Liaison Office in India in 2026 with RBI Rules, AAC and Form 162

Written by Nihal Srivastava, Krystal7 Consultants. Last updated 1 October 2026.

A liaison office (LO) is a foreign company's representative office in India. It cannot earn income. An Authorised Dealer Category I bank approves it under FEMA 22(R)/2016-RB, and RBI approves listed cases. The applicant needs a profit making record over the last three financial years and a net worth of at least USD 50,000. Approval usually runs three years. The LO files an Annual Activity Certificate by 30 September and Form 162 within eight months of the tax year end.

This page covers eligibility, approval, permitted work, filings, tax risk, closure and conversion. Rupee amounts use Indian grouping: INR 1,00,000 is one lakh (100,000).

What is a liaison office in India?

A liaison office is a place of business that acts as a channel of communication between a foreign head office and entities in India. Regulation 2 of FEMA 22(R)/2016-RB bars it from any commercial, trading or industrial activity, directly or indirectly. It must run only on money remitted from abroad through normal banking channels.

The LO is not a separate company. Anything it does, the foreign company does, so the activity limits matter for both FEMA and income tax. RBI made FEMA 22(R)/2016-RB (FEMA 22(R) on this page) under section 6(6) of the Foreign Exchange Management Act, 1999 (FEMA).

Instrument	What it covers for an LO	Date or status on 1 Oct 2026
FEMA 22(R)/2016-RB	Definitions, eligibility, RBI approval cases, AAC, validity	Dated 31 Mar 2016; amended by FEMA 22(R)(1)/2018-RB of 31 Aug 2018 and FEMA 22(R)(2)/2019-RB of 21 Jan 2019
RBI Master Direction on BO, LO and PO	Form FNC, UIN, extension, bank account, closure, asset transfer	Dated 1 Jan 2016; updated as on 18 May 2021
RBI FAQs on LO, BO and PO	Accounts, police, property, upgrade to BO	Dated 26 Dec 2016
Companies Act, 2013, sections 380, 381 and 384	Registration of the place of business, accounts and annual return	In force
Income Tax Act, 1961, section 285; Income Tax Rules, 1962, rule 114DA	Form 49C, up to FY 2025-26	Eight months from the year end since 7 Feb 2025
Income Tax Act, 2025, sections 505 and 460; Income Tax Rules, 2026, rule 234	Form 162 and its penalty	In force from 1 Apr 2026
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 1 Oct 2026

If the plan includes selling, servicing or billing in India, an LO is the wrong vehicle. Our India entry strategy guide walks through that choice.

Who can open a liaison office in India?

A foreign entity needs a profit making track record in its home country over the three financial years before the application. It also needs a net worth of at least USD 50,000. An entity that fails either test can rely on a Letter of Comfort from a parent or group company that passes both.

Test	Liaison office	Branch office (for comparison)	Source
Profit record	Profit making track record during the immediately preceding 3 financial years in the home country	Same, over 5 financial years	FEMA 22(R), regulation 4
Net worth	At least USD 50,000 or equivalent	At least USD 100,000 or equivalent	FEMA 22(R), regulation 4
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; Master Direction
Barred fallback	A foreign subsidiary of an Indian company cannot use a Letter of Comfort from its Indian parent	Same	RBI FAQ 16

Regulation 4 does not say whether a loss in one of the three years breaks the "profit making track record". Our reading, the safe one, is a profit in each year. If any year shows a loss, 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 office. It also agrees to meet any liability the office cannot. An AD bank may convert net worth at its own rate on the application date, so leave headroom near USD 50,000.

When does a liaison office need RBI approval instead of AD bank approval?

Most LOs 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.

Applicant or case	Who approves	Condition or note	Source
Any entity not listed below	Designated AD bank	Eligibility tests apply	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 J&K, 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 and FAQ 3
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)
Project office for a Ministry of Defence, Service Headquarters or defence PSU contract	AD bank	Project offices only, not LOs	Regulation 5(c), proviso
NGO, non profit, or foreign government body	RBI	FCRA registration instead, for work covered by FCRA	Regulation 5(d); A.P. (DIR Series) Circular No. 20 of 27 Feb 2019
Foreign bank	RBI's Department of Banking Regulation	Outside the AD bank route	Master Direction
Foreign insurance company	IRDAI	IRDAI guidelines of 11 Feb 2026	Master Direction; RBI, Annex 2, 30 Jun 2026
More than four offices in India	RBI, through the AD bank	Applicant must justify the need	Master Direction

Many websites say every applicant from China or another land border country needs RBI approval. The regulation does not say that, and RBI's FAQ 13 lets an AD bank approve these seven countries outside the three named regions. The AD bank copies its approval to the Ministry of Home Affairs, Internal Security Division I. We found no instruction in FEMA 22(R), the Master Direction or RBI's FAQs that adds a separate Home Ministry security clearance. AD banks do take longer over these files, so ask yours early what it needs.

Press Note 3 of 2020 and the Cabinet decision of 10 Mar 2026 govern investment in Indian companies from land border countries. The 2026 decision puts non controlling beneficial ownership of up to 10 percent on the automatic route. Neither mentions liaison offices, and our reading is that neither changes regulation 5.

How do you get approval for a liaison office?

The foreign company files Form FNC with its chosen AD bank. After due diligence, the AD bank gets a Unique Identification Number (UIN) from RBI's CO Cell in New Delhi and issues the approval letter. The office must open within six months.

Annex B of the Master Direction lists the documents for Form FNC:

1. The incorporation certificate and charter, attested by a notary in the home country.
2. English translations of other language documents, notarised and attested by the Indian Embassy or Consulate.
3. Audited balance sheets for three years (five for a branch).
4. A bankers' report on the length of the banking relationship.
5. A power of attorney for the signatory, where the head of the entity does not sign.
6. Any Letter of Comfort.

We start the attestation first, because the AD bank cannot speed it up.

Step	Who acts	Time limit	Source
1. File Form FNC with one designated AD bank	Foreign company	None	Master Direction, Form FNC
2. Due diligence and KYC	AD bank	No time limit set	Master Direction
3. Refer RBI approval cases	AD bank to RBI	No time limit set	FEMA 22(R), regulation 5
4. Obtain UIN	AD bank from RBI, CO Cell, New Delhi	No time limit set	Master Direction
5. Issue approval letter	AD bank	After the UIN	Master Direction
6. Open the office	Foreign company	Within 6 months, or the approval lapses	Master Direction
7. Extra time to open	AD bank	One further 6 months; then RBI	Master Direction
8. Register the place of business	Foreign company, Form FC-1	Within 30 days of setting up	Companies Act, 2013, section 380(1)
9. Register with state police	Applicants from the eight listed countries	After the AD bank approval	RBI FAQ 3 and FAQ 9

None of the 22 A.P. (DIR Series) circulars RBI issued in 2026-27 up to 1 Oct 2026 deals with LO, BO or PO cases.

What can a liaison office do and not do?

An LO can represent the parent or group companies, promote exports and imports, promote technical or financial collaboration, and act as a communication channel. No other activity is permitted.

Activity	Allowed for an LO?	Source or reason
Representing the parent or group companies in India	Yes	Master Direction
Promoting export from and import to India	Yes	Master Direction
Promoting technical or financial collaboration	Yes	Master Direction
Acting as a communication channel with Indian companies	Yes	Master Direction
Selling goods or services in India, or raising invoices	No	Regulation 2
Earning commission, fees or any other income in India	No	Regulation 2
Technical support for products the parent supplied	No	A branch office activity
Buying and selling as agent of the parent	No	A branch office activity
Buying immovable property	No	RBI FAQ 4 allows purchase only for a BO or PO
Working from leased premises, lease of up to five years	Yes	RBI FAQ 4, general permission
More than one bank account	Only with prior RBI permission	Master Direction; RBI FAQ 2
One extra tax agency bank account for statutory payments	Yes	RBI FAQ 19
Practising law as a foreign law firm	No	A.P. (DIR Series) Circular No. 07 of 23 Nov 2020
Activities covered by the Foreign Contribution (Regulation) Act, 2010	No; FCRA registration instead	A.P. (DIR Series) Circular No. 20 of 2019

LO staff can meet customers, share catalogues, gather market data and pass enquiries to the head office. They cannot negotiate price, accept an order, sign a contract or chase a payment. Requests to RBI to add an activity rarely succeed for commercial work.

How long is a liaison office approval valid?

An LO approval is valid for three years in most cases. The AD bank can extend it by three years at a time if every Annual Activity Certificate is filed. NBFCs and construction and development companies get two years only.

Point	Rule	Source
Normal validity	3 years	FEMA 22(R), regulation 4; Master Direction
NBFCs, and construction and development companies (not infrastructure development)	2 years, no extension; then close or convert into a joint venture or subsidiary	FEMA 22(R), regulation 4
Extension length	3 years from expiry of the approval or the last extension	FEMA 22(R), regulation 4
When to apply	Before the approval expires	Master Direction
Conditions	All previous AACs filed; account operated as per approval	Master Direction
AD bank decision time	Within 1 month of the request	Master Direction
Approval not used	Lapses if the office does not open within 6 months	Master Direction

We diarise the extension request three months before the end date. An LO that runs past expiry can regularise through its AD bank, but may need compounding. Our FEMA compounding guide covers that route.

A move to another city needs the AD bank's prior approval. A move within the same city, or a new head of office, needs only an intimation. A change of name is allowed only without a change in ownership.

What registrations follow the liaison office approval?

After approval, the foreign company registers the office, gets a PAN and a TAN, and opens one bank account.

Registration	Form or route	Deadline	Source
Registrar of Companies	Form FC-1 with charter, directors, authorised Indian resident and principal place of business	Within 30 days of setting up	Companies Act, 2013, section 380(1)
PAN	Form 96 (old Form 49AA), for an entity incorporated outside India	On setting up	Income Tax Act, 2025, section 262; rule 158
TAN	Forms 134 and 135 (old Form 49B)	Before the first tax deduction	Income Tax Rules, 2026; department's form list
Bank account	One account with the designated AD bank	Before the first remittance	Master Direction
State police registration	Applicants from the eight listed countries only	After the AD bank approval	RBI FAQ 3 and FAQ 9
Changes to FC-1 details	Return of alterations	Within 30 days of the change	Companies Act, 2013, section 380(3)

RBI's FAQ 3 exempts all other countries from police registration, and FAQ 9 points to the Master Direction on Reporting under FEMA for the format. A.P. (DIR Series) Circular No. 35 of 25 Sep 2012 also asked every new LO, BO and PO to report to the Director General of Police of each state. That report was due within five working days of the office becoming functional, then yearly with the AAC. Ask the AD bank whether your office files it.

The LO bank account takes only head office funds, refunds of deposits and taxes, and sale proceeds of the LO's own assets. An LO with staff deducts tax on salaries, files Form 138 (old Form 24Q) and issues Form 130 (old Form 16).

What annual filings does a liaison office have?

By 30 September, the LO sends its Annual Activity Certificate (AAC), certified by a Chartered Accountant, and audited financial statements to the AD bank. It sends the same set to the Director General of Income Tax (International Taxation), New Delhi. Within eight months of the year end, it files Form 162 (Form 49C for FY 2025-26). The foreign company also files accounts and an annual return with the Registrar. Several offices file one combined AAC through a nodal office.

Filing	Law	Due date for the year ending 31 Mar 2027	Filed with	Signed or certified by
AAC with audited financial statements	FEMA 22(R), regulation 4	30 Sep 2027	AD bank and DGIT (International Taxation)	Chartered Accountant
Form 162	Income Tax Act, 2025, section 505; rule 234	30 Nov 2027	Assessing Officer, online	Chartered Accountant or authorised signatory
Form FC-3 accounts	Companies Act, 2013, section 381	As set by the Companies (Registration of Foreign Companies) Rules, 2014	Registrar	Per form
Form FC-4 annual return	Companies Act, 2013, section 384 with section 92	As set by the same rules	Registrar	Per form
Quarterly TDS statement on salaries	Income Tax Act, 2025, section 397; rule 219	Quarterly	Income Tax Department	Deductor
Annual copy of the police report, where it applies	A.P. (DIR Series) Circular No. 35 of 2012	With the AAC	DGP of each state	Foreign company

Sections 381 and 384 of the Companies Act, 2013 apply the accounts and annual return rules to every foreign company. We read them as covering a foreign company whose only Indian place of business is an LO. The Companies (Registration of Foreign Companies) Rules, 2014 prescribe Forms FC-3 and FC-4 and their time limits. Read the current limits in those rules or the MCA V3 form instructions on mca.gov.in before you diarise them.

We prepare the AAC and the tax statement from one audited set of accounts, because a mismatch invites questions. If the AAC is late, RBI's FAQ 1 tells the AD bank to report the default to RBI immediately.

What is Form 162 and when is it due?

Form 162 is the annual statement a non resident with an LO in India files under section 505 of the Income Tax Act, 2025. Rule 234 of the Income Tax Rules, 2026 sets the deadline at eight months from the end of the financial year. For the year ending 31 Mar 2027 that is 30 Nov 2027. Form 162 replaces Form 49C, which still applies to FY 2025-26.

Under rule 234(2), Form 162 is filed online with a digital signature and verified by a Chartered Accountant or an authorised signatory. The department's guidance note lists its content:

1. Part A: head office, principal office in India and Chartered Accountant details.
2. Part B: persons in charge, RBI approval details, and each LO's activities, employees and salaries.
3. Indian parties dealt with, with their PAN and addresses.
4. Receipts, expenses and permanent establishment details of group entities.

The Form 162 FAQs add that it needs a valid PAN, is filed once a tax year, and cannot be edited after the acknowledgement.

Point	Form 162 (from tax year 2026-27)	Form 49C (up to FY 2025-26)
Section	Income Tax Act, 2025, section 505	Income Tax Act, 1961, section 285
Rule	Income Tax Rules, 2026, rule 234	Income Tax Rules, 1962, rule 114DA
Deadline	8 months from the year end (30 Nov)	8 months from the year end (30 Nov) since 7 Feb 2025; 60 days before that
Verification	Chartered Accountant or authorised signatory, digital signature	Same
Penalty section	Section 460	Section 271GC, from 1 Apr 2025
Penalty amount	INR 1,000 a day up to 3 months; INR 1,00,000 after that	Same

Section 470 of the 2025 Act (old section 273B) protects a person who shows reasonable cause. The guidance note also lists revocation of the LO's RBI permission as a possible consequence.

For the year that ended on 31 Mar 2026, Form 49C under section 285 of the 1961 Act still applies. Rule 114DA has allowed eight months since the Income Tax (Fourth Amendment) Rules, 2025 took effect on 7 Feb 2025. So Form 49C for FY 2025-26 is due by 30 Nov 2026, and guidance quoting 30 May is out of date. Section 536 of the 2025 Act keeps such 1961 Act matters alive. The department's transition FAQ says the portal supports old forms for assessment year 2026-27 and earlier.

Our guide to what the Income Tax Act, 2025 changed for foreign owned companies maps the other forms.

Can a liaison office create a permanent establishment in India?

Yes, if it steps outside liaison work. An LO within its four permitted activities usually has no business connection under section 9 of the Income Tax Act, 2025. It usually has no permanent establishment (PE) under a treaty either. Negotiating, contracting, selling or servicing through the LO can create both.

Section 9(9) covers a person who habitually concludes contracts for the non resident, or habitually plays the principal role in concluding them. It excludes operations confined to buying goods in India for export. The India Germany treaty of 19 Jun 1995 is typical. Its Article 5(4)(d) and (e) exclude a place kept only for purchasing, collecting information or other preparatory or auxiliary work. Article 5(5) creates a PE through a person who habitually exercises authority to conclude contracts.

In Union of India v. U.A.E. Exchange Centre, (2020) 9 SCC 329, the Indian LOs downloaded remittance details from the UAE, printed cheques drawn on Indian banks and couriered them. The Supreme Court held this preparatory or auxiliary under Article 5(3)(e) of the India UAE treaty, so there was no PE.

In Hyatt International Southwest Asia Ltd v. Additional Director of Income Tax (24 Jul 2025, 2025 INSC 891), the Court distinguished that case. It found a fixed place PE under Article 5(1) of the India UAE treaty. Hyatt had pervasive and enforceable control over an Indian hotel's strategic, operational and financial side, and its core business ran through the premises.

LO activity	Inside the FEMA permission?	PE risk	Why
Collecting market information and attending trade fairs	Yes	Low	Treaty exclusion for collecting information, for example Article 5(4)(d) of the India Germany treaty
Introducing Indian distributors to the head office	Yes	Low	Communication channel; head office decides and contracts
Inspecting Indian suppliers for goods bought for export	Yes	Low	Section 9(9) export purchase exclusion; treaty purchasing exclusion
Negotiating price or terms with Indian buyers	No	High	Principal role in concluding contracts; Article 5(5)
Signing contracts or accepting orders	No	High	Authority to conclude contracts
Installing, commissioning or servicing the parent's machines	No	High	Core business, outside the preparatory or auxiliary exclusion
Collecting payments from Indian customers	No	High	Commercial activity in India
Staff reporting to a sales target	No	High	Suggests core sales work

The tax statement and the AAC are the evidence file. We read the LO's email templates, job descriptions and incentive plans before we sign off on either, because a sales bonus plan undoes the rest.

Our guide to avoiding PE risk in India covers service PE, agency PE and the documents that defend a position.

How do you close a liaison office?

The LO applies to its AD bank with the documents below, and the AD bank then allows the final remittance. The same procedure applies to closing an extra office (RBI FAQ 11).

Closure item	Who provides it	Source
Copy of the RBI or AD bank approval letter	LO	Master Direction
Auditor's certificate on the remittable amount, with a statement of assets and liabilities	Statutory auditor	Master Direction
Auditor's confirmation that all Indian liabilities, including employee dues, are met or provided for	Statutory auditor	Master Direction
Auditor's confirmation that no foreign source income remains unrepatriated	Statutory auditor	Master Direction
Confirmation that no legal proceedings are pending in any Indian court	LO	Master Direction
Registrar of Companies report on Companies Act compliance, wherever applicable	LO obtains	Master Direction
Confirmation that all AACs were filed	LO	Master Direction
Final Form 162 for the last tax year	LO	Income Tax Act, 2025, section 505
Report of the closure to the Registrar	Foreign company	Companies Act, 2013, section 380(3), our reading
Forms 145 and 146 for the final remittance, where required	LO and a Chartered Accountant	Income Tax Rules, 2026

Section 380(3) asks for a return of any alteration in the registered particulars within 30 days, and we treat the closure as one. Check the MCA V3 form list on mca.gov.in for the form that records it.

The AD bank can approve a sale of assets to a resident third party (RBI FAQ 14). It can also allow donations of old office items to NGOs, once taxes are paid. Our Form 15CA and 15CB guide covers Forms 145 and 146 for the final remittance. Employee dues take longest, so we start the auditor's certificate early.

How do you convert a liaison office into a branch office or a subsidiary?

FEMA has no single conversion form. The AD bank can upgrade an LO to a branch office if the foreign entity meets the branch office tests. For a subsidiary, the foreign company incorporates it, transfers LO assets at book value, and closes the LO.

Upgrade to a branch office

RBI's FAQ 10 lets the AD bank upgrade an LO under advice to RBI's CO Cell. The entity needs five years of profit and USD 100,000 net worth. FAQ 5 lets the branch keep the same PAN and redesignated bank account. Our branch office vs subsidiary guide compares the two for a Gulf parent.

Move into a subsidiary

The Master Direction allows a sale of LO assets to a joint venture or wholly owned subsidiary only on closure of the LO:

1. The price cannot exceed book value, as certified by the statutory auditor.
2. The assets must have been bought from inward remittances.
3. Intangibles and capitalised expenses, such as goodwill and leasehold improvements, are excluded.
4. All applicable taxes are paid.

The LO must also have filed its AACs, obtained a PAN and registered with the Registrar. We build the subsidiary first, so the staff always have a legal employer in India. The wholly owned subsidiary guide covers ownership and control, and our foreign subsidiary service runs the incorporation.

Liaison office, project office, branch office or subsidiary?

Pick an LO to study the market. Pick a project office for one contract awarded by an Indian company. Pick a branch office to earn income from a listed activity without a new company. Pick a subsidiary for anything open ended.

A project office (PO) runs under general permission when an Indian company has awarded the foreign company a project contract, and one more condition holds. The project must be funded by inward remittance or a bilateral or multilateral financing agency, or cleared by the appropriate authority. Otherwise, a public financial institution or bank in India must have given the awarding company a term loan for it.

Point	Liaison office	Project office	Branch 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	3 years of profit; USD 50,000 net worth	Indian contract plus one funding or clearance condition	5 years of profit; USD 100,000 net worth	None under FEMA
What it can do	Four liaison activities	The contracted project only	Listed activities: trade, consultancy, IT services, research, product support	Any business allowed under FDI rules
Income in India	None	Project income	Yes	Yes
Tax position	No income; Form 162 each year	Foreign company tax on project profit	Foreign company tax on branch profit	Domestic company tax; dividends to parent
Validity	3 years, renewable (2 for NBFC and construction)	Project tenure	No expiry date in the Master Direction	Perpetual
UIN from RBI	Yes	Not needed (RBI FAQ 12)	Yes	Not applicable
AAC	To AD bank and DGIT (International Taxation)	To AD bank only	To AD bank and DGIT (International Taxation)	Not applicable; FLA return instead
Bank accounts	One, with the designated AD bank	Plus up to two foreign currency accounts at the same AD bank	Account with any AD bank	Any bank
Property purchase	Not allowed	Allowed for own use	Allowed for own use	Allowed
Exit	AD bank closure plus Registrar report	Closure on project completion	AD bank closure plus Registrar report	Strike off or winding up

The branch office list also covers buying or selling agency for the parent and representing a foreign airline or shipping company. After the market study phase, an LO becomes a cost centre that cannot bill, so we set the exit plan on day one.

To have us test your entity against the LO and branch office criteria, send your last three audited balance sheets through our contact page.

What changed in 2026

The RBI rules for LOs did not change in 2026. From 1 Apr 2026 the Income Tax Act, 2025 replaced section 285, rule 114DA and Form 49C with section 505, rule 234 and Form 162. The eight month deadline is older: it has applied to Form 49C since 7 Feb 2025.

Area	Old rule	New rule	Date	Instrument
LO annual tax statement	Form 49C, section 285, rule 114DA	Form 162, section 505, rule 234	Tax year 2026-27 onwards (from 1 Apr 2026)	Income Tax Act, 2025 (Act 30 of 2025); Income Tax Rules, 2026, G.S.R. 198(E) of 20 Mar 2026
Statement deadline	60 days after the year end (30 May)	8 months after the year end (30 Nov)	7 Feb 2025 for Form 49C; rule 234(1) from 1 Apr 2026	Income Tax (Fourth Amendment) Rules, 2025 (Notification No. 14/2025, per the Form 162 guidance note)
Penalty for a late statement	Section 271GC, from 1 Apr 2025	Section 460, same amounts	From 1 Apr 2026	Finance (No. 2) Act, 2024; Income Tax Act, 2025
PAN form for a foreign company	Form 49AA	Form 96	From 1 Apr 2026	Section 262; rule 158
Remittance forms on closure	Forms 15CA and 15CB	Forms 145 and 146	Money remitted from 1 Apr 2026	Income Tax Rules, 2026
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
LOs of overseas insurers	Earlier IRDAI instructions	New IRDAI guidelines on eligibility, activities, AAC and closure	11 Feb 2026	IRDAI, as listed by RBI on 30 Jun 2026

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 1 Oct 2026, shows no final regulation, so the current tests and the 30 September AAC date apply. The tax statement now falls two months after the AAC, which can feed it directly.

Worked example

A German machinery maker, DE GmbH, wants a Chennai office with a country manager and a coordinator to support its Indian distributors. It applies in October 2026 and closes its books on 31 December. Figures are illustrative.

The eligibility test

DE GmbH made a loss in 2025, while its parent, DE Holding GmbH, made profits in all three years. We assume EUR 1 = USD 1.10.

Item	DE GmbH	DE Holding GmbH (parent)
Profit after tax 2023	EUR 380,000	EUR 2,900,000
Profit after tax 2024	EUR 215,000	EUR 3,100,000
Profit after tax 2025	Loss of EUR 95,000	EUR 1,700,000
Paid up capital	EUR 500,000	EUR 5,000,000
Free reserves	EUR 1,240,000	EUR 17,400,000
Intangible assets	EUR 310,000	EUR 800,000
Net worth (capital plus reserves, less intangibles)	EUR 1,430,000	EUR 21,600,000
Net worth at USD 1.10	USD 1,573,000	USD 23,760,000
Three year profit test, on our reading	Fails (loss in 2025)	Passes
USD 50,000 net worth test	Passes	Passes

DE GmbH files Form FNC with a Letter of Comfort from DE Holding GmbH and both entities' audited accounts.

The approval route and the scope

Germany is not a listed country, machinery is not a sensitive sector, and Chennai is not a restricted region. The AD bank approves without RBI, and no police registration applies (RBI FAQ 3).

Passing leads, sharing product information and relaying feedback are liaison work. Commissioning machines and warranty repairs are branch office work, so the distributors keep that service under their own contracts with DE GmbH.

The filing calendar

Event	Rule	Date
Approval letter	Master Direction	12 Oct 2026
Last day to open the office	6 months from approval (conservative count)	11 Apr 2027
Office opens	Plan	1 Dec 2026
Form FC-1	30 days from setting up the place of business	31 Dec 2026
PAN in Form 96	On setting up	December 2026
AAC as at 31 Mar 2027, with audited financial statements	FEMA 22(R)	30 Sep 2027
Forms FC-3 and FC-4 for the year to 31 Mar 2027	Companies (Registration of Foreign Companies) Rules, 2014	Diarise from the current rule text
Form 162 for tax year 2026-27	Rule 234: 8 months from 31 Mar 2027	30 Nov 2027
Extension request, if the letter runs three years from its date	Before expiry	Before 11 Oct 2029

We keep the Indian books on a 31 March year end, so the AAC, Form 162 and Registrar filings use one set of audited accounts.

The funding plan

The LO spends only money remitted by the head office.

Monthly cost	INR
Office rent	2,10,000
Country manager's salary	3,50,000
Coordinator's salary	1,20,000
Travel, utilities and accounting	90,000
Total a month	7,70,000
Total a year (× 12)	92,40,000
Quarterly remittance (÷ 4)	23,10,000

At an assumed EUR 1 = INR 100, DE GmbH remits EUR 23,100 each quarter.

The cost of a late Form 162

Suppose DE GmbH misses the 30 Nov 2027 date.

Filed on	Days of failure from 1 Dec 2027	Section 460 penalty
19 Jan 2028	31 (December) + 19 = 50 days, within 3 months	50 × INR 1,000 = INR 50,000
15 Mar 2028	31 + 31 + 29 + 15 = 106 days, beyond 3 months	INR 1,00,000 flat

Once the delay passes three months, the penalty jumps to INR 1,00,000. February 2028 has 29 days.

Common mistakes

1. Letting LO staff negotiate or sign. This breaks the FEMA permission and can create a PE. Fix: route every price and contract decision to the head office.
2. Missing the AAC. The AD bank reports the default to RBI and will not extend the approval. Fix: book the audit for July and file by 30 September.
3. Using the old 60 day deadline or the wrong form. Fix: file Form 49C for FY 2025-26 by 30 Nov 2026. File Form 162 from tax year 2026-27 by 30 November.
4. Running past the approval end date. Fix: apply for extension three months before expiry, or regularise through the AD bank.
5. Taking money from Indian parties. Fix: send customer payments to the head office abroad.
6. Not opening within six months. The approval lapses. Fix: shortlist premises before applying, or ask the AD bank for the one extension in time.
7. Skipping Form FC-1. Fix: file FC-1 within 30 days of opening.
8. Assuming a Chinese parent always needs RBI. Fix: apply through the AD bank unless the office is in one of the three named regions. Register with the police.
9. Selling LO assets to the new subsidiary above book value. Fix: get the statutory auditor's asset certificate before pricing the transfer.
10. Treating the LO as outside the tax system. Fix: get a TAN before the first payroll and file Form 162 every year.

Checklist for opening and running a liaison office

1. Map the planned work against the four permitted LO activities, and move sales or service work elsewhere.
2. Test the profit record and net worth on three years of audited accounts, 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, accounts, bankers' report and power of attorney.
6. File Form FNC with the AD bank and track the UIN request to RBI.
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, and for a TAN before the first payroll.
10. Register with the state police if the parent is from a listed country, and ask the AD bank which police reports it expects.
11. Fund all expenses through inward remittances into the one designated account.
12. Close the Indian books on 31 March and finish the audit before September.
13. File the AAC with the AD bank and the DGIT (International Taxation) by 30 September.
14. File Form 162 by 30 November (Form 49C for FY 2025-26).
15. File Forms FC-3 and FC-4 within the time limits in the Companies (Registration of Foreign Companies) Rules, 2014.
16. Request the three year extension before the approval expires.
17. Plan closure or conversion early, starting with the auditor's certificate on liabilities.

For a first review of your LO application or an overdue AAC, our FEMA compliance team takes the file through the AD bank.

Frequently Asked Questions

Can a liaison office earn any income in India?+

No. Regulation 2 of FEMA 22(R)/2016-RB bars a liaison office from any commercial, trading or industrial activity. It must run on inward remittances only. It cannot charge fees, earn commission or sell anything in India. A foreign company that wants Indian income needs a branch office, a project office or a subsidiary.

Can a liaison office raise invoices on Indian customers?+

No. Raising an invoice is a commercial act, which regulation 2 of FEMA 22(R) bars. The LO's bank account may receive only head office funds, refunds and the sale proceeds of its own assets. The foreign head office should invoice Indian customers and receive their payments. Invoicing through the LO would also weaken the defence against a permanent establishment claim.

Can a liaison office hire employees in India?+

Yes. An LO can employ staff, and Form 162 asks for employee numbers and salaries. As an employer, the LO deducts tax on salaries, files quarterly statements in Form 138 and issues Form 130 certificates. Staff must stay within the four permitted liaison activities.

Can a liaison office buy property in India?+

No. RBI's FAQ 4 on liaison, branch and project offices allows only a branch office or a project office to buy property for its own use. An LO can work from leased premises, because RBI gives general permission for leases of up to five years. A purchase needs a branch office or an Indian subsidiary.

How many bank accounts can a liaison office open?+

One. The Master Direction lets an LO keep one bank account with its designated AD bank. A second account needs prior RBI permission (RBI FAQ 2). RBI's FAQ 19 allows one more account with a tax agency bank for statutory payments, where the designated bank is not a tax agency bank.

What is a Letter of Comfort for a liaison office application?+

A Letter of Comfort is an undertaking from a parent or group company for an applicant that fails the profit or net worth test. The parent must itself meet the three year profit test and the USD 50,000 net worth test. It undertakes to fund the Indian office and meet any liability the office cannot. An Indian parent cannot give one (RBI FAQ 16).

What is the UIN given to a liaison office?+

The UIN is the Unique Identification Number that RBI's CO Cell in New Delhi allots to each branch or liaison office. The AD bank forwards Form FNC to RBI for the UIN before it issues the approval letter. A project office needs no UIN (RBI FAQ 12).

Does a Chinese company need RBI approval to open a liaison office in Mumbai?+

No, under the regulation text. 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 still register with the state police.

Who certifies the Annual Activity Certificate?+

A Chartered Accountant certifies the AAC. FEMA 22(R) requires it as at 31 March, with audited financial statements, on or before 30 September. It confirms that the office did only permitted work. The LO sends it to the designated AD bank and to the Director General of Income Tax (International Taxation), New Delhi.

What happens if a liaison office files its AAC late?+

RBI's FAQ 1 tells the AD bank to report any default in AAC filing to RBI immediately. The Master Direction makes a full AAC record a condition for the three year extension and for asset transfers on closure. A late AAC is a FEMA contravention that may need compounding.

What is the penalty for filing Form 162 late?+

Section 460 of the Income Tax Act, 2025 allows a penalty of INR 1,000 a day for a delay of up to three months. Beyond that, the penalty is a flat INR 1,00,000. Section 470 protects a person who shows reasonable cause. The department's guidance note on Form 162 also lists revocation of RBI permission as a possible consequence.

Can a liaison office move to another city?+

Yes, with the AD bank's prior approval under the Master Direction. A move within the same city needs only an intimation of the new address to the AD bank. The foreign company should also report the changed address to the Registrar within 30 days under section 380(3) of the Companies Act, 2013.

Can a foreign company open more than one liaison office in India?+

Yes. The AD bank can approve up to four offices, one in each of the north, south, east and west zones. Beyond four, the applicant must justify the need and get RBI's prior approval. The company can name one office as the nodal office, which files one combined AAC each year.

Can a foreign NGO or government agency open a liaison office?+

Only with RBI's prior approval under regulation 5(d) of FEMA 22(R), which covers NGOs, non profits and bodies of a foreign government. If the work falls under the Foreign Contribution (Regulation) Act, 2010, the entity must get FCRA registration instead (A.P. (DIR Series) Circular No. 20 of 27 Feb 2019).

Does a liaison office register with the Registrar of Companies?+

Yes. Section 380(1) of the Companies Act, 2013 applies to a foreign company with a place of business in India. It files documents with the Registrar within 30 days of setting up. The foreign company files Form FC-1 for its LO. It then files Indian accounts under section 381 and an annual return under section 384.

Is the RBI draft regulation of 2025 for branch and liaison 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 1 Oct 2026, shows no final version. FEMA 22(R)/2016-RB still governs liaison offices.

Can a foreign law firm open a liaison office in India?+

No. The Master Direction, as updated by A.P. (DIR Series) Circular No. 07 of 23 Nov 2020, bars any branch, liaison or project office for practising law. It follows the Supreme Court's orders in Bar Council of India v. A.K. Balaji, under which only advocates enrolled under the Advocates Act, 1961 may practise law in India.

Does an upgraded branch office keep the liaison office's PAN?+

Yes. RBI's FAQ 5 lets an LO upgraded into a branch office keep the same PAN and bank account. The bank redesignates the account as a branch office account. The AD bank runs the upgrade under advice to RBI (FAQ 10). The foreign company must have five years of profit and USD 100,000 net worth.

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
• 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, 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, A.P. (DIR Series) Circular No. 20, 27 Feb 2019, https://www.rbi.org.in/scripts/FS_Notification.aspx?Id=11486&fn=5&Mode=0
• Reserve Bank of India, A.P. (DIR Series) Circular No. 07, 23 Nov 2020, https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11997&Mode=0
• Reserve Bank of India, A.P. (DIR Series) Circular No. 35, Establishment of LO/BO/PO in India by Foreign Entities, Reporting requirement, 25 Sep 2012, https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=7589&Mode=0
• Reserve Bank of India, Master Direction on Establishment of Liaison/Branch/Project Offices in India by Foreign Entities, original version of 1 Jan 2016, https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=10195
• 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 1 Oct 2026, https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx
• Reserve Bank of India, A.P. (DIR Series) circulars index 2026-27, checked 1 Oct 2026, https://www.rbi.org.in/scripts/bs_apcircularsdisplay.aspx
• Reserve Bank of India, Master Direction on Reporting under FEMA, updated as on 1 Oct 2026, https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10202&Mode=0
• Reserve Bank of India, Annex 2, Important Domestic Regulatory Measures, 30 Jun 2026, https://m.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=1328
• Press Information Bureau, Cabinet approves changes in guidelines on investments from countries sharing land border with India, 10 Mar 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2237806&reg=3&lang=2
• Income Tax Department, Income Tax Act, 2025, section 505, https://www.incometaxindia.gov.in/w/section-505-2
• Income Tax Department, Income Tax Rules, 2026, rule 234, https://www.incometaxindia.gov.in/w/rule-234-1
• Income Tax Department, Guidance note on Form 162, https://www.incometaxindia.gov.in/documents/d/guest/fn-162
• Income Tax Department, Form 162 FAQs, https://www.incometaxindia.gov.in/documents/d/guest/form-162-faqs
• Income Tax Department, Income Tax Act, 2025, section 460, https://www.incometaxindia.gov.in/w/section-460-6
• Income Tax Department, Income Tax Rules, 1962, rule 114DA, as amended by the Income Tax (Fourth Amendment) Rules, 2025 with effect from 7 Feb 2025, https://www.incometaxindia.gov.in/w/rule-114da
• Income Tax Department, Income Tax Act, 1961, section 271GC, inserted by the Finance (No. 2) Act, 2024 from 1 Apr 2025, https://www.incometaxindia.gov.in/w/section-271gc
• Income Tax Department, Income Tax Act, 2025, section 9, https://www.incometaxindia.gov.in/w/section-9-245
• Income Tax Department, FAQs on Forms 93, 94, 95 and 96 (PAN), https://www.incometaxindia.gov.in/documents/d/guest/form-93-94-95-96-faqs
• 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
• Income Tax Department, Income Tax Bill 2025 navigator (old to new section map), https://www.incometaxindia.gov.in/documents/20117/43138/new-income-tax-bill-2025-navigator.pdf/8df3eecc-8a0d-e28d-85c7-4db6310a52dd
• Income Tax Department, India Germany Double Taxation Avoidance Agreement, signed 19 Jun 1995, https://www.incometaxindia.gov.in/w/germany-comprehensive-agreements-1
• Companies Act, 2013, section 380, as hosted by the Income Tax Department, https://www.incometaxindia.gov.in/w/section-380-2
• Companies Act, 2013, section 381, as hosted by the Income Tax Department, https://www.incometaxindia.gov.in/w/section-381-2
• Companies Act, 2013, section 384, as hosted by the Income Tax Department, https://www.incometaxindia.gov.in/w/section-384-2
• Supreme Court of India, Hyatt International Southwest Asia Ltd v. Additional Director of Income Tax, 2025 INSC 891, 24 Jul 2025, discussing Union of India v. U.A.E. Exchange Centre, (2020) 9 SCC 329, https://www.sci.gov.in/sci-get-pdf/?diary_no=92772024&type=j&order_date=2025-07-24&from=latest_judgements_order