Compliances for a Subsidiary Company in India

A foreign subsidiary in India carries real, ongoing compliance obligations across four areas: RBI/FEMA reporting, Companies Act filings, tax, and employee law, and one of those areas changed significantly in the last year. Here's what's actually current, at different points during the year.

Key Takeaways

• Two RBI filings matter most: Form FC-GPR within 30 days of receiving investment, and the annual FLA Return by July 15 for as long as the subsidiary holds foreign investment.

• A tax audit is mandatory above ₹1 crore turnover, or up to ₹10 crore if both cash receipts and cash payments stay under 5% of total transactions.

• India's four Labour Codes came into force on November 21, 2025, consolidating 29 laws including the old EPF, ESI, Gratuity, and Maternity Benefit Acts into the Code on Social Security, 2020.

What Counts as a Foreign Subsidiary

A foreign subsidiary is any company where 50% or more of its share capital is owned by a company incorporated in another country, the foreign company being the holding or parent company. Which compliances apply depends on the subsidiary's structure, industry, annual turnover, and headcount, but the categories below cover what's essential for most foreign-owned Indian subsidiaries. For the incorporation process itself, see our guide to incorporation of a foreign subsidiary in India.

RBI and FEMA Compliance

Once incorporated, the subsidiary can open an Indian bank account, and the foreign shareholders remit the share capital agreed at incorporation. The RBI mandates specific reporting on that remittance.

Form FC-GPR: Reporting the Investment

A one-time report is due in Form FC-GPR (Foreign Currency Gross Provisional Return) within 30 days of receiving the capital remittance, filed on the RBI's FIRMS portal.

Form FLA: The Annual Return

Every year afterward, an annual Form FLA (Foreign Liabilities and Assets) return is due, reporting the foreign assets and liabilities on the Indian company's books as of March 31. See our guide to foreign subsidiary incorporation and RBI reporting for the exact FLA deadline and the Late Submission Fee formula if a filing is missed.

Companies Act and RoC Compliance

As an Indian company, the subsidiary is subject to the same tax laws and Companies Act compliance as any domestic company. The core requirements:

• Maintenance of books of accounts: kept in accordance with Indian accounting standards, with accurate financial reporting to regulators on an ongoing basis.
• Statutory audit: every Private Limited Company must appoint a statutory auditor and conduct a yearly audit under the Companies Act, 2013.
• RoC filings: appointment of auditor, Form INC-20A (commencement of business), board meeting minutes and notices, Form MBP-1 (directors' disclosure of interest), AGM minutes, the Director's Report, annual Director's KYC, Form DPT-3 where applicable, Form MGT-7 (Annual Return), Form AOC-4 (Financial Statements), and maintenance of statutory registers.

Tax Compliance

Corporate Income Tax Rate

Domestic companies, including Indian subsidiaries of foreign parents, can elect the concessional rate under Section 115BAA of the Income Tax Act: 22% base rate plus 10% surcharge plus 4% cess, an effective 25.17% (ClearTax). The election is optional but irreversible once made, and requires giving up certain deductions and exemptions (such as additional depreciation and SEZ deductions) in exchange; companies that elect it are also exempt from Minimum Alternate Tax. The tax applies to the Indian entity itself, not the foreign parent, which isn't taxed on the subsidiary's profits.

Tax Audit Threshold

A tax audit is mandatory under Section 44AB once annual turnover exceeds ₹1 crore. That threshold rises to ₹10 crore if cash receipts and cash payments each stay at or below 5% of their respective totals, both conditions have to hold independently (ClearTax). The tax audit report is due September 30 following the financial year, with the return itself due October 31 for entities subject to transfer pricing provisions, which covers most foreign-owned subsidiaries with related-party transactions.

Transfer Pricing

If the subsidiary sells goods or renders services to its foreign parent, that's an international related-party transaction subject to India's transfer pricing rules, and the invoice value has to reflect an arm's-length price. Every such transaction requires a Chartered Accountant's report in Form 3CEB, generally due November 30. Failing to furnish it attracts a ₹1,00,000 penalty under Section 271BA, read with Section 92E - and it applies even in a loss year, since the obligation is triggered by the transaction existing, not by profitability. A reasonable-cause defense exists under Section 273B, and it's not automatically unappealable; a purely technical e-filing delay has been set aside by an ITAT ruling before.

GST

GST applies to all entities in India, with rates depending on the goods or services provided. Core ongoing compliance includes GST registration, the monthly GSTR-1 (outward supplies), the monthly or quarterly GSTR-3B, and the annual GSTR-9 return, mandatory above ₹2 crore turnover, a threshold CBIC reaffirmed for FY2024-25 onward via Notification No. 15/2025-Central Tax. Entities above ₹5 crore turnover also need the GSTR-9C reconciliation statement.

Employee Payroll and Labour Law

Most Indian subsidiaries exist to support the parent company with local manpower, which makes payroll compliance a real, ongoing responsibility. This is also the area that changed the most recently: India's four Labour Codes (the Code on Wages, Industrial Relations Code, Code on Social Security, and Occupational Safety, Health and Working Conditions Code) came into force nationwide on November 21, 2025, consolidating 29 previously separate central labour laws, including the standalone EPF Act, ESI Act, Payment of Gratuity Act, and Maternity Benefit Act, into these four Codes.

The headcount thresholds and contribution rates that mattered under the old Acts mostly carry over into the new framework:

• Provident Fund (EPF): applies at 20 or more employees, 12% employer and 12% employee contribution. The Code removed the old industry-type restriction, so coverage is now universal across industries at that headcount rather than limited to specific scheduled industries.
• Employee State Insurance (ESI): applies at 10 or more employees generally, with the 10-employee minimum removed entirely for hazardous occupations, where even a single such worker triggers mandatory coverage. Wage ceiling remains ₹21,000/month (₹25,000 for employees with disabilities), contribution 4% combined (3.25% employer, 0.75% employee). Coverage is now pan-India rather than limited to notified areas.
• Gratuity: applies at 10 or more employees, not 20, a threshold that hasn't changed under the new Code.
• Maternity Benefit: applies at 10 or more employees, with 26 weeks of leave, unchanged.

One genuinely new item: the Codes introduce a uniform statutory definition of "wages" (Basic pay plus dearness allowance plus retaining allowance must make up at least 50% of total CTC), which affects how gratuity, ESI, bonus, and leave-encashment get calculated, and can change real payroll costs for a subsidiary structuring compensation packages. As of the most recent professional alerts, the Codes were in force but supporting Central and State Rules were still being finalized - confirm the current Rules status with your compliance provider before relying on specifics for your state.

Professional Tax

Professional tax is a state-level tax, capped at ₹2,500 per person per year under Article 276 of the Constitution, no state can charge more. The commonly cited "₹200/month" figure is the Maharashtra-style pattern (₹200 for eleven months plus ₹300 in the twelfth), not a universal rule; other states use different slabs that still net to the same ₹2,500 cap. Several major states, including Delhi, Haryana, Uttar Pradesh, Rajasthan, and Goa, don't levy professional tax at all, worth knowing if you're choosing where to incorporate.

Frequently Asked Questions

What's the first compliance deadline after a subsidiary receives its initial investment?

Form FC-GPR, due within 30 days of the capital remittance being received, reporting the investment to the RBI.

Does a subsidiary need a tax audit every year?

Only once turnover exceeds ₹1 crore (or ₹10 crore where cash transactions stay under 5% on both the receipts and payments side). Below that, no mandatory tax audit applies, though the RBI's FLA return and Companies Act filings still do.

Has employee law compliance changed recently?

Yes. India's four Labour Codes came into force on November 21, 2025, consolidating 29 laws, including EPF, ESI, Gratuity, and Maternity Benefit, into a single Code on Social Security. Most headcount thresholds and contribution rates carried over, but ESI coverage is now pan-India and the Codes introduce a new uniform "wages" definition affecting payroll calculations.

Does the foreign parent company get taxed on the subsidiary's profits?

No. The subsidiary is a separate legal entity and is taxed in India on its own profits; the parent company isn't directly taxed on those profits.

Is professional tax the same across every state?

No. It's a state-level tax capped at ₹2,500/year nationally, but several states, including Delhi and Haryana, don't levy it at all, and the ones that do use different monthly slab structures.

VenturEasy manages subsidiary compliance end to end, RBI/FEMA filings, RoC compliance, tax, and payroll, so you don't have to track each deadline yourself. Get in touch with your requirements.