# Statutory Audit of a Foreign Owned Indian Subsidiary in 2026

> Source: https://krystal7.com/insights/statutory-audit-foreign-owned-indian-subsidiary
> Publisher: Krystal7 Consultants (Krystal7 Innovations Private Limited), Gurugram, India
> Author: CA Nandini
> Published: 27 Aug 2026; updated 01 Oct 2026
> Summary: Every Indian subsidiary needs a statutory audit. The board appoints the first auditor within 30 days, and AOC-4 is due 30 days after the AGM.

*Written by CA Nandini, Krystal7 Consultants. Last updated 1 October 2026.*

**Every Indian company needs a statutory audit under sections 139 to 148 of the Companies Act, 2013. A wholly owned subsidiary of a foreign company is no exception, whatever its size. The board appoints the first auditor within 30 days of incorporation. At the first AGM, the members appoint an auditor for five years and the company files Form ADT-1 within 15 days. The audited accounts go to the AGM within six months of 31 March. AOC-4 follows within 30 days of the AGM and MGT-7 within 60 days.**

This page covers the Indian statutory audit of a subsidiary with a foreign parent. INR 1,00,000 is one lakh (100,000) and INR 1,00,00,000 is one crore (10 million).

## What is a statutory audit in India?

A statutory audit is the independent audit of a company's annual financial statements that the Companies Act, 2013 makes compulsory. A Chartered Accountant in practice examines the books and reports to the shareholders under section 143. The report says whether the accounts give a true and fair view and follow the accounting standards.

Chapter X of the Act, sections 139 to 148, governs the audit. The auditor follows the Standards on Auditing under section 143(9). The report also covers rule 11 of the Companies (Audit and Auditors) Rules, 2014 (the Audit Rules). Unless the company is exempt, it also covers the Companies (Auditor's Report) Order, 2020 (CARO 2020). The members adopt the audited accounts at the annual general meeting (AGM), and the company files them with the Registrar of Companies (ROC).

Four other reviews get confused with it:

- The tax audit, under section 44AB of the Income Tax Act, 1961 for FY 2025-26, and section 63 of the Income Tax Act, 2025 (Form 26) from tax year 2026-27. See our [tax audit guide](/insights/tax-audit-under-income-tax-act-2025-form-26).
- The transfer pricing report, Form 3CEB, which becomes Form 48. See our [Form 3CEB guide](/insights/form-3ceb-filing-requirement-foreign-founders-india).
- Internal audit under section 138, which binds a private company only with turnover of INR 200 crore, or bank borrowings above INR 100 crore (rule 13 of the Companies (Accounts) Rules, 2014, the Accounts Rules).
- The group component audit for the parent's consolidation, which Indian law does not require.

| Item | Position on 27 Sep 2026 |
|---|---|
| Law | Companies Act, 2013, sections 139 to 148; Audit Rules; CARO 2020 |
| Who needs it | Every company incorporated in India, whatever its size, revenue or ownership |
| Who can sign | A Chartered Accountant in practice, or a firm or LLP whose partners practising in India are mostly Chartered Accountants (section 141) |
| First auditor | Board, within 30 days of registration; else members at an EGM within 90 days (section 139(6)) |
| Regular term | From the first AGM to the end of the sixth AGM, which is five audits (section 139(1)) |
| Notice to the ROC | Form ADT-1 within 15 days of the appointing meeting |
| Accounting framework | AS under the Companies (Accounting Standards) Rules, 2021, or Ind AS if the net worth test applies |
| Extra reporting | Section 143(3), rule 11 including the audit trail, CARO 2020 unless exempt |
| AGM | Within six months of year end; the first AGM within nine months of the first year end (section 96) |
| ROC filings | AOC-4 within 30 days of the AGM (section 137); MGT-7 within 60 days (section 92(4)) |
| Company fine for breaching sections 139 to 146 (INR) | 25,000 to 5,00,000 (section 147(1)) |

## Does every foreign owned Indian subsidiary need a statutory audit?

Yes. Section 139 applies to every company incorporated in India, with no turnover, capital or profit threshold. A subsidiary with no trading, no revenue or only parent funding still appoints an auditor and files audited accounts. Size changes the extra reports, not the audit itself.

The small company relief never reaches a subsidiary. The proviso to section 2(85) excludes "a holding company or a subsidiary company". Explanation (c) to section 2(87) says "company" includes any body corporate. So a foreign parent is a holding company, and its Indian subsidiary cannot be a small company.

G.S.R. 880(E) raised the small company limits from 1 Dec 2025. They are now paid up capital of INR 10 crore and turnover of INR 100 crore ([MCA year end review, PIB](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2210429)). Summaries of the change say CARO 2020 and the cash flow statement fall away for more companies. We see finance teams abroad assume this helps their subsidiary. It does not.

A foreign company's branch or project office is a different entity. Rule 5 of the Companies (Registration of Foreign Companies) Rules, 2014 requires a practising Chartered Accountant in India to audit its Indian accounts. Paragraph 1(2) of CARO 2020 extends the Order to foreign companies as defined in section 2(42).

| Entity in India | Statutory audit | CARO 2020 | Small company relief |
|---|---|---|---|
| Private Limited subsidiary of a foreign company | Yes, section 139 | Yes, unless all paragraph 1(2)(v) tests are met | No, section 2(85) proviso |
| Public limited subsidiary of a foreign company | Yes | Yes; the private company exemption is not available | No |
| Subsidiary with no revenue yet | Yes | Depends on the private company tests | No |
| Branch or project office of a foreign company | Yes, rule 5 of the Foreign Companies Rules | Yes, paragraph 1(2) covers foreign companies | Not relevant |
| Indian company with a foreign minority investor, not a subsidiary | Yes | Test paragraph 1(2) | Possible if within the limits and not a holding or subsidiary company |

## How is the first auditor appointed, and who appoints later auditors?

The board appoints the first auditor within 30 days of the date of registration under section 139(6). If the board fails, it informs the members, who appoint the auditor at an extraordinary general meeting (EGM) within 90 days. The first auditor holds office until the end of the first AGM.

Before any appointment, the auditor gives written consent and a certificate that it meets section 141 and rule 4 of the Audit Rules. The board may fix the first auditor's fee (proviso to section 142(1)). Later, the members fix it.

At the first AGM, the members appoint an auditor until the end of the sixth AGM, which covers five audits. The company files ADT-1 within 15 days of the meeting (third proviso to section 139(1)). Members no longer ratify the appointment every year. If an AGM appoints nobody, the existing auditor continues (section 139(10)).

Section 139(1) ties that 15 day notice to the AGM appointment, and the 2014 text of rule 4(2) linked Form ADT-1 to the same proviso. Practitioners now also file ADT-1 for a first auditor, using the ADT forms revised from 14 Jul 2025. We file it within 15 days of the board meeting, which puts the appointment date on the ROC record.

Rotation under section 139(2) limits an individual auditor to one term of five consecutive years and a firm to two terms. It applies to listed companies and the classes in rule 5 of the Audit Rules:

- unlisted public companies with paid up share capital of INR 10 crore or more;
- private companies with paid up share capital of INR 50 crore or more;
- companies below those limits with public borrowings or deposits of INR 50 crore or more.

A well funded subsidiary can cross INR 50 crore of paid up capital quickly. Check rule 5 each time the parent injects capital.

| Event | Who decides | Time limit | Form | Law |
|---|---|---|---|---|
| First auditor | Board | 30 days from registration | ADT-1 | Section 139(6); rule 4 |
| First auditor after a board failure | Members at an EGM | 90 days | ADT-1 | Section 139(6) |
| Five year auditor | Members at the first AGM, then every fifth AGM | At the AGM | ADT-1 within 15 days | Section 139(1) |
| Casual vacancy, not a resignation | Board | 30 days | ADT-1 | Section 139(8) |
| Casual vacancy after a resignation | Board, then members at a general meeting | 30 days; members within three months | ADT-1 | Section 139(8) |
| Auditor resigns | Auditor | 30 days from resignation | ADT-3 | Section 140(2) |
| Removal before the term ends | Members by special resolution, with prior Central Government approval | Before removal | ADT-2 | Section 140(1) |
| New auditor in place of a retiring one | Members, on special notice | At the AGM | ADT-1 | Section 140(4) |

An auditor who resigns and skips ADT-3 faces a penalty under section 140(3). It is INR 50,000 or the audit fee, whichever is less, plus INR 500 a day, capped at INR 2,00,000.

## Who can be the statutory auditor of a foreign owned subsidiary?

Only a Chartered Accountant in practice can audit an Indian company, or a firm or LLP whose partners practising in India are mostly Chartered Accountants (section 141(1)). A foreign CPA firm or an in house accountant cannot sign. An independent Indian firm in the group auditor's network can.

Section 141(3) disqualifies, among others:

- a body corporate other than an LLP, and an officer or employee of the company;
- a person who, or whose relative or partner, holds the company's securities (a relative may hold up to INR 1,00,000 in face value under rule 10);
- a person who, or whose relative or partner, owes the company over INR 5,00,000 or has given a guarantee above INR 1,00,000 (rule 10);
- a relative of a director or key managerial person;
- a person who already audits more than twenty companies, or was convicted of fraud in the last ten years;
- a person who provides a service barred by section 144.

Section 144 matters most for foreign owned subsidiaries. The auditor may never provide accounting and bookkeeping, internal audit, financial system design, actuarial, investment advisory, investment banking, outsourced financial or management services. The bar covers services to the company, its holding company and its subsidiaries, including services through relatives, partners or connected entities. If one provider keeps your books, choose an unconnected firm as auditor.

## Which accounting standards apply, Ind AS or AS?

The Indian subsidiary's own position decides it, not the parent's size or GAAP. Under rule 4(1)(iii)(b) of the Companies (Indian Accounting Standards) Rules, 2015, an unlisted company moves to Ind AS at a net worth of INR 250 crore. It also moves if its Indian holding, subsidiary, joint venture or associate company must apply Ind AS. Otherwise it follows AS.

Section 2(20) defines "company" as one incorporated under Indian company law, and the Ind AS Rules use the Act's definitions. So a foreign parent's size never pulls its Indian subsidiary into Ind AS.

Net worth follows section 2(57): paid up capital, securities premium and reserves from profits, less accumulated losses and unwritten deferred expenditure. Share premium on FDI counts. A subsidiary with INR 300 crore of capital and premium and INR 40 crore of losses has a net worth of INR 260 crore. The Explanation to rule 4(2)(b) starts Ind AS in the year after the audited accounts first show the crossing. Crossing at 31 Mar 2026 means Ind AS from FY 2026-27.

Four more points decide most cases:

1. Once a company applies Ind AS, it stays on Ind AS even if net worth later falls below the limit (rule 4(9)).
2. Any company may adopt Ind AS voluntarily (rule 4(1)(i)), with no way back to AS.
3. Two Indian subsidiaries of the same foreign parent are fellow subsidiaries. In our reading of rule 4(1)(iii)(c), one crossing the limit does not pull the other into Ind AS.
4. If the Indian subsidiary owns another Indian company and either must apply Ind AS, both apply it.

AS companies follow the Companies (Accounting Standards) Rules, 2021 and Division I of Schedule III. Ind AS companies use Division II.

| Indian company's position | Framework | Rule |
|---|---|---|
| Listed, net worth INR 500 crore or more | Ind AS from FY 2016-17 | Rule 4(1)(ii)(a) |
| Unlisted, net worth INR 500 crore or more | Ind AS from FY 2016-17 | Rule 4(1)(ii)(b) |
| Listed or being listed, net worth below INR 500 crore | Ind AS from FY 2017-18 | Rule 4(1)(iii)(a) |
| Unlisted, net worth INR 250 crore or more but below INR 500 crore | Ind AS from FY 2017-18, or from the year after it first crosses the limit | Rule 4(1)(iii)(b); rule 4(2)(b) |
| Indian holding, subsidiary, joint venture or associate of a company above | Ind AS | Rules 4(1)(ii)(c) and 4(1)(iii)(c) |
| Unlisted, net worth below INR 250 crore, no Indian group company on Ind AS, foreign parent of any size | AS | Rule 4 read with section 2(20) |
| Any company that opts in | Ind AS, with no return to AS | Rules 4(1)(i) and 4(9) |

Our guide to [financial reporting for foreign subsidiaries](/insights/financial-reporting-for-foreign-subsidiaries-in-india-the-2026-founders-guide) covers the main GAAP differences.

## Does CARO 2020 apply to a subsidiary of a foreign company?

Usually, yes. CARO 2020 applies to every company, including a foreign company. The exclusions are banks, insurers, section 8 companies, one person companies, small companies and private companies that pass the paragraph 1(2)(v) tests. A subsidiary cannot be a small company, so only paragraph 1(2)(v) can take it out.

MCA issued the Order as S.O. 849(E) on 25 Feb 2020, and it applies to audits from FY 2021-22. The private company exemption needs all of these at once:

- the company is a private company, not a subsidiary or holding company of a public company;
- its paid up capital plus reserves and surplus is not more than INR 1 crore on the balance sheet date;
- its borrowings from any bank or financial institution do not exceed INR 1 crore at any point in the year;
- its total revenue under Schedule III, including discontinuing operations, is not more than INR 10 crore for the year.

Is a subsidiary of a foreign listed parent a "subsidiary of a public company"? In our reading, no. Section 2(71) defines a public company as a company which is not a private company, and section 2(20) limits "company" to Indian companies. Unlike sections 2(46) and 2(87), section 2(71) does not extend "company" to any body corporate.

So a private subsidiary of a foreign parent can use paragraph 1(2)(v) if its numbers pass. The Order does not deal with a foreign parent in terms, so record the position agreed with your auditor in the engagement letter. The point rarely decides the result, because a funded subsidiary usually fails the capital or revenue test.

| Test in paragraph 1(2) | Limit (INR) | When measured | Position of a typical foreign owned subsidiary |
|---|---|---|---|
| Banking, insurance or section 8 company | Not applicable | Status | Rarely relevant |
| One person company or small company | Not applicable | Status | Not available to a subsidiary |
| Private company, not a subsidiary or holding company of a public company | Not applicable | Status | Met in our reading when the parent is foreign |
| Paid up capital plus reserves and surplus | 1 crore or less | Balance sheet date | Securities premium counts as a reserve |
| Borrowings from banks or financial institutions | 1 crore or less | At any point in the year | Loans from the parent are not bank borrowings |
| Total revenue under Schedule III, including discontinuing operations | 10 crore or less | Whole year | Revenue from operations plus other income |

When CARO applies, the auditor reports on 21 clauses in paragraph 3. These catch foreign owned subsidiaries most often.

| CARO 2020 clause | What the auditor reports | Where a foreign owned subsidiary slips |
|---|---|---|
| 3(ii)(b) | Quarterly returns to banks agree with the books, where working capital limits above INR 5 crore rest on current assets | Stock statements prepared from a different ledger |
| 3(iii) and 3(iv) | Loans, guarantees and investments, and compliance with sections 185 and 186 | Advances to group companies with no board approval or interest |
| 3(vii) | Regular deposit of undisputed statutory dues, and disputed dues | TDS on payments to the parent, GST under reverse charge, PF on expat salaries |
| 3(ix) | Defaults on loans, use of funds, short term funds used long term | ECB drawn and parked against its end use |
| 3(x)(b) | Preferential allotments comply with sections 42 and 62, and funds used for the stated purpose | Share allotments to the parent without the full section 62 file |
| 3(xi) | Fraud, ADT-4 reports and whistle blower complaints | No complaint log for the Indian entity |
| 3(xiii) | Related party transactions comply with sections 177 and 188 and appear in the accounts | Service fees and cost recharges with no board approval |
| 3(xiv) | Internal audit system and the auditor's use of internal audit reports | Group internal audit covers India but shares no report |
| 3(xvii) and 3(xix) | Cash losses, and whether the company can meet its liabilities for the next year | Start up losses with no parent letter of support |
| 3(xx) | Transfer of unspent CSR amounts | CSR triggered by profit growth and missed |

## What else does the auditor report on?

Section 143(3) lists matters every report covers, such as proper books, the accounting standards, director disqualification under section 164(2) and internal financial controls. Rule 11 adds pending litigation, foreseeable losses, Investor Education and Protection Fund transfers, funds routed through intermediaries, dividend compliance and the audit trail.

G.S.R. 583(E) of 13 Jun 2017 switches off the internal financial controls opinion under section 143(3)(i) for a one person or small company. It also covers a private company with latest audited turnover below INR 50 crore "or" borrowings below INR 25 crore at any point in the year. Borrowings include loans from "any body corporate", so parent loans count. Read literally, one limb is enough. We rely on the exemption only when both limbs are met, and agree the position with the auditor when only one is.

For fraud, rule 13 of the Audit Rules sets the line at INR 1 crore. Above it, the auditor reports to the board or audit committee within two days. The board replies within 45 days, and the auditor files Form ADT-4 with the Central Government within 15 days of the reply. Smaller frauds go to the audit committee or board only. An auditor of an unlisted company who fails to report faces a penalty of INR 1,00,000 under section 143(15).

## What does the audit trail rule mean when the parent runs the ERP?

From FY 2023-24, a company that keeps its books on accounting software must use software that records an audit trail of every transaction. The software keeps a dated edit log of each change, and nobody may disable the trail (proviso to rule 3(1) of the Accounts Rules). A group ERP hosted abroad must meet the same test.

MCA inserted this rule, and the auditor reporting in rule 11(g), on 24 Mar 2021 (G.S.R. 205(E) and G.S.R. 206(E)). After two deferrals it runs for financial years from 1 Apr 2023, so FY 2025-26 is the third reporting year.

Rule 11(g) asks whether the software had the feature, whether it ran all year for all transactions and whether anyone tampered with it. It also asks whether the company preserved the trail as the retention rules require. Section 128(5) keeps books for eight financial years, so we plan log retention for eight years.

| Requirement | Source | What we ask group IT for |
|---|---|---|
| Audit trail of every transaction, with a dated edit log that cannot be disabled | Accounts Rules, rule 3(1) proviso, FY from 1 Apr 2023 | Proof that logging is on for every module feeding the Indian ledgers |
| Auditor's report on the feature, its operation, tampering and preservation | Audit Rules, rule 11(g) | Log extracts for the full year, and a list of direct database changes |
| Books accessible in India at all times | Accounts Rules, rule 3(1) | Read access for the Indian finance team and the auditor |
| Daily backup on servers physically located in India | Accounts Rules, rule 3(5) proviso, G.S.R. 624(E) of 5 Aug 2022 | Backup location and frequency, in writing |
| Yearly details to the ROC: service provider name, IP address, location, cloud address, person in India who controls the books | Accounts Rules, rule 3(6) | These details before the AOC-4 is drafted |
| Books kept for eight financial years | Section 128(5) | Log and backup retention policy |

## How does the Indian audit fit with the parent's group audit?

They are two engagements on the same books. The group auditor needs a reporting pack at the parent's year end under group GAAP. Indian law needs audited 31 March accounts under AS or Ind AS, with an Indian auditor's report. Neither replaces the other.

Group instructions to the Indian component auditor, often under ISA 600 (Revised), set a component materiality, a scope and a deadline. The clearance the Indian team returns does not satisfy section 143. The statutory auditor still forms its own opinion on the full Indian accounts.

The numbers differ because of the reporting date, framework differences on leases, revenue and deferred tax, and group top side adjustments. We keep a GAAP bridge from the Indian trial balance to the pack, updated each quarter. Our note on the [MIS report for a foreign parent](/insights/mis-report-indian-subsidiary-foreign-parent) shows the layout.

| Point | Group reporting pack | Indian statutory audit |
|---|---|---|
| Why it exists | Parent's consolidation and its own audit | Companies Act, 2013, sections 139 to 148 |
| Reporting date | Parent's year end, for example 31 December | 31 March (section 2(41)) |
| Framework | Group GAAP: IFRS, US GAAP, Japanese GAAP | AS or Ind AS, with Schedule III |
| Auditing standard | Group auditor's instructions, often ISA 600 (Revised) | Standards on Auditing (section 143(9)) |
| Materiality | Component materiality set by the group auditor | Set by the statutory auditor for the Indian company |
| Output | Clearance memo or signed pack to the group auditor | Audit report to members, with CARO and rule 11 matters |
| Who relies on it | Parent, group auditor, parent's regulators | Members, ROC, tax authorities, banks, RBI |
| Deadline | Parent's consolidation timetable | In time for the AGM, within six months of year end |
| Legal exposure | Engagement contract | Section 147, and professional discipline in India |

Two timing risks recur. Indian adjustments made after the pack goes out must flow back to the group. A loss making subsidiary also needs a parent letter of support before the auditor concludes on going concern.

## What if the parent's financial year does not end on 31 March?

The Indian subsidiary still closes on 31 March unless the Central Government allows another period. The proviso to section 2(41) lets a holding or subsidiary company of a company incorporated outside India apply for a different year. It must need that year for consolidation abroad.

A company incorporated on or after 1 January closes its first year on 31 March of the next year. A subsidiary incorporated on 15 Jan 2026 therefore first closes on 31 Mar 2027.

A US parent with a 31 December year end has two choices:

1. Keep the 31 March statutory year and give the parent an audited or reviewed December pack.
2. Apply to the Central Government under the proviso to section 2(41), after checking the current application route on the MCA portal.

We advise keeping 31 March. The tax year under section 3 of the Income Tax Act, 2025 runs from 1 April to 31 March, so the tax audit needs March figures anyway. Where the parent needs an audited December pack, we schedule the component audit in January and the statutory audit from May.

## What is the timeline from year end to AOC-4 and MGT-7?

For FY 2025-26, the year ended 31 Mar 2026, the AGM must be held by 30 Sep 2026. AOC-4 is due within 30 days of the AGM and MGT-7 within 60 days. A company's first AGM falls within nine months of its first year end. The FY 2025-26 tax audit report is due 21 Oct 2026 under CBDT Circular No. 07/2026, or 31 Oct 2026 with Form 3CEB.

The steps run in this order:

1. The company closes its books and the auditor completes fieldwork.
2. The board approves the financial statements before signature and sends them to the auditor (section 134(1)). A foreign director who signs needs a working digital signature.
3. The auditor signs the report, and the board approves its own report.
4. The company sends the AGM notice at least 21 clear days ahead (section 101(1)). For an AGM, consent from at least 95 percent of the members entitled to vote allows shorter notice.
5. The AGM adopts the accounts.
6. The company files AOC-4 within 30 days and MGT-7 within 60 days.

The ROC can extend the AGM date by up to three months for a special reason, but never for the first AGM (section 96(1)). Accounts the AGM does not adopt still go to the ROC within 30 days, as provisional accounts (provisos to section 137(1)).

MCA general circulars, the latest being General Circular 03/2025 of September 2025, allow AGMs by video conference. A video conference AGM must still meet the section 96 date. MCA's 2026 circulars (01/2026 to 04/2026) cover CCFS-2026 and additional fees, and none extends the AGM date. Check the [MCA circulars page](https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/circulars.html) for anything later.

| Step | Law | Deadline | Date for FY 2025-26 |
|---|---|---|---|
| Financial year ends | Section 2(41) | 31 March | 31 Mar 2026 |
| FLA return to RBI | FEMA reporting | 15 July (RBI FAQ) | See our [FLA note](/insights/fla-return-due-date-fy-2025-26) for FY 2025-26 |
| Board approves accounts; auditor signs | Sections 134(1) and 143 | Before the AGM notice | Plan by early September |
| AGM notice | Section 101(1) | 21 clear days, or shorter with 95% member consent | 8 Sep 2026 for a 30 Sep AGM |
| AGM | Section 96(1) | Six months from year end | 30 Sep 2026 |
| Tax audit report, no transfer pricing report | Section 44AB, Income Tax Act, 1961; CBDT Circular No. 07/2026 | 30 September, extended for FY 2025-26 | 21 Oct 2026 |
| Tax audit report and Form 3CEB, with international transactions | Sections 44AB and 92E, Income Tax Act, 1961 | One month before the return date | 31 Oct 2026 |
| AOC-4 | Section 137(1) | 30 days from the AGM | 30 Oct 2026 for a 30 Sep AGM |
| Income tax return, no transfer pricing report | Income Tax Act, 1961; CBDT Circular No. 07/2026 | 31 October, extended for FY 2025-26 | 21 Nov 2026 |
| Income tax return with a transfer pricing report | Income Tax Act, 1961 | 30 November | 30 Nov 2026 |
| MGT-7 | Section 92(4) | 60 days from the AGM | 29 Nov 2026 for a 30 Sep AGM |

Notice on 8 Sep 2026 gives 21 clear days, excluding the day of sending and the AGM day. Our [AOC-4 and MGT-7 guide](/insights/aoc-4-mgt-7-annual-filing-foreign-owned-company) covers the forms, and our [compliance calendar for 2026-27](/insights/compliance-calendar-foreign-owned-company-india-2026-27) has the full year.

## What does the auditor ask for?

Expect a request list at the start of fieldwork. For a foreign owned subsidiary, the related party and parent documents take the longest to collect.

| Area | Documents | Why the auditor needs them |
|---|---|---|
| Books | Trial balance, ledgers, journal listing with preparer and approver | Opinion; section 143(3)(b) |
| Cash and bank | Statements, reconciliations, bank confirmations | Existence and completeness |
| Intercompany | Balance confirmations signed by the parent, agreements, invoices, recharge workings | Related party disclosure; CARO 3(xiii); transfer pricing |
| Share capital | Allotment resolutions, PAS-3, FIRC and KYC, FC-GPR acknowledgement, register of members | Equity; CARO 3(x)(b); FEMA |
| Borrowings | Loan agreements, ECB loan registration number, ECB 2 returns, bank sanction letters | CARO 3(ix) |
| Fixed assets and leases | Asset register, physical verification report, lease deeds | CARO 3(i) |
| Stock | Count sheets, valuation, ageing | CARO 3(ii)(a) |
| Statutory dues | GST returns and GSTR-2B reconciliation, TDS returns, Form 26AS and AIS, PF and ESI challans | CARO 3(vii) |
| Payroll | Salary register, expat pay split, gratuity and leave actuarial report | Provisions; labour codes |
| Suppliers | MSME vendor list with payment dates | MSME dues; see our [MSME 45 day note](/insights/msme-form-1-45-day-payment-rule) |
| Governance | Board and general meeting minutes, MBP-1 and DIR-8 declarations | Section 143(3)(g); CARO 3(xiii) |
| IT | Audit trail extracts, user access list, backup evidence, rule 3(6) details | Rule 11(g); rule 3 |
| Going concern | Cash flow forecast, parent letter of support | SA 570; CARO 3(xix) |
| Closing | Management representation letter, subsequent events list | Standards on Auditing |

We prepare this file as part of [company compliance](/services/compliance-company.html), and we start intercompany confirmations in March.

## What happens if the audit or the filings are late?

No single fee covers a late audit. The delay pushes the AGM, AOC-4 and MGT-7 past their dates, and each carries its own penalty. Accounts or annual returns unfiled for three continuous years trigger section 164(2)(a). Every director, foreign directors included, is then barred for five years.

| Default | Provision | Company (INR) | Officers or directors (INR) |
|---|---|---|---|
| Breach of sections 139 to 146, such as no auditor appointed | Section 147(1) | Fine 25,000 to 5,00,000 | Fine 10,000 to 1,00,000 |
| AGM not held in time | Section 99 | Fine up to 1,00,000, plus up to 5,000 a day | Same as the company |
| AOC-4 filed late | Section 137(3) | Penalty 10,000 plus 100 a day, capped at 2,00,000 | MD and CFO, or the director in charge: 10,000 plus 100 a day after the first, capped at 50,000 |
| MGT-7 filed late | Section 92(5) | Penalty 10,000 plus 100 a day after the first, capped at 2,00,000 | 10,000 plus 100 a day after the first, capped at 50,000 |
| Additional ROC fee on AOC-4 or MGT-7 | Companies (Registration Offices and Fees) Rules, 2014, rule 12 | 100 a day, per form | Not applicable |
| Accounts that breach section 129 | Section 129(7) | Not applicable | Up to one year's imprisonment, or a fine of 50,000 to 5,00,000, or both |
| Accounts or annual returns unfiled for three continuous years | Section 164(2)(a) | Not applicable | Directors ineligible for five years |

Section 147(1) provides only fines for officers. An auditor who breaches the audit provisions faces a separate fine under section 147(2).

Late accounts also block dividends, which the AGM declares out of audited profits. Our guides on [dividends to a foreign parent](/insights/dividend-from-indian-subsidiary-to-foreign-parent) and [repatriation of profits](/insights/repatriation-of-profits-from-india-to-a-foreign-parent-the-2026-strategic-guide) explain the sequence.

MCA ran the Companies Compliance Facilitation Scheme, 2026 (CCFS-2026) from 15 Apr 2026 to 15 Sep 2026 (General Circulars 01/2026, 03/2026 and 04/2026). That window has closed, so late filings now carry the full additional fee.

## What changed in 2026

The 2026 changes that reach the audit file sit in the accounting standards, the tax audit, ROC fees and the wage base for employee provisions. We add three late 2025 changes because they shape FY 2025-26 audits.

| Area | Old position | New position | Date | Instrument |
|---|---|---|---|---|
| AS 22, Taxes on Income | No guidance on OECD Pillar Two top up taxes | Exception from deferred tax on Pillar Two top up taxes, with added disclosures | 2026 | Companies (Accounting Standards) Amendment Rules, 2026 (G.S.R. 169(E)) |
| Ind AS 107, 109 and related standards | Earlier text | Financial assets with contingent features, nature dependent electricity contracts, added disclosures | Notified 12 Aug 2026 | Companies (Indian Accounting Standards) Amendment Rules, 2026 (G.S.R. 725(E)) |
| Tax audit | Section 44AB and Forms 3CA, 3CB, 3CD | Section 63 and Form 26 from tax year 2026-27; FY 2025-26 stays on the old forms | 1 Apr 2026 | Income Tax Act, 2025; Income Tax Rules, 2026 (G.S.R. 198(E), 20 Mar 2026) |
| FY 2025-26 tax audit and return, no transfer pricing report | 30 Sep 2026 and 31 Oct 2026 | 21 Oct 2026 and 21 Nov 2026; transfer pricing cases keep 31 Oct and 30 Nov 2026 | 28 Sep 2026 | CBDT Circular No. 07/2026 |
| Gratuity and leave provisions | Wages under the old labour laws | Code wages; past service gratuity at the new wages per Ministry FAQ 17 | Codes in force 21 Nov 2025; FAQs 30 Dec 2025 and 16 Mar 2026 | S.O. 5319(E) to 5322(E); central rules G.S.R. 342(E) to 345(E), 8 May 2026 |
| DPT-3 additional fees | Additional fee from 1 Jul 2026 | No additional fee on DPT-3 up to 31 Jul 2026 after the 5 Jun 2026 data centre fire; AOC-4 and MGT-7 not covered | 19 Jun 2026 | General Circular 02/2026 |
| Belated filings | Full additional fees | CCFS-2026, 15 Apr to 15 Sep 2026, now closed | 24 Feb to 31 Aug 2026 | General Circulars 01/2026, 03/2026, 04/2026 |
| ADT forms (late 2025) | Old forms ADT-1 to ADT-4 | Revised forms | 14 Jul 2025 | Companies (Audit and Auditors) Amendment Rules, 2025 (G.S.R. 359(E), 30 May 2025) |
| Small company limits (late 2025) | INR 4 crore capital, INR 40 crore turnover | INR 10 crore capital, INR 100 crore turnover; subsidiaries still excluded | 1 Dec 2025 | G.S.R. 880(E), 1 Dec 2025 |
| AGMs by video conference (late 2025) | Allowed to fixed dates | Allowed under the latest circular | September 2025 | General Circular 03/2025 |

Read both accounting notifications for the periods they cover. If the parent group falls within the Pillar Two rules, check whether the AS 22 amendment reaches the FY 2025-26 accounts. The actuarial valuation at 31 Mar 2026 should also reflect the Code wage definition from 21 Nov 2025 (see our note on the [new labour codes](/insights/new-labour-codes-foreign-owned-companies-india)).

## Worked example

**Scenario 1: a Japanese parent with a 31 March year end.** JP Co owns 100 percent of IndiaCo Private Limited, incorporated on 12 Jun 2023. For FY 2025-26, IndiaCo reports these figures:

- revenue of INR 30 crore (FY 2024-25: INR 24 crore);
- paid up capital of INR 12 crore and reserves of INR 6 crore, so net worth of INR 18 crore;
- a bank working capital limit of INR 3 crore and an ECB from JP Co of INR 8 crore;
- 60 employees and no Indian subsidiary.

| Question | Test | IndiaCo's figure | Result |
|---|---|---|---|
| First auditor | Board within 30 days of 12 Jun 2023 | Board meeting 5 Jul 2023 | Appointed in time; the deadline was 12 Jul 2023 |
| Five year auditor | Members at the first AGM | First AGM 20 Sep 2024 | Term covers FY 2024-25 to FY 2028-29; ADT-1 due 5 Oct 2024 |
| Rotation | Paid up capital INR 50 crore, or public borrowings INR 50 crore | INR 12 crore; INR 3 crore plus INR 8 crore | Rule 5 does not apply |
| Ind AS | Net worth INR 250 crore | INR 18 crore | AS applies; JP Co's size is irrelevant |
| CARO 2020 | Revenue INR 10 crore or less, and two other tests | INR 30 crore | CARO applies; the foreign parent question does not arise |
| CARO 3(ii)(b) | Working capital limit above INR 5 crore | INR 3 crore | Not applicable |
| Internal financial controls opinion | Latest audited turnover below INR 50 crore; borrowings below INR 25 crore | INR 24 crore; INR 3 crore plus INR 8 crore is INR 11 crore | Both limbs met, so exempt under either reading |
| Internal auditor | Turnover INR 200 crore, or bank borrowings above INR 100 crore | INR 24 crore; INR 3 crore | Not compulsory |
| Tax audit | Turnover above the section 44AB limit, with international transactions | Yes | Tax audit and Form 3CEB due 31 Oct 2026; return due 30 Nov 2026 |

The first AGM was due by 31 Dec 2024, nine months after the first year end. For FY 2025-26, the board approves the accounts on 18 Aug 2026 and the auditor signs the same day. The notice goes out on 25 Aug 2026. Twenty one clear days run from 26 Aug to 15 Sep, so the AGM is held on 16 Sep 2026. AOC-4 is then due by 16 Oct 2026 and MGT-7 by 15 Nov 2026.

Suppose IndiaCo files AOC-4 on 30 Nov 2026, 45 days late. The ROC additional fee is INR 100 × 45 = INR 4,500, on top of the normal fee. If the ROC also adjudicates a penalty under section 137(3), the company faces INR 10,000 + (INR 100 × 45) = INR 14,500. The managing director or CFO faces INR 10,000 + (INR 100 × 44) = INR 14,400, because the officer's daily penalty runs from the day after the first.

**Scenario 2: a US parent with a 31 December year end.** US Inc owns IndiaCo Two Private Limited, a small service company. For FY 2025-26, IndiaCo Two has revenue of INR 6 crore, paid up capital of INR 50 lakh and reserves of INR 30 lakh. It has no bank loan, and it owes US Inc INR 2 crore.

| CARO paragraph 1(2)(v) test | Limit (INR) | IndiaCo Two (INR) | Pass or fail |
|---|---|---|---|
| Paid up capital plus reserves and surplus | 1 crore | 50 lakh + 30 lakh = 80 lakh | Pass |
| Bank or financial institution borrowings at any point | 1 crore | Nil (the INR 2 crore parent loan is not from a bank) | Pass |
| Total revenue | 10 crore | 6 crore | Pass |
| Not a subsidiary of a public company | Status | Parent incorporated in the US | Pass in our reading |

On our reading, the auditor need not attach a CARO report for FY 2025-26. We record the agreed position in the engagement letter.

The internal financial controls test counts the INR 2 crore parent loan. IndiaCo Two is still below INR 25 crore of borrowings and INR 50 crore of turnover, so it meets both limbs. It keeps 31 March as its statutory year and sends US Inc a December pack each January.

## Common mistakes

1. **Missing the 30 day window for the first auditor.** Fix: put the appointment on the first board agenda.
2. **Using the bookkeeper as auditor.** Section 144 bars it. Fix: appoint an unconnected firm and document its independence.
3. **Filing the parent's IFRS or US GAAP accounts as the Indian accounts.** Fix: keep an Indian GAAP ledger in Schedule III format and a quarterly GAAP bridge.
4. **Assuming Ind AS because the parent is large or uses IFRS.** Fix: test the Indian net worth each year, share premium included.
5. **Claiming small company relief after the December 2025 change.** Fix: plan for CARO and a cash flow statement.
6. **Testing the CARO borrowing limit at year end only.** Fix: check the peak bank balance each month.
7. **Running the group ERP without an Indian audit trail and backup.** Fix: get written evidence of logging and daily Indian backup before year end.
8. **Letting the group pack and the statutory audit drift apart.** Fix: agree one calendar with both audit teams.
9. **Sending unsigned accounts because a foreign director lacks a digital signature.** Fix: renew signatures before July (see our guide on [foreign national directors](/insights/foreign-national-director-indian-company-din)).
10. **Forgetting ADT-1 after the AGM appointment.** Fix: file it with the AGM minutes pack, inside 15 days.
11. **Leaving intercompany balances unconfirmed.** Fix: exchange signed confirmations with the parent in early April.
12. **Keeping the old gratuity wage base in FY 2025-26.** Fix: ask the actuary to apply the Code wage definition from 21 Nov 2025.

## Checklist

1. Appoint the first auditor by board resolution within 30 days of incorporation, and file ADT-1 within 15 days.
2. Confirm the auditor's eligibility under section 141 and independence under section 144.
3. Record the auditor's consent and certificate, and fix the first auditor's fee.
4. Test Ind AS applicability each year on the Indian company's net worth and Indian group links.
5. Test the CARO 2020 exemptions each year, including peak bank borrowings.
6. Test the internal financial controls exemption on turnover and total borrowings, parent loans included.
7. Obtain written evidence of the ERP audit trail, Indian access and daily Indian backup before 31 March.
8. Agree one calendar for the group pack, the statutory audit, the tax audit and the AGM.
9. Exchange intercompany balance confirmations with the parent in early April.
10. Approve the accounts and the board's report at a board meeting, and have the auditor sign.
11. Send the AGM notice 21 clear days ahead, or collect shorter notice consent from 95 percent of the members.
12. Hold the AGM by 30 September, and appoint or continue the auditor.
13. File ADT-1 within 15 days of any AGM that appoints an auditor.
14. File AOC-4 within 30 days and MGT-7 within 60 days of the AGM.
15. Check rule 5 rotation each time the parent adds capital or the bank adds lines.

To have us map your audit calendar, send your incorporation certificate and last AOC-4 through our [contact page](/contact).

## Frequently Asked Questions

### Can the parent's overseas auditor sign the Indian audit report?

No. Section 141(1) allows only a Chartered Accountant in practice in India, or a firm or LLP whose partners practising in India are mostly Chartered Accountants. A foreign CPA firm cannot sign. The group can appoint its auditor's Indian network firm if that firm passes sections 141 and 144.

### Does a subsidiary with no revenue still need an audit?

Yes. Section 139 has no revenue or size threshold. A subsidiary that has not started trading still appoints an auditor and files audited accounts in AOC-4. The audit is usually short, because the ledger holds capital receipts, setup costs and bank interest. CARO 2020 may not apply if all the paragraph 1(2)(v) tests are met.

### Is Form ADT-1 needed for the first auditor?

We file it every time. Section 139(1) ties the 15 day ADT-1 notice to the AGM appointment, and the 2014 text of rule 4(2) did the same. Since the ADT forms were revised from 14 Jul 2025, practitioners file ADT-1 for the first auditor as well. We file it within 15 days of the board meeting under section 139(6), which records the date with the ROC.

### How long does a statutory auditor's term last?

An auditor appointed at the first AGM holds office until the end of the sixth AGM, which covers five audits (section 139(1)). The first auditor, appointed by the board, serves only until the first AGM. For rule 5 companies, an individual can serve one five year term and a firm two terms, followed by a five year cooling off period.

### When must a private subsidiary rotate its auditor?

Rotation under section 139(2) applies to a private company with paid up share capital of INR 50 crore or more. It also applies to a company with public borrowings or deposits of INR 50 crore or more (rule 5 of the Audit Rules). An individual auditor then stops after five years and a firm after ten.

### Can our statutory auditor also run payroll or keep the books?

No for bookkeeping. Section 144 bars the auditor from accounting and bookkeeping, internal audit, designing financial systems and outsourced financial services. The bar covers services through partners, relatives or connected entities, and services to the parent. Payroll processing can count as an outsourced financial service, so keep it with a provider that is not your auditor.

### Does the auditor give an opinion on internal controls?

Yes, under section 143(3)(i), unless G.S.R. 583(E) of 13 Jun 2017 exempts the private company. The exemption covers one person and small companies, and companies with latest audited turnover below INR 50 crore "or" borrowings below INR 25 crore. We rely on it only when both limbs are met. Parent loans count towards the borrowing limb.

### Can the books sit on the parent's ERP server abroad?

Yes, with conditions in rule 3 of the Accounts Rules. The books must stay accessible in India, with a daily backup on servers physically located in India. The company gives the ROC the service provider's name, IP address and location every year. The software must keep an audit trail that nobody can switch off.

### Does CARO 2020 apply to a branch office of a foreign company?

Yes. Paragraph 1(2) of CARO 2020 extends the Order to foreign companies as defined in section 2(42). Rule 5 of the Companies (Registration of Foreign Companies) Rules, 2014 requires a practising Chartered Accountant in India to audit the branch's Indian accounts. The same rule applies the audit chapter of the Act as far as applicable.

### Can the Indian subsidiary adopt Ind AS voluntarily to match group IFRS?

Yes. Rule 4(1)(i) of the Companies (Indian Accounting Standards) Rules, 2015 lets any company adopt Ind AS. The choice is permanent, because rule 4(9) keeps a company on Ind AS for all later years. Ind AS has carve outs from IFRS, so a small GAAP bridge remains.

### Can the Indian subsidiary use a December financial year like its parent?

Only with Central Government approval under the proviso to section 2(41). The subsidiary must show it needs a different year for consolidation abroad. The tax year under the Income Tax Act, 2025 still runs from April to March, so a December company still closes in March for tax. Most subsidiaries keep 31 March.

### Is the statutory audit the same as the tax audit?

No. The statutory audit reports on the accounts to shareholders under the Companies Act, 2013. The tax audit reports tax particulars under section 44AB of the Income Tax Act, 1961 for FY 2025-26. From tax year 2026-27 it moves to section 63 of the Income Tax Act, 2025 and Form 26. The tax auditor uses the audited accounts.

### What if we cannot hold the AGM by 30 September?

Apply to the ROC before the due date for an extension of up to three months under section 96(1). The ROC gives it only for a special reason, and never for the first AGM. Without an extension, section 99 applies. The company and each officer in default face a fine of up to INR 1,00,000, plus up to INR 5,000 a day.

### Can directors abroad attend the AGM by video conference?

Yes. MCA general circulars, the latest being General Circular 03/2025 of September 2025, let companies hold AGMs through video conference or other audio visual means. The AGM must still meet the section 96 date. A foreign director signing the accounts beforehand still needs a valid digital signature and DIN.

### Can we change the auditor before the five years end?

Yes. The members can remove the auditor by special resolution, after a hearing, with prior Central Government approval sought in Form ADT-2 (section 140(1)). Or the auditor resigns and files ADT-3 within 30 days. The board then fills the vacancy within 30 days, and the members approve within three months.

### Does the auditor have to report fraud to the government?

Yes, for a suspected fraud by officers or employees involving INR 1 crore or more (section 143(12) and rule 13). The auditor reports to the board within two days. The board replies within 45 days, and the auditor files Form ADT-4 with the Central Government within 15 days of the reply. Smaller frauds go to the board only.

### Does an Indian subsidiary that owns another Indian company need consolidated accounts?

Usually yes. Section 129(3) requires consolidated financial statements from any company with a subsidiary or associate. Rule 6 of the Accounts Rules exempts an intermediate subsidiary only if its ultimate or intermediate holding company files consolidated accounts with the ROC. A foreign parent files none in India, so the exemption fails.

## Sources

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