Advantages and Disadvantages of an Indian Subsidiary

Foreign companies planning long-term operations in India often consider establishing an Indian subsidiary, including a wholly owned subsidiary. An Indian subsidiary is incorporated under the Companies Act, 2013 and operates as a separate legal entity from its foreign parent company.

Depending on the sector and applicable Foreign Direct Investment (FDI) regulations, a foreign investor may be permitted to own up to 100% of the Indian company. A subsidiary can provide greater operational flexibility, limited liability and scalability, but it also involves ongoing corporate, tax, FEMA and regulatory compliances.

Before selecting this structure, foreign investors should therefore evaluate both the advantages and disadvantages of an Indian subsidiary and compare it with alternatives such as a Branch Office, Liaison Office, Project Office or Joint Venture.

What Is an Indian Subsidiary?

An Indian subsidiary is an Indian company in which a foreign parent/investor holds a controlling interest. Where the entire share capital is held by the foreign parent/group, subject to applicable corporate and FDI requirements, it is generally referred to as a Wholly Owned Subsidiary (WOS).

Important distinction:

• incorporated under Indian company law;
• separate legal entity;
• governed by Companies Act;
• foreign investment subject to FDI/FEMA rules;
• can undertake commercial activities subject to its objects and sector-specific laws.Foreign investors considering incorporation can refer to our detailed guide on Wholly Owned Subsidiary in India.

Indian Subsidiary – Advantages and Disadvantages at a Glance

Advantages of an Indian Subsidiary

Separate Legal Entity

 Indian subsidiary has its own legal identity, separate from the foreign parent.

Limited Liability

Normally, shareholder liability is limited to the extent applicable to its shareholding/capital commitment, subject to law and specific circumstances.

Greater Operational Flexibility

A subsidiary can undertake commercial operations, hire employees, enter contracts, generate revenue and establish local operations subject to applicable laws.

Up to 100% Foreign Ownership in Many Sectors

Up to 100% foreign ownership is permitted in many sectors, subject to the applicable FDI policy, sectoral caps, entry route and regulatory conditions.

DPIIT itself states that FDI up to 100% is permitted under the automatic route in most sectors/activities, while the policy is reviewed on an ongoing basis.

Better Control Over Indian Operations

Particularly relevant to WOS structures where the foreign group wants control over:

• management;
• technology;
• processes;
• intellectual property;
• employees;
• commercial strategy.

Suitable for Long-Term Business Expansion

This is an important advantage over LO/BO structures. You may read more about our India market entry consulting services.

Local Business Presence and Credibility

It has ability to:

• contract locally;
• employ staff;
• open Indian banking arrangements;
• obtain applicable registrations;
• deal with customers/vendors in India.

Ability to Reinvest and Scale Operations

Profits may be retained/reinvested and further capital can be introduced subject to applicable corporate, FEMA and tax requirements.

Disadvantages of an Indian Subsidiary

1. Higher Regulatory and Compliance Requirements

An Indian subsidiary is required to comply with various corporate, accounting, tax and regulatory requirements.

Depending upon its activities, these may include:

• Companies Act and ROC compliances;
• maintenance of statutory records;
• Board and shareholder meetings;
• preparation of financial statements;
• statutory audit;
• income tax return;
• TDS compliance;
• GST compliance, where applicable;
• payroll and employment compliances;
• FEMA and RBI reporting;
• transfer pricing requirements; and
• other industry-specific registrations or filings.

Foreign investors should therefore consider the ongoing cost and administrative requirements of operating the company.

You may also refer to our detailed article on Post-Incorporation Compliances for a Wholly Owned Subsidiary.

2. Higher Setup and Operating Costs

Setting up and maintaining an Indian subsidiary generally involves higher costs than simply exporting products or services into India without establishing an entity.

Depending upon the nature and size of operations, costs may arise in relation to:

• incorporation;
• registered office;
• accounting;
• payroll;
• statutory audit;
• taxation;
• secretarial compliance;
• FEMA reporting;
• transfer pricing; and
• professional and regulatory support.

These costs should be considered as part of the foreign company’s overall India entry budget.

3. FEMA and FDI Compliance

Investment by a foreign shareholder into an Indian subsidiary is subject to FEMA and the applicable foreign investment framework.

Depending upon the transaction, compliance may involve:

• checking the permitted FDI route;
• sectoral caps and conditions;
• receipt of investment through permitted banking channels;
• pricing guidelines;
• allotment of securities;
• reporting of issue or transfer of securities;
• annual foreign liabilities and assets reporting, where applicable; and
• other FEMA requirements.

For example, issue of equity instruments to a non-resident investor may require reporting in Form FC-GPR within the prescribed timeline.

4. Transfer Pricing Compliance for Related-Party Transactions

Transactions between an Indian subsidiary and its foreign parent or other associated enterprises may be subject to Indian transfer pricing regulations.

Such transactions generally need to comply with the arm’s-length principle.

Depending upon the nature of the transactions and applicable provisions, the Indian company may also be required to maintain prescribed transfer pricing documentation and obtain the applicable accountant’s report.

Typical related-party transactions may include:

• provision of services;
• purchase or sale of goods;
• software or technology arrangements;
• management or support services;
• royalty payments;
• cost allocations;
• loans;
• guarantees; and
• other intercompany transactions.

Accordingly, the intercompany pricing model should preferably be evaluated at the time the Indian operations are established rather than only at the end of the financial year.

5. Corporate Governance and Decision-Making Requirements

An Indian subsidiary is governed by Indian company law and must comply with applicable corporate governance requirements.

Certain decisions may require:

• Board approval;
• shareholder approval;
• maintenance of minutes and statutory records;
• regulatory filings; or
• approval under the parent group’s internal policies.

As a result, some decisions may involve more documentation and formal procedures than operating without a separate Indian entity.

6. Tax and Repatriation Considerations

An Indian subsidiary is an Indian tax resident and is generally taxable in India on its income in accordance with applicable tax laws.

Payments between the Indian subsidiary and the foreign group may also have implications relating to:

• withholding tax;
• transfer pricing;
• tax treaties;
• royalty or fee arrangements;
• interest payments;
• dividends; and
• repatriation of funds.

The proposed operating and payment structure should therefore be reviewed from both Indian tax and FEMA perspectives.

7. Exit and Closure Require Formal Compliance

If the foreign parent subsequently decides to discontinue Indian operations, an incorporated subsidiary cannot simply stop operating.

The company may need to complete a formal closure process depending upon its financial and operational status.

This could involve:

• settlement of liabilities;
• tax and GST closure;
• employee settlements;
• closure of bank accounts;
• FEMA considerations;
• repatriation of remaining funds;
• ROC filings; and
• strike-off or voluntary liquidation, as applicable.

For more information, refer to our guide on Closure of a Subsidiary Company in India.

Does an Indian Subsidiary Create a Permanent Establishment of the Foreign Parent?

The existence of an Indian subsidiary does not by itself mean that the foreign parent automatically has a Permanent Establishment in India.

The Permanent Establishment position of the foreign parent depends upon the applicable tax treaty, the activities carried out in India, contractual arrangements, authority exercised by persons in India and the actual conduct of the parties.

Accordingly, multinational groups should structure and document the relationship between the foreign parent and Indian subsidiary appropriately from an international tax and transfer pricing perspective.

When Is an Indian Subsidiary a Suitable India Entry Structure?

An Indian subsidiary may be particularly suitable where a foreign company intends to:

• establish a long-term commercial presence in India;
• sell goods or services directly to Indian customers;
• manufacture products in India;
• establish a technology, development or service centre;
• build a Global Capability Centre or similar operation;
• hire a substantial Indian workforce;
• maintain greater control over management and operations;
• make continuing investment into India;
• develop an Indian brand and customer base; or
• scale its business operations over time.

The appropriate structure should nevertheless be selected after reviewing the proposed activities, FDI regulations, taxation, ownership requirements and long-term commercial strategy.

When Should a Foreign Company Consider Another India Entry Structure?

A subsidiary is not necessarily the best structure in every situation.

Depending upon the commercial objective, a foreign company may consider other India entry structures.

Liaison Office

A Liaison Office may be considered where the objective is primarily to represent the foreign company, undertake market research, promote the parent company’s business or act as a communication channel without undertaking commercial or revenue-generating activities in India.

Branch Office

A Branch Office may be appropriate for an established foreign company intending to undertake specified activities permitted under the applicable FEMA/RBI framework without incorporating a separate Indian company.

Project Office

A Project Office may be suitable where the foreign company has secured a specific project or contract in India and intends to establish a presence principally for execution of that project.

Joint Venture

A Joint Venture may be preferred where an Indian partner can contribute market knowledge, distribution capabilities, technology, licences, customer relationships or other strategic advantages.

Foreign investors comparing these structures can refer to our detailed guide on Liaison Office vs Branch Office vs Wholly Owned Subsidiary in India.

How Is an Indian Subsidiary Incorporated?

An Indian subsidiary is generally incorporated through the Ministry of Corporate Affairs under the Companies Act, 2013 using the SPICe+ incorporation framework and linked forms.

The incorporation process generally involves:

1. determining the proposed shareholding and business structure;
2. checking applicable FDI regulations;
3. identifying the proposed directors and shareholders;
4. obtaining Digital Signature Certificates, where required;
5. obtaining approval for the proposed company name;
6. preparing the constitutional and incorporation documents;
7. filing the incorporation application with the Ministry of Corporate Affairs;
8. obtaining the Certificate of Incorporation, PAN and TAN;
9. opening the company’s bank account;
10. receiving the foreign investment through permitted banking channels;
11. allotting shares; and
12. completing applicable FEMA/RBI reporting.

Documents executed outside India may require notarisation, apostille or consularisation depending upon the country, document and applicable requirements.

Foreign investors seeking a complete incorporation guide may refer to our Wholly Owned Subsidiary Registration in India page.

Is an Indian Subsidiary the Right Choice for Your Business?

An Indian subsidiary is often an effective structure for foreign companies planning substantial and long-term commercial operations in India.

It provides a separate legal identity, operational flexibility, limited liability and the ability to develop and scale the Indian business.

At the same time, it involves ongoing corporate, tax, accounting, FEMA and regulatory compliance.

The appropriate India entry structure should therefore be selected after considering:

• proposed business activities;
• foreign ownership requirements;
• FDI regulations;
• expected investment;
• tax implications;
• operational requirements;
• expected duration of Indian operations; and
• long-term expansion plans.

Foreign investors should compare an Indian subsidiary with alternative structures before making the final investment and incorporation decision.

Frequently Asked Questions

1. What is an Indian subsidiary?

An Indian subsidiary is a company incorporated in India that is controlled by another company, generally its foreign parent or holding company. It is a separate legal entity from the foreign parent and is governed by Indian corporate, tax and regulatory laws.

2. Can a foreign company own 100% of an Indian subsidiary?

Yes. In many sectors, foreign investors may establish a 100% foreign-owned Indian subsidiary under the Automatic Route, subject to the applicable FDI Policy, sectoral caps, conditions and other regulatory requirements.

Certain sectors may have investment restrictions, additional conditions or require Government approval. The applicable FDI position should therefore be checked before making the investment.

3. What are the main advantages of an Indian subsidiary?

The principal advantages include a separate legal identity, limited liability, greater operational flexibility, ability to undertake commercial activities, greater control over Indian operations and a scalable structure for long-term business expansion.

4. What are the main disadvantages of an Indian subsidiary?

The principal disadvantages include incorporation and operating costs, ongoing Companies Act and ROC compliance, statutory audit, taxation, FEMA reporting, accounting requirements and transfer pricing compliance for applicable related-party transactions.

5. Is an Indian subsidiary better than a Branch Office?

There is no single structure that is suitable for every foreign company.

An Indian subsidiary is generally more suitable for businesses seeking long-term commercial operations, greater flexibility and a separate legal entity. A Branch Office may be appropriate for an established foreign company intending to undertake only activities permitted under the applicable regulatory framework.

The choice should be made after comparing business activities, tax implications, FEMA requirements, regulatory approvals and long-term objectives.

6. Is RBI or Government approval always required to establish an Indian subsidiary?

No.

Where the proposed foreign investment is permitted under the Automatic Route and all applicable sectoral conditions are satisfied, prior Government approval may not be required merely for making the foreign investment.

However, Government approval or other sector-specific approvals may be required in particular cases. FEMA reporting and other post-investment compliances may also apply even where the investment is made under the Automatic Route.

7. Are transactions between the Indian subsidiary and foreign parent subject to transfer pricing?

International transactions between an Indian subsidiary and its foreign parent or other associated enterprises may be subject to Indian transfer pricing regulations.

The transactions should generally comply with the arm’s-length principle and may require prescribed documentation and reporting under Indian tax law.

8. Does an Indian subsidiary automatically create a Permanent Establishment of its foreign parent?

No. The mere existence of an Indian subsidiary does not automatically create a Permanent Establishment of the foreign parent in India.

The issue depends upon the applicable tax treaty, the functions performed in India, contractual arrangements, authority of persons operating in India and the actual relationship between the entities.

9. What annual compliances are generally applicable to an Indian subsidiary?

Depending upon the nature and activities of the company, annual or recurring compliances may include statutory audit, preparation of financial statements, ROC filings, income tax return, TDS compliance, GST returns where applicable, Board and shareholder meetings, FEMA reporting and transfer pricing compliance.

10. Can an Indian subsidiary be closed if the foreign parent decides to exit India?

Yes. Depending upon the company’s financial and operational position, closure may be undertaken through the applicable strike-off or liquidation process.

Before closure, the company generally needs to address outstanding liabilities, tax matters, regulatory filings, bank accounts, employees, FEMA requirements and repatriation of funds.

Related India Entry Services

India Market Entry Consulting Services

Strategic support for foreign companies evaluating their India entry route, ownership structure, investment plan, regulatory requirements and long-term business model.

Wholly Owned Subsidiary in India

End-to-end assistance with subsidiary incorporation, foreign investment planning, FEMA/RBI compliance and post-incorporation requirements.

Foreign Company Registration in India

Compare the different structures available to overseas companies for establishing their business presence in India.

Foreign Subsidiary Compliance in India

Understand the Companies Act, tax, FEMA and other recurring compliances applicable after establishment of the Indian company.

India Market Entry Services by Country

Explore country-specific India entry guidance for overseas companies and investors planning to establish or expand their operations in India.

Planning to Establish a Subsidiary in India?

Setting up an Indian subsidiary involves more than company incorporation. The ownership structure, FDI regulations, tax position, FEMA reporting, transfer pricing and post-incorporation compliances should be considered before the investment is made.

EzyBiz India Consulting LLP provides end-to-end assistance to foreign companies with India market entry strategy, subsidiary incorporation, FDI and FEMA advisory, taxation, accounting, payroll, audit and ongoing regulatory compliance.

Official Regulatory References

• Department for Promotion of Industry and Internal Trade (DPIIT) – Foreign Direct Investment Policy
• Reserve Bank of India – Foreign Investment in India and FEMA Reporting Regulations
• Ministry of Corporate Affairs – SPICe+ Incorporation and Allied Matters

Prepared and Reviewed by EzyBiz India Consulting LLP

Reviewed by: Anil Agrawal, Chartered Accountant

Last Updated: August 2026

Disclaimer

The information provided on this page is for general guidance and informational purposes only and should not be treated as legal, tax, accounting, investment or regulatory advice.

Foreign investment, company incorporation, taxation, FEMA and other regulatory requirements may vary depending upon the proposed business activities, ownership structure, investor jurisdiction, sector, transaction structure and applicable laws and regulations.

Laws, rules, regulations, procedures and regulatory interpretations may also change from time to time. Foreign investors should obtain appropriate professional advice based on their specific facts and circumstances before making an investment, incorporation or business-structure decision in India.

EzyBiz India Consulting LLP does not accept responsibility for any action taken solely on the basis of the general information contained on this page.