Accounting & Bookkeeping for Branch Office, Liaison Office and Project Office in India

Table of Contents:-

A Branch Office (BO), Liaison Office (LO) or Project Office (PO) established in India by a foreign entity is not the same as an Indian subsidiary company. It is an Indian place of business or presence of the overseas entity and its accounting system must therefore capture Indian operations separately while also supporting Companies Act, FEMA/RBI, tax, audit and head-office reporting requirements.

The accounting approach also differs between the three structures. A Branch Office may carry on permitted commercial activities and can earn income in India. A Liaison Office is restricted to liaison and representative activities and is normally funded through inward remittances from the overseas head office. A Project Office is established for execution of a specific project and should maintain project-specific revenue, expenditure, assets, liabilities and fund-flow records.

This guide explains practical accounting and bookkeeping requirements for BO, LO and PO operations in India. Foreign businesses evaluating the appropriate India structure may also review our Setting Up Business in India and India Market Entry Consulting Services. For ongoing accounting support, see our Accounting & Bookkeeping Services in India.

What Are the Accounting Requirements for BO, LO and PO in India?

Indian Books Should Capture the Indian Operations Separately

The Indian office should maintain a complete and auditable record of money received and spent, sales and purchases where applicable, assets, liabilities, bank transactions, employee costs, taxes and transactions with the overseas head office. This allows the Indian operations to be reported independently even though the BO, LO or PO is not a separate Indian subsidiary.

Companies Act Requirements Apply to Foreign Companies

Section 384(3) of the Companies Act, 2013 applies the books-of-account requirement to a foreign company to the extent of requiring books at its principal place of business in India for monies received and spent, sales and purchases made, and assets and liabilities relating to its Indian business.

Accounting Must Also Support FEMA and Tax Compliance

Books should be designed not only for annual financial statements but also for RBI/FEMA reporting, Annual Activity Certificate requirements, tax filings, GST/TDS compliance where applicable, statutory audit, head-office reporting and eventual remittance or closure of the Indian office.

Accounting for a Branch Office in India

Branch Office Can Record Revenue From Permitted Activities

A Branch Office may undertake only the activities permitted under the FEMA/RBI framework and its approval. Accordingly, revenue ledgers should be mapped to the approved business activities so that the accounting records can demonstrate that income has been earned only from permitted operations.

Maintain Full Receivable, Payable and Expense Accounting

Where the BO raises invoices or earns legitimate business receivables, its books should capture customer invoices, collections, trade receivables, vendor bills, payables, payroll, taxes, fixed assets, provisions and other operating expenses in the normal course.

Head-Office Funding and Profit Remittance Must Be Separately Identified

Funds received from the overseas head office should be separately identified from customer revenue. Likewise, profit proposed to be remitted abroad should be supported by the audited accounts and the documentation required by the designated Authorised Dealer bank.

Accounting for a Liaison Office in India

Liaison Office Should Not Record Commercial Revenue From Prohibited Activities

A Liaison Office is intended to act as a communication or representative channel and cannot undertake commercial, trading or industrial activity directly or indirectly under the RBI framework. Its books should therefore reflect the limited nature of its permitted operations.

Expenses Are Normally Funded Through Inward Remittances

LO accounting commonly consists of recording inward remittances from the overseas principal and the local administrative expenses incurred in India. The remittance from head office should not automatically be treated as operating revenue merely because funds have entered the Indian bank account.

Receipt and Payment Tracking Is Especially Important

Because an LO is essentially a cost centre, monthly bookkeeping should clearly reconcile the opening bank balance, inward remittances, local operating expenses, statutory payments, advances, prepaid expenses and closing bank balance.

Accounting for a Project Office in India

Books Should Be Maintained Project-Wise

A Project Office exists to execute a specific project in India and should maintain accounting records that clearly identify project revenue, contract receipts, project costs, subcontractors, materials, site expenses, fixed assets, employee costs, taxes, retentions and project liabilities.

Project Bank Accounts Should Reconcile With the Contract

Where the PO maintains permitted INR or foreign-currency accounts, receipts and payments should be mapped to the project contract. RBI permits specified foreign-currency accounts for eligible project offices subject to conditions on credits, debits and closure at completion of the project.

Project Completion Requires Clean Liability and Surplus Records

Before surplus is remitted or the Project Office is closed, the books should demonstrate that project liabilities, employee dues, taxes, vendor balances and other obligations in India have been adequately provided for or settled.

Books of Account Required Under the Companies Act

Books Must Cover Money Received and Spent

The Indian books should provide a complete record of receipts and payments, including head-office remittances, customer collections where applicable, vendor payments, payroll, tax payments, reimbursements and other bank or cash movements.

Sales, Purchases, Assets and Liabilities Must Be Properly Recorded

Where relevant to the Indian activity, maintain invoice-level sales and purchase records together with receivables, payables, fixed assets, deposits, advances, provisions, employee liabilities and statutory dues.

Books Should Be Maintained at the Principal Place of Business in India

The Companies Act framework for foreign companies requires the prescribed books relating to the Indian business to be kept at the principal place of business in India. The accounting system should also preserve sufficient supporting documents and audit trail for verification.

Official MCA guidance on foreign-company annual accounts is available through the FC-3 Instruction Kit.

Bank Accounting and Inward Remittances

Every Receipt Should Be Classified by Its Nature

Bank receipts may represent head-office funding, customer collections, project receipts, refunds, deposits or other legitimate credits. Correct classification is important because inward remittance from the foreign parent is not necessarily business income.

Monthly Bank Reconciliation Should Be Mandatory

Each India bank account should be reconciled every month to the general ledger. Outstanding cheques, bank charges, forex conversion differences, direct debits, tax payments and unidentified receipts should be resolved promptly.

RBI-Permitted Bank Operations Should Be Respected

The accounting team should understand the permitted credit and debit pattern applicable to the BO, LO or PO. For example, RBI’s framework restricts LO bank-account debits to local expenses and permits BO accounts to receive head-office funds and legitimate business receivables arising from permitted operations.

The current FEMA framework can be checked in the official RBI Master Direction on Branch, Liaison and Project Offices.

Head Office Transactions and Inter-Office Accounting

Create a Separate Head Office Control Account

All amounts funded by, paid on behalf of, recovered from or remitted to the overseas head office should flow through clearly defined head-office control accounts. This avoids mixing parent funding with revenue or vendor transactions.

Reconcile India Books With Head-Office Records

The balance appearing in the Indian head-office account should be periodically reconciled with the corresponding ledger maintained by the overseas finance team. Differences often arise from bank charges, timing, currency conversion, expenses paid directly by head office or transactions recorded in only one set of books.

Document the Nature of Cross-Border Charges

Management fees, reimbursements, shared service costs, employee recharges and other cross-border allocations require proper agreements, invoices or supporting workings where applicable. Their tax and transfer-pricing treatment should be reviewed separately based on the legal nature of the Indian presence and the transaction.

Revenue, Expense and Accrual Accounting

Revenue Recognition Should Follow the Actual Business Model

A BO or PO earning revenue should recognise income based on the underlying contract, service delivery, project progress and applicable accounting principles. An LO should not create revenue merely to absorb head-office funding because its permitted role is fundamentally different.

Record Expenses in the Correct Period

Monthly accounts should include accrued expenses, prepaid expenses, employee liabilities, professional fees, rent, utilities, project costs and other period-end adjustments so that management accounts do not depend only on when invoices are received or paid.

Vendor and Employee Reimbursements Need Supporting Documents

Expense claims should be supported by invoices, receipts, approval records and business purpose. This is particularly important for foreign-company offices because expense records may be reviewed during audit, tax proceedings, AAC certification or remittance/closure procedures.

GST, TDS, Payroll and Tax Accounting

GST Applicability Should Be Assessed Based on Actual Activities

A Branch Office or Project Office may have GST obligations where it makes taxable supplies or otherwise meets the registration conditions. A Liaison Office should not assume that GST issues are irrelevant merely because FEMA restricts it from commercial activity; the actual facts and transaction flows should be reviewed.

TDS Payable Should Reconcile With Expense Ledgers

Where Indian tax deduction at source applies, the accounting team should reconcile vendor expenses, TDS deductions, challans, returns and outstanding TDS payable every month. Differences discovered only at year-end often delay audit and tax compliance.

Payroll Accounting Should Cover All Employee-Related Liabilities

Salary, bonus, reimbursements, payroll taxes, provident fund, ESI and other employee liabilities should be recorded and reconciled with payroll reports and statutory returns where applicable.

For broader tax and regulatory support, see our Tax and Regulatory Advisory Services in India. The official GST portal is available at GST.gov.in and the Income Tax e-Filing portal at IncomeTax.gov.in.

Foreign Currency Accounting and Exchange Differences

Record Transactions in the Appropriate Functional and Reporting Currency

Indian statutory books are normally maintained in INR, while the overseas parent may require reporting in another currency. The accounting system should therefore support consistent conversion for head-office reporting without altering the integrity of the Indian statutory books.

Recognise Exchange Differences Consistently

Foreign-currency bank balances, receivables, payables and head-office balances may generate exchange gains or losses. These should be identified through a documented month-end process rather than left as unexplained reconciliation differences.

Keep the Parent Reporting Pack Separate From Statutory Books

Group reporting adjustments, consolidation entries or management reclassifications required by the overseas parent should be separately documented so that statutory Indian accounts remain traceable to the underlying ledgers.

Fixed Assets, Deposits and Other Balance-Sheet Items

Maintain a Fixed Asset Register

Computers, furniture, office equipment, project assets and other fixed assets should be recorded with purchase date, invoice, location, cost, depreciation and disposal information. Project-specific assets should also be identified separately where relevant.

Track Security Deposits and Advances

Office deposits, employee advances, vendor advances, project advances and statutory deposits can remain outstanding for long periods. Monthly ageing and confirmation help prevent incorrect write-offs or missed recoveries at closure.

Reconcile Statutory Liabilities Every Month

GST, TDS, payroll liabilities, professional tax and other statutory balances should be reconciled with returns and challans so the balance sheet reflects only genuine amounts payable or recoverable.

Month-End Closing for BO, LO and PO

Complete Bank, Vendor and Customer Reconciliations

Every month should close with reconciled bank accounts, vendor balances and customer receivables where applicable. Long-outstanding items should be investigated rather than carried forward indefinitely.

Book Accruals, Prepaids and Forex Adjustments

Month-end entries should include unpaid expenses, prepaid costs, depreciation, payroll accruals, foreign-exchange adjustments, project provisions and other closing entries required to present a realistic monthly result.

Send a Consistent MIS to the Overseas Head Office

A monthly reporting pack may include trial balance, profit and loss account, balance sheet, bank reconciliation, receivable/payable ageing, tax status, cash forecast, project profitability and variance analysis depending on the type of Indian office.

Annual Financial Statements and MCA Filings

FC-3 Covers Annual Accounts of the Foreign Company in India

Under section 381 of the Companies Act, 2013 and the Companies (Registration of Foreign Companies) Rules, every foreign company is required to prepare and file the prescribed financial statements relating to its Indian business operations. MCA’s current FC-3 instruction kit states that the financial statements are to be filed within six months of the close of the foreign company’s financial year, subject to the permitted extension by the Registrar.

FC-4 Is the Annual Return of a Foreign Company

MCA’s FC-4 instruction kit states that the annual return of a foreign company is to be filed within 60 days from the close of the financial year. The accounting and corporate records should therefore be finalised in time to support both annual-account and annual-return filings.

Related-Party and Repatriation Information Should Be Available

Foreign-company annual-account requirements include supporting information relating to Indian business operations and specified disclosures. Related-party transactions, fund transfers and repatriation-related information should therefore be maintained systematically during the year rather than reconstructed at filing time.

See the official FC-4 Instruction Kit for the annual-return framework.

Annual Activity Certificate and RBI Reporting

AAC Certifies That Activities Remained Within the Permission

The Annual Activity Certificate is an important FEMA compliance document. The statutory auditor certifies whether the BO, LO or PO has undertaken only the activities specifically permitted under the RBI/Authorised Dealer approval and complied with the applicable conditions.

BO and LO Submit AAC With Audited Financial Statements

Under RBI reporting instructions, the BO or LO submits the AAC as at 31 March together with audited financial statements, including the receipt and payment account, to the designated AD Category-I bank and a copy to the Director General of Income Tax (International Taxation). For a March year-end, the stated filing date is on or before 30 September.

Project Office AAC Is Submitted to the Designated AD Bank

RBI’s Master Direction provides that a sole Project Office also submits the AAC, while the PO submits it to the designated AD Category-I bank. Accounting records should therefore allow the auditor to verify that project transactions remained within the permitted project activities.

Profit Remittance, Project Surplus and Closure Accounting

Branch Profit Remittance Requires Audited Support

RBI permits a Branch Office to remit profits outside India net of applicable Indian taxes, subject to prescribed documentation. The framework requires the audited balance sheet and profit and loss account together with a Chartered Accountant’s certificate regarding the remittable profit and permitted activities.

Project Office Surplus Requires Provision for Indian Liabilities

For permitted project-office remittances, accounting should establish that sufficient provision has been made for Indian liabilities, including taxes. This makes accurate project closing accounts and liability schedules essential.

Closure Should Not Begin With Unreconciled Books

Before closing a BO, LO or PO, management should reconcile bank accounts, fixed assets, deposits, employees, vendors, taxes, head-office balances and outstanding litigation or liabilities. Closure documentation and remittance of winding-up proceeds are easier when the books already provide a clear audit trail.

Need Accounting Support for Your BO, LO or PO in India?

EzyBiz India assists foreign companies with monthly bookkeeping, bank reconciliation, accounts payable and receivable, payroll accounting, GST/TDS support, head-office reporting, audit preparation, annual financial statements and coordination of Companies Act and FEMA/RBI compliance for Indian offices.

Discuss Your India Accounting Requirements With Our Team

Practical Monthly Accounting Checklist

Core Month-End Checklist

Post all bank, vendor, payroll and expense transactions.
Reconcile every India bank account.
Reconcile head-office and inter-office balances.
Review receivables and payables where applicable.
Book accruals, prepayments, depreciation and forex adjustments.
Reconcile GST, TDS and payroll liabilities.
Review fixed assets, deposits and advances.
Investigate unusual or long-outstanding balances.

Foreign-Company Compliance Checklist

Confirm activities remain within BO/LO/PO permission.
Maintain support for inward remittances and cross-border transactions.
Update related-party and head-office transaction schedules.
Maintain records required for FC-3 and FC-4 filings.
Keep AAC supporting schedules audit-ready.
Track remittance, project-completion or closure requirements where relevant.

Frequently Asked Questions

Is a Branch Office required to maintain separate books in India?

Yes. The Companies Act framework requires a foreign company to maintain books at its principal place of business in India for money received and spent, sales and purchases, assets and liabilities relating to the Indian business.

Does a Liaison Office earn business income in India?

An LO is not permitted under the RBI framework to undertake commercial, trading or industrial activity directly or indirectly. Its accounting should therefore reflect its representative and liaison role rather than treating head-office funding as ordinary operating revenue.

How should head-office remittances to an LO be recorded?

They should be separately identified as funds received from the overseas principal and reconciled through the appropriate head-office account. They should not automatically be classified as sales revenue merely because they are credited to the Indian bank account.

Does a Project Office need project-wise accounting?

Yes. Project-wise accounting is highly important because receipts, expenses, assets, liabilities and eventual surplus or closure should be traceable to the specific project for which the PO was established.

What is Form FC-3?

FC-3 is the MCA form used for filing annual accounts together with the prescribed information relating to places of business in India of a foreign company. The current MCA instruction kit states that the filing is due within six months from the close of the foreign company’s financial year, subject to permitted extension.

What is Form FC-4?

FC-4 is the annual return of a foreign company. MCA guidance states that it is to be filed within 60 days from the close of the financial year.

What is the Annual Activity Certificate for BO, LO and PO?

The AAC is an auditor-certified FEMA compliance document confirming that the Indian office has carried on only the permitted activities and complied with the relevant approval conditions. The filing route differs between BO/LO and PO under the RBI framework.

Can a Branch Office remit profit to its overseas head office?

Yes, subject to applicable Indian taxes and the prescribed RBI/Authorised Dealer documentation, including audited financial statements and a Chartered Accountant’s certificate supporting the remittable profit.

Related Services

Prepared By: EzyBiz India Consulting LLP

Reviewed By:
Anil Agrawal, Chartered Accountant
Founder, EzyBiz India Consulting LLP
20+ Years of Experience in Tax, Regulatory and Business Advisory

Last Updated: 6 September 2026

Disclaimer:
This article is intended for general informational purposes only and does not constitute accounting, tax, legal, FEMA or professional advice. Accounting, tax, GST, Companies Act and RBI/FEMA requirements differ depending on whether the Indian presence is a Branch Office, Liaison Office or Project Office, the activities actually undertaken, the approval conditions and the relevant financial year. Regulatory requirements and forms may also change. Foreign companies should verify the latest MCA, RBI, Income Tax and GST requirements and obtain professional advice before finalising their accounting or compliance treatment.