§ 1
Why branch accounting needs its own design
Branch books sit between two worlds. In India they must show the profit attributable to the Indian business, prepared so that the tax officer accepts the attribution. For the head office they are a division whose results consolidate line by line. The 'head office account' that links the two must be reconciled carefully, because every remittance, recharge and allocation passes through it.
Head office expense allocations deserve particular care. Indian tax law limits the deduction for head office expenditure of a non-resident, and transfer pricing applies to dealings between the branch and its head office. Allocations should be supported by a documented key and invoices, not posted as a single year-end journal.
§ 2
The law that applies
| Companies Act, 2013, section 381 and Form FC-3 | Audited accounts of the Indian business filed with the Registrar. |
|---|---|
| FEMA Regulations, 2016 and RBI Master Direction | Annual Activity Certificate confirming permitted activities. |
| Income-tax Act, 2025 | Tax audit, limits on head office expenditure and transfer pricing for branch–head office dealings. |
§ 3
Issues and how we solve them
The problems that most often hold up or complicate this work, and how we deal with each.
Issue 1
The head office account does not reconcile.
Our approach
We reconcile the head office account monthly with the parent's ledger, classifying remittances, recharges and allocations, so the year-end balance agrees without large unexplained differences.
Issue 2
Head office cost allocations are challenged in assessment.
Our approach
We document the allocation key, obtain invoices or certificates for allocated costs and apply the statutory limit on head office expenditure, so the deduction claimed can be defended.
Issue 3
The Annual Activity Certificate is filed late or describes activities loosely.
Our approach
We prepare the certificate from the year's contracts and invoices, matched to the approval letter, and file it with the AD bank before 30 September.
§ 4
Process and timeline
- 1
Monthly books
MonthlyBookkeeping, head office reconciliation, TDS and GST.
- 2
Year-end accounts
April–JuneFinancial statements of the Indian business and head office allocation working.
- 3
Audit and AAC
June–SeptemberAudit by an independent Chartered Accountant and the Annual Activity Certificate.
Filing: AAC to AD bank by 30 September
- 4
Filings
By the due datesAccounts to the ROC and the tax return.
Filing: Form FC-3 · income-tax return
§ 5
Our scope of work
Included
- Monthly bookkeeping
- Head office reconciliation
- Year-end accounts
- Audit coordination
- Annual Activity Certificate preparation
- FC-3 filing
Not included (quoted separately)
- The statutory audit opinion (independent auditor)
§ 6
Questions
Is a branch office audit compulsory?
Yes. The accounts of the Indian business are audited every year and filed with the Registrar, and an audit is needed for the tax return and the Annual Activity Certificate.
Who signs the Annual Activity Certificate?
A Chartered Accountant, usually the branch's auditor, certifies that the branch carried on only the permitted activities.
Prepared by CA Utsav Dogra, Chartered Accountant, ICAI M. No. 542375, SU and Company · Last reviewed 4 November 2026. General information only, based on the law as it stood on that date; it is not advice for any particular case.