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India market entry · Liaison office tax compliance

Tax Compliance for Liaison Offices in India

Prepared by S U and Company's CA-led advisory team · Published 27 October 2026 · About S U and Company

A liaison office's tax position is unusual for one reason: it is not supposed to have one, because it is not supposed to earn income. The real tax risk is not a rate or a return — it is the activity itself. The moment a liaison office starts doing anything that looks like selling, negotiating, or servicing customers, the clean “no income, no tax” position can turn into a permanent establishment question for the foreign company.

Quick answer

What tax compliance does a liaison office have in India?

A liaison office earns no income, so it generally pays no business income tax, but it must deduct tax at source with a TAN on salaries, rent and fees, file an annual statement of activities within 60 days of the year end, and avoid any activity that could make it a permanent establishment of the foreign company.

1. No business income, but filings still apply

A liaison office is not expected to earn income, so there is generally no business income tax to pay. That does not mean there is nothing to file: tax deduction at source on salaries, rent and professional fees, and an annual statement of activities, apply regardless of whether the office earns anything.

2. Permanent establishment: the real risk

A liaison office limited to representing the parent, collecting information, and promoting the parent's trade is generally treated as preparatory or auxiliary and stays outside a taxable business connection. Activities such as selling, negotiating terms, or concluding contracts on the parent's behalf cross that line and can create a permanent establishment, exposing the foreign company's profits attributable to that activity to Indian tax. The activities actually carried out — not just the ones stated in the approval letter — determine the outcome.

3. TDS and TAN

A liaison office that pays salaries, rent, or professional fees deducts tax at source on those payments, which requires a Tax Deduction Account Number (TAN), deposit of the tax deducted, quarterly TDS returns, and annual tax certificates for employees.

4. The annual statement of activities

A liaison office must furnish an annual statement of its activities to the tax authorities within 60 days of the end of the financial year (Form 49C under the earlier law). This is the liaison office's signature tax filing, replacing the income tax return that a business with taxable income would otherwise file.

5. Remittances are not income

Inward remittances from the head office to fund a liaison office's expenses are not income of the office. The bank certificates for each remittance should be kept to support this position with the authorised dealer bank and tax authorities.

6. GST and transfer pricing: generally out of scope

A liaison office generally needs no GST registration because it makes no supplies, though registration may be needed in limited cases such as reverse charge on certain services — a position worth checking each year rather than assuming. Transfer pricing generally does not apply either, since a liaison office earns no income and does not sell to the group; if it ever starts earning anything, such as a commission, that itself breaches its approval and brings tax and transfer pricing exposure at the same time.

7. Expat taxation and treaty relief

An expat's salary for work done in India is taxable in India, whoever pays it, with the residence status, applicable tax treaty, and social security position all affecting the result. India has tax treaties with most countries under which activities that are preparatory or auxiliary may not create a permanent establishment for the foreign company, and a tax residency certificate with Form 10F may be needed to claim that relief.

Frequently asked questions

Does a liaison office pay income tax in India?

Generally no business income tax, because a liaison office earns no income. It still deducts tax at source on salaries, rent and fees, files an annual statement of its activities, and keeps proper records to support that position.

Can a liaison office become a permanent establishment?

Yes, if it does more than liaison work. A liaison office limited to representing the parent, collecting information and promoting the parent’s trade is generally outside a taxable business connection, but selling, negotiating, or concluding contracts can create a permanent establishment and expose the foreign company to tax in India.

What annual statement must a liaison office file with the tax department?

A liaison office must furnish an annual statement of its activities to the tax authorities within 60 days of the end of the financial year (Form 49C under the earlier law). The current form number under the applicable law should be confirmed each year.

Is money received from the head office taxable?

No. Inward remittances from the head office to fund a liaison office’s expenses are not income of the office. The bank certificates for each remittance should be retained to support this with the authorised dealer bank and tax authorities.

Does a liaison office need GST registration?

Generally not, because it makes no supplies. A liaison office may still need registration in limited cases, such as on reverse charge for certain services, and this should be checked each year. It cannot charge GST or invoice customers.

Does transfer pricing apply to a liaison office?

Generally no, because a liaison office earns no income and does not sell to the group. If a liaison office starts earning anything — such as a commission — that would itself breach its approval and would also bring tax and transfer pricing exposure.

How are expats working in a liaison office taxed?

An expat’s salary for work done in India is taxable in India, whoever pays it, and the residence status, applicable tax treaty, and social security position all affect the outcome. Each expat’s position should be reviewed individually rather than assumed from a colleague’s.

How S U and Company can help

We review proposed and actual activities for permanent establishment risk, prepare TDS filings and the annual statement of activities, and support expats with residence and treaty positions. See our liaison office registration guide and accounting and audit guide, or explore the US-to-India entry guides.

Sources and further reading