§ 1
What the accounts must prove
The books should show that every rupee spent came from the head office through banking channels and that no income was received in India. Any receipt from an Indian party, even a reimbursement, needs an explanation, because it can be read as income.
The expense records also tell the story of what the office does. Travel, entertainment and staff costs that point to sales negotiations attract questions on permanent establishment. Keeping clear descriptions and supporting documents is part of the office's defence, not just an accounting formality.
§ 2
The law that applies
| FEMA Regulations, 2016 and RBI Master Direction | Funding by inward remittance; Annual Activity Certificate. |
|---|---|
| Companies Act, 2013, sections 381 and 384 | Accounts of the Indian business and annual filings of the foreign company. |
| Income-tax Act, 2025 | Annual statement of the liaison office's activities; TDS on salaries and rent. |
§ 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
Remittances are received without purpose codes or documentation.
Our approach
We agree with the head office and bank how remittances are sent and described, and keep the inward remittance certificates on file for the auditor and the AD bank.
Issue 2
Expense descriptions suggest business activity in India.
Our approach
We review significant expenses for wording and support, and flag activities that may need to stop or move to a different structure.
§ 4
Process and timeline
- 1
Monthly books
MonthlyExpense recording, remittance tracking, TDS on salaries and rent.
- 2
Year-end
April–JuneReceipts and payments, financial statements and audit.
- 3
Certificates and statements
May–SeptemberAnnual Activity Certificate and the annual statement to the tax department.
Filing: AAC by 30 September
§ 5
Our scope of work
Included
- Bookkeeping
- Remittance tracking
- Year-end accounts
- Audit coordination
- Annual Activity Certificate
- Annual tax statement
§ 6
Questions
Does a liaison office need a statutory audit?
Its accounts are audited, and the auditor certifies the Annual Activity Certificate that goes to the AD bank.
Can a liaison office receive money from Indian customers?
No. It must be funded only by inward remittances from its head office.
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.