India has become a popular place for business globally, with over 50 foreign companies operating here. Its rapid economic growth, large young consumer base, and a government that supports foreign investment attract companies from the USA, UK, Europe, and Singapore to establish their operations. However, starting and running a business in India as a foreign company comes with a set of responsibilities such as filing with the Ministry of Corporate Affairs and complying with the FEMA, 1999 and the RBI Act, 1934.
This blog aims to help you understand the compliance requirements for foreign companies in India.
What is Considered a Foreign Company in India?
As per Section 2 (42) of the Companies Act, 2013, a foreign company is a company/body incorporated outside India that:
- Has a place of business in India
- And conduct any business activity in India
Ways a Foreign Company Can Do Business in India?
A foreign company can set up:
- Liaison Office in India: It is not a legal entity, but instead a representative office of a foreign company. It cannot earn income in India or engage in any business activity. It is only allowed to gather information, promote exports/imports, or act as a communication bridge between the foreign parent company and Indian entities.
- Branch Office: A branch office can do some business in India, such as consulting, services, research, or export/import. However, it cannot engage in retail trading or manufacturing.
- Project Office: It is set up only for executing a specific project, such as infrastructure, engineering, or construction. RBI or AD Bank approval is mandatory for setting up such an office.
- Wholly owned subsidiary: It is an Indian Company that is 100% owned by a foreign company. The foreign parent company hold all its shares and controls its operations, decisions, and profits. It is pertinent to note that the company is treated like an Indian company under Indian law, but is fully owned by a parent company.
- Joint Venture: This is a partnership between a foreign company and an Indian company. Both parties share ownership, investment, risks, and profits. The shareholding between the companies is mutually decided.
| Form / Requirement | Purpose | When to File |
| Form FC-1 | It is filed to inform the ROC about starting a business in India. | Within 30 days of establishing a place of business in India |
| Form FC-2 | It is filed when there are changes to documents, directors, address, or the company constitution. | Within 30 days of the change |
| Form FC-3 | It contains the financial statements, global consolidated accounts, details of repatriation, and related party transactions of the entity established in India. | Within 6 months from the end of financial year |
| Form FC-4 | It is the summary of business activities, shareholding, director details, and other key data. | Within 60 days from the end of financial year |
FEMA & RBI-Related Filings (Foreign Exchange Rules)
| Form / Requirement | Purpose | When to File |
| Form FC-GPR | It is filed when an Indian company issues shares to a foreign investor or parent. | Within 30 days of share allotment |
| Form FC-TRS | It is filed when shares are transferred between an Indian resident and a non-resident. | Within 60 days of the transfer |
| FLA Return (Foreign Liabilities & Assets) | It is an annual declaration of foreign shareholding, overseas assets, and borrowings. It is mandatory even if there is no change from last year. | By July 15 each year |
| APR (Annual Performance Report) | It is filed when the Indian company holds an investment in a foreign subsidiary or joint venture. | By December 31 each year |
| Advance Reporting Form (ARF) | It is filed before shares are issued, when the company receives foreign investment. It includes transaction details and investor identity. | Within 30 days of receiving remittance |
| KYC for FLA | It is the identity documents of the foreign investors that must be verified by their banks and submitted for RBI compliance. | Before filing FLA Return (i.e., before July 15) |
Income Tax Compliance
| Requirement / Form | Purpose | When to File |
| PAN (Permanent Account Number) | It is mandatory to operate legally, open bank accounts, and file taxes in India. | Before starting a business or opening a bank account |
| TAN (Tax Deduction Account Number) | It is required for deducting and depositing TDS on payments like salaries, rent, or consultancy fees. | Before making any TDS payments |
| TDS Payment & Returns (Form 26Q/27Q) | It is a monthly TDS payment to the government and a quarterly return filing for tax deducted from vendors, employees, etc. | Deposit by 7th of next month, Return quarterly |
| Income Tax Return (ITR-6) | It is filed annually by companies operating in India, including foreign companies and subsidiaries. | By October 31 (if audit applies), else by September 30 |
| Form 3CEB (Transfer Pricing) | It is required if the company enters into international transactions with associated enterprises. Must be certified by a Chartered Accountant. | By October 31 |
| Tax Audit (Form 3CA/3CD) | If turnover exceeds prescribed limits, the company has to get its books audited under section 44AB of the Income Tax Act, 1961 | By September 30 or October 31, depending on the audit |
| Advance Tax Payment | Instead of a one-time payment, companies must pay in instalments during the year, based on projected income. | June 15, Sept 15, Dec 15, Mar 15 |
Penalties
| Non-Compliance | Penalty |
| Missed filings with the ROC (like FC-3 or FC-4) | Under Section 391 of the Companies Act, 2013, if the foreign company is found to have violated the provisions of the Companies Act, the company can be fined between ₹1,00,000 and ₹3,00,000, plus ₹50,000 for each day the default continues.
Every person of the company who is in default shall also be punished with imprisonment up to 6 months AND/OR fine of ₹25,000 extendable up to ₹5,00,000.00. Both the company and the responsible directors may be penalised. |
| Incorrect or delayed RBI/FEMA reporting (e.g. FC-GPR, FC-TRS, ARF) | The penalty ranges from ₹5,000 to ₹10,000 per violation, or up to 1% of the foreign transaction value.
Delays in FC-GPR could delay future foreign investments or trigger RBI scrutiny. |
| Non-filing of FLA Return | The company can be penalised with a fine of up to ₹50,000. Continued default may lead to compounding proceedings under FEMA and even impact your ability to raise foreign funds. |
| Income tax default (e.g. late TDS deposit, failure to file ITR) | Penalties may include interest, fines up to 200% of the unpaid tax, and even prosecution. In serious cases, company officers may also be subject to legal action |
| GST non-compliance | The minimum penalty is ₹10,000 or 10% of the unpaid tax, whichever is higher. Repeated non-compliance may lead to the cancellation of your GSTIN. |
| CSR default (if CSR is applicable) | The company can be fined up to ₹25,00,000 (₹25 lakhs).
Officers, including directors responsible, shall be fined up to ₹5,00,000 (₹5 lakhs) or face imprisonment for up to 3 years |
| Data Protection Breach (under DPDP Act) | For mishandling user data or failing to obtain valid consent, fines can reach as high as ₹250 crore. |
