections 248(1)(c), 248(5), 248(7)
Entry in the dormant register	No accounts or annual returns for two consecutive years	Registrar issues a notice and records the company as dormant	Section 455(4)
Late income tax return	Return after the due date	INR 5,000 or INR 1,000 fee; business loss lost	Sections 234F, 139(3), 80
Late FLA return	Return after 15 July	FEMA violation; Late Submission Fee	RBI FLA FAQs, Q3 and Q9

The disqualification row is the one foreign groups underestimate. Section 164(2)(a) does not exempt foreign directors. A regional finance head who sits on several Indian boards can lose every seat because one forgotten subsidiary stopped filing. The proviso to section 167(1)(a) vacates the other directorships.

A subsidiary that was incorporated but never funded faces a further risk. Section 10A requires a declaration of commencement of business in Form INC-20A within 180 days of incorporation. Missing it brings a penalty of INR 50,000 on the company, and section 248(1)(d) gives the ROC a strike off ground.

When is strike off better than dormant status?

When the parent has no plan to use the company again within five years. Strike off under section 248(2) ends the annual audit, the returns and the director exposure. Dormant status only reduces them, and rule 8(1) caps it at five consecutive years before the Registrar starts strike off anyway.

A company can file Form STK-2 only on a ground in section 248(1). The usual grounds are no business for the two preceding financial years, or no business within a year of incorporation. The company must first extinguish all its liabilities. The members pass a special resolution, or holders of 75 percent of the paid up capital consent.

STK-2 carries a fee of INR 10,000. Every director signs an indemnity bond in Form STK-3 and an affidavit in Form STK-4. A Chartered Accountant certifies a statement of accounts in Form STK-8, made up to a date within 30 days of filing. The company must also file its overdue financial statements and annual returns up to the year in which business stopped.

Factor	Keep active at low cost	Dormant status	Strike off (STK-2)
Statutory audit	Every year	Every year, on the MSC-3	Ends after the final accounts
Annual ROC filing	AOC-4 and MGT-7	MSC-3 by 30 April	None after dissolution
Income tax return	Every year	Every year	Until dissolution
FLA return	Every year with FDI outstanding	Every year with FDI outstanding	Until dissolution
Directors needed	Two, one resident in India	Two, one resident in India	Until dissolution
Can the company restart?	Yes, at once	Yes, through MSC-4	No; restoration only through the Tribunal
Time limit	None	Five consecutive years	Not applicable
Main cost	Full annual cycle	Smaller annual cycle, MSC-1 and MSC-4 fees	One time closure work

Strike off returns no share capital to the parent. A company with significant capital or reserves to repatriate usually needs voluntary liquidation instead. Our guide to closing an Indian subsidiary compares the two routes and the FEMA steps.

What changed in 2026

The audit and dormant company rules did not change in 2026. The changes sit around them, in income tax, director KYC and a one time MCA scheme. All dates below are actual dates, including events after this page's January 2026 publication.

Area	Old position	Position on 23 Oct 2026	Date	Instrument
Income tax law	Income Tax Act, 1961	Income Tax Act, 2025 in force; section 263 for returns	1 Apr 2026	Act 30 of 2025
ITR-6 due date, AY 2026-27	31 Oct 2026	21 Nov 2026 without a transfer pricing report; 30 Nov 2026 with one	28 Sep 2026	CBDT Circular No. 07/2026
Director KYC	Yearly DIR-3 KYC	Once every three years; next due by 30 Jun 2028	Notified 31 Dec 2025; KYC cycle from 31 Mar 2026	G.S.R. 943(E)
Late filing relief	Full additional fee	CCFS-2026 window for overdue annual filings, now closed	15 Apr to 15 Sep 2026	General Circulars 01/2026, 03/2026 and 04/2026
Small company limits	INR 4 crore capital, INR 40 crore turnover	INR 10 crore and INR 100 crore; subsidiaries still excluded	1 Dec 2025	G.S.R. 880(E)
Companies Act amendments	Current Act	Corporate Laws (Amendment) Bill, 2026 introduced and referred to a Joint Committee; not passed	23 Mar 2026	Bill No. 85 of 2026

What has happened since 31 Jan 2026

MCA announced the Companies Compliance Facilitation Scheme, 2026 (CCFS-2026) in General Circular No. 01/2026 of 24 Feb 2026. The window ran from 15 Apr 2026 to 15 Jul 2026. General Circular No. 03/2026 of 8 Jul 2026 extended it to 31 Aug 2026, and No. 04/2026 of 31 Aug 2026 to 15 Sep 2026.

The scheme covered overdue annual filings such as AOC-4 and MGT-7, but not DPT-3. A company paid 10 percent of the additional fee and the normal fee in full. It also offered inactive companies cheaper exits. MSC-1 cost half the normal fee, and STK-2 cost 25 percent of the filing fee. The window closed on 15 Sep 2026, so the full fees apply again.

The Lok Sabha introduced the Corporate Laws (Amendment) Bill, 2026 on 23 Mar 2026 and referred it to a Joint Committee. We found no record of Parliament passing it by 23 Oct 2026. Until Parliament passes it and the Government notifies it, the Companies Act applies as it stands, including the three year period in section 164(2)(a). Read the Bill text on the Lok Sabha site before you rely on any proposal in it.

Worked example

Nord Tools AB, a Swedish company, owns Nord Tools India Private Limited with one nominee. The Indian company has authorised and paid up capital of INR 1,00,000. It stopped trading in early 2023, and its last filings were for FY 2022-23. The facts are hypothetical.

The cost of two missing years

For FY 2023-24, the AGM was due by 30 Sep 2024. AOC-4 was due by 30 Oct 2024 and MGT-7 by 29 Nov 2024. For FY 2024-25, the same dates fall in 2025. The company files all four forms on 16 Oct 2026.

Nominal capital of INR 1,00,000 puts each form in the INR 300 normal fee slab.

Form	Due date	Days late on 16 Oct 2026	Additional fee at INR 100 a day (INR)	Company penalty exposure (INR)	Exposure per officer (INR)
AOC-4, FY 2023-24	30 Oct 2024	716	71,600	81,600	50,000 (cap)
MGT-7, FY 2023-24	29 Nov 2024	686	68,600	78,500	50,000 (cap)
AOC-4, FY 2024-25	30 Oct 2025	351	35,100	45,100	45,000
MGT-7, FY 2024-25	29 Nov 2025	321	32,100	42,000	42,000
Total	Not applicable	Not applicable	2,07,400	2,47,200	1,87,000

The MCA payment on filing is INR 2,07,400 of additional fees plus 4 × INR 300 of normal fees, so INR 2,08,600. The company penalty for AOC-4 for FY 2023-24 works as INR 10,000 + (INR 100 × 716) = INR 81,600. For MGT-7, the daily part counts days after the first: INR 10,000 + (INR 100 × 685) = INR 78,500.

The penalty columns are exposure, not a bill. They arise only if the ROC adjudicates under section 454.

Why the filing date mattered

FY 2025-26 is the third year. Its AOC-4 falls due on 30 Oct 2026. The company files the two old years on 16 Oct 2026 and FY 2025-26 on time. That keeps it short of three continuous unfiled years under section 164(2)(a). The two directors keep their other board seats.

Had the company filed the same four forms under CCFS-2026 on 15 Sep 2026, the delays would have been 685, 655, 320 and 290 days. The additional fee would have been INR 1,95,000, and the scheme's 10 percent rate would have cut it to INR 19,500. Missing the window cost the company INR 1,87,900 more in additional fees alone (INR 2,07,400 less INR 19,500).

The filings that continue

Nord Tools India also files ITR-6 for AY 2026-27 by 21 Nov 2026, because it had no international transaction in FY 2025-26. Its share capital from Sweden is FDI outstanding at 31 Mar 2026, so the FLA return was due by 15 Jul 2026. Once the arrears are clear, the parent chooses between MSC-1 and STK-2.

A low revenue subsidiary

Compare a subsidiary that provides support services to its US parent at cost plus 10 percent. Its costs for FY 2025-26 are INR 40,00,000, so its revenue is INR 44,00,000 and its profit INR 4,00,000.

1. The statutory audit applies, because section 139 has no threshold.
2. CARO 2020 does not apply if capital plus reserves stay within INR 1 crore, with no bank borrowing, because revenue is below INR 10 crore.
3. A tax audit is not needed, because INR 44,00,000 is below INR 1 crore.
4. Form 3CEB is needed, because the service fee is an international transaction with the parent.
5. If the company has opted for section 115BAA, tax at 25.168 percent comes to INR 4,00,000 × 25.168 percent = INR 1,00,672.

Common mistakes

1. Treating "no revenue" as "no audit". Fix: keep the auditor in office and close the books every year, whatever the activity.
2. Calling a company dormant without an MSC-1. Fix: dormant status exists only after the Registrar issues Form MSC-2.
3. Missing the 30 April MSC-3 date. Fix: plan the dormant company's audit for April, not September.
4. Leaving a parent loan unaddressed before MSC-1. Fix: get the parent's written concurrence for an unsecured loan, or settle it.
5. Letting the resident director resign during the pause. Fix: keep two directors, one resident in India, for as long as the company exists.
6. Skipping the income tax return because the company is dormant. Fix: file ITR-6 every year by the due date to keep the losses.
7. Forgetting the FLA return. Fix: file by 15 July for as long as the parent's capital sits in the company.
8. Keeping GST registration alive. Fix: cancel it, or file nil returns every period.
9. Restarting business without MSC-4. Fix: apply for active status within seven days of the event.
10. Using dormant status as a permanent home. Fix: plan strike off if no restart is likely within five years.

Checklist

1. Confirm whether the subsidiary has carried on any business or significant accounting transaction in the last two financial years.
2. Bring every overdue AOC-4, MGT-7, ITR and FLA return up to date.
3. Decide with the parent between staying active, dormant status and strike off.
4. Settle or document any loan, using a written concurrence from the parent for an unsecured loan.
5. Pass a special resolution, or collect three fourths consent by value, for MSC-1.
6. File Form MSC-1 with the resolution or consents, the lender's concurrence and the other attachments the current form lists, and keep the MSC-2 certificate.
7. Keep two directors, including one resident in India, and hold one board meeting in each half year.
8. Close the books on 31 March and have the MSC-3 audited by a Chartered Accountant in practice.
9. File Form MSC-3 with the annual fee by 30 April.
10. File ITR-6 by the due date and the FLA return by 15 July.
11. Cancel the GST registration or file nil returns.
12. Apply in Form MSC-4 within seven days of any event that ends the dormant period.

If your subsidiary has stopped trading, email [email protected] with its CIN and the last year it filed.

Frequently Asked Questions

Does a company with no revenue need a statutory audit in India?+

Yes. Section 139(1) of the Companies Act, 2013 requires every company to appoint an auditor, and section 143 requires an audit report on its financial statements. There is no revenue, profit or capital threshold. A subsidiary that only holds its share capital in a bank account still has its accounts audited every year.

Does a dormant company under section 455 need an audit?+

Yes. Rule 7 of the Companies (Miscellaneous) Rules, 2014 requires an annual Return of Dormant Company in Form MSC-3. It shows the financial position, "duly audited by a chartered accountant in practice". The proviso to section 2(40) also lets a dormant company leave out only the cash flow statement.

What is the difference between an inactive company and a dormant company?+

An inactive company is one with no business, no significant accounting transaction, or no financial statements and annual returns filed, over the last two financial years. A dormant company is one the Registrar has recorded as dormant under section 455 after a Form MSC-1 application. An inactive company becomes dormant only through that process.

Who can apply for dormant status in Form MSC-1?+

A company formed for a future project, or to hold an asset or intellectual property, with no significant accounting transaction. An inactive company can also apply. Rule 3 bars companies under inspection or prosecution, with outstanding deposits or loans, with management disputes, with unpaid statutory dues or workmen's dues, or with listed securities.

When is Form MSC-3 due?+

Within 30 days of the end of each financial year, under rule 7 of the Companies (Miscellaneous) Rules, 2014. For a 31 March year end, that is 30 April. The return must be audited by a Chartered Accountant in practice and filed with the annual fee under the Companies (Registration Offices and Fees) Rules, 2014.

How many directors does a dormant private company need?+

Two, under rule 6 of the Companies (Miscellaneous) Rules, 2014. A dormant public company needs three, and a one person company one. Section 149(3) also requires every company to have at least one director who stays in India for at least 182 days in the financial year.

How does a dormant company become active again?+

It files Form MSC-4 under section 455(5) and rule 8, with the fee and a return for the year of the application. The Registrar then issues Form MSC-5. The directors must apply within seven days of any event that affects the dormant status, under rule 8(3).

Can a company stay dormant forever?+

No. The proviso to rule 8(1) of the Companies (Miscellaneous) Rules, 2014 says the Registrar shall start striking off a company that stays dormant for five consecutive years. Section 455(6) also lets the Registrar strike a company off the register of dormant companies if it fails to meet the section's requirements.

Does a dormant subsidiary need to file an income tax return?+

Yes. Section 139(1) of the Income Tax Act, 1961 requires every company to file, whatever its income. For AY 2026-27 the due date is 21 Nov 2026 under CBDT Circular No. 07/2026, or 30 Nov 2026 with Form 3CEB. Section 263(1) of the Income Tax Act, 2025 continues the duty.

Does a dormant subsidiary have to file the FLA return?+

Yes, if foreign direct investment is outstanding at the end of March of the reporting year or the previous year. RBI's FLA FAQs, updated as on 1 Jul 2026, set 15 July as the due date on FLAIR. A late return is a FEMA violation and attracts a Late Submission Fee.

What happens if a subsidiary files nothing for three years?+

Section 164(2)(a) of the Companies Act, 2013 disqualifies every director for five years, at that company and every other company. The proviso to section 167(1)(a) vacates their other directorships. The ROC can also strike the company off under section 248(1)(c) after two years without business.

Is a subsidiary with low revenue exempt from CARO 2020?+

It can be. Paragraph 1(2)(v) of CARO 2020 exempts a private company that is not a holding or subsidiary of a public company. Its capital plus reserves and its bank borrowings must each stay within INR 1 crore, and revenue within INR 10 crore. The statutory audit still applies.

Does a low revenue subsidiary need a tax audit?+

Not unless its turnover exceeds INR 1 crore, or INR 10 crore where cash receipts and payments are each 5 percent or less. Section 44AB of the Income Tax Act, 1961 sets the test for FY 2025-26, and section 63 of the Income Tax Act, 2025 from tax year 2026-27.

Is strike off cheaper than dormant status?+

Over several years, usually yes, if the parent will not restart. Form STK-2 under section 248(2) costs INR 10,000 in government fee plus one time closure work. Dormant status keeps an audited MSC-3, a tax return and an FLA return every year, and lasts at most five consecutive years.

Can a dormant subsidiary still receive a loan from its parent?+

A loan is a significant accounting transaction, so it can end dormant status, and rule 8(3) then requires an MSC-4 within seven days. A loan from the parent is also an international transaction for transfer pricing. An existing unsecured loan needs the lender's concurrence before MSC-1.

Sources

• Income Tax Department (Companies Act, 2013 text), Section 455, dormant company, accessed 23 Oct 2026, https://www.incometaxindia.gov.in/w/section-455-2
• Income Tax Department (Companies Act, 2013 text), Section 2, definitions including clauses 40, 41 and 85, accessed 23 Oct 2026, https://www.incometaxindia.gov.in/w/section-2-148
• Income Tax Department (Companies Act, 2013 text), Section 139, appointment of auditors, accessed 23 Oct 2026, https://www.incometaxindia.gov.in/w/section-139-80
• Income Tax Department (Companies Act, 2013 text), Section 248, power of Registrar to remove name of company from register, accessed 23 Oct 2026, https://www.incometaxindia.gov.in/w/section-248-69
• Income Tax Department (Companies Act, 2013 text), Section 164, disqualifications for appointment of director, https://www.incometaxindia.gov.in/w/section-164-76
• Income Tax Department (Companies Act, 2013 text), Section 137, copy of financial statement to be filed with Registrar, https://www.incometaxindia.gov.in/w/section-137-79
• Income Tax Department (Companies Act, 2013 text), Section 92, annual return, https://www.incometaxindia.gov.in/w/section-92-92
• Gazette of India, Companies (Miscellaneous) Rules, 2014 (rules 3 to 8), as notified, and Ministry of Corporate Affairs rules page, https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/rules.html
• Ministry of Corporate Affairs, General Circulars No. 01/2026 (24 Feb 2026), 03/2026 (8 Jul 2026) and 04/2026 (31 Aug 2026), circulars page, https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/circulars.html
• Ministry of Corporate Affairs, fee schedule under the Companies (Registration Offices and Fees) Rules, 2014, https://www.mca.gov.in/content/mca/global/en/mca/fo-llp-services/enquire-fees.html
• Ministry of Corporate Affairs, G.S.R. 880(E) of 1 Dec 2025 and G.S.R. 943(E) of 31 Dec 2025, notifications page, https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/notifications.html
• Press Information Bureau, MCA replaces annual director KYC with a KYC intimation once in three years (G.S.R. 943(E) of 31 Dec 2025), 1 Jan 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2210552&reg=3&lang=1
• Income Tax Department, Section 139 of the Income Tax Act, 1961, https://www.incometaxindia.gov.in/w/section-139-93
• Income Tax Department, Section 234F of the Income Tax Act, 1961, https://www.incometaxindia.gov.in/w/section-234f-10
• Income Tax Department, Return of income (late filing and losses), https://www.incometaxindia.gov.in/w/return-of-income-2
• Income Tax Department, Section 263 of the Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-263-72
• CBDT, Circular No. 07/2026, 28 Sep 2026, https://www.incometax.gov.in/iec/foportal/sites/default/files/2026-09/Circular-7-2026.pdf
• Reserve Bank of India, FAQs on the Annual Return on Foreign Liabilities and Assets (FLA), updated as on 1 Jul 2026, https://www.rbi.org.in/commonman/english/Scripts/FAQs.aspx?Id=1171