Statutory legal obligation of foreign branch audit in India

This query is : Resolved

Mahesh Soni (Querist)
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12 July 2021 Whether a foreign entity's India branch in India is required a statutory audit of its Branch operations in India ?

If yes than what are the consequences of not doing audit ?

Deepa B

Deepa B (Expert)
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13 July 2021 Is the Indian branch of foreign entity, a company or it is of some other business form?

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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25 July 2025 Yes, a foreign company having a branch office in India **is required to get its branch operations audited in India** as per Indian laws.

### Legal & Statutory Obligations for Foreign Branch Audit in India

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#### 1. **Requirement of Statutory Audit**

* **Section 381 of the Companies Act, 1956 (and corresponding provisions in Companies Act, 2013)**:

* Every foreign company having a place of business in India is required to prepare financial statements relating to its Indian branch.
* These accounts need to be audited by a **Chartered Accountant in India**.

* **Foreign Exchange Management Act (FEMA)** and **Reserve Bank of India (RBI) regulations**:

* The foreign company must comply with RBI guidelines, including submission of annual audited accounts of the Indian branch.

* **Income Tax Act**:

* The Indian branch must file tax returns in India and pay tax on income earned in India.
* Audit under **Section 44AB** of Income Tax Act (Tax Audit) may be applicable based on turnover/profit.

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#### 2. **Documents & Reports Required**

* Audited **Profit & Loss Account** and **Balance Sheet** of the Indian branch.
* Auditor’s report by an Indian Chartered Accountant.
* Compliance report as per RBI and MCA filings.

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#### 3. **Consequences of Not Conducting Audit**

* **Legal Penalties:**

* Failure to comply with statutory audit may attract penalties under the Companies Act, 1956/2013.
* Penalties under FEMA for non-compliance with RBI regulations.
* Income tax penalties for non-filing or incorrect filing.

* **Operational Impact:**

* Restriction in remittance of profits/dividends outside India.
* Difficulties in renewing licenses or obtaining regulatory approvals.
* Loss of credibility with Indian authorities and business partners.

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#### 4. **Summary**

| Point | Details |
| -------------------------- | -------------------------------------------------------------------- |
| Statutory Audit Required? | Yes, under Companies Act and RBI regulations |
| Auditor | Indian Chartered Accountant |
| Filing | Annual audited accounts to Registrar of Companies (MCA) and RBI |
| Tax Audit | Applicable if turnover/profit exceeds threshold under Income Tax Act |
| Penalty for Non-compliance | Monetary penalties, regulatory restrictions |

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**If you need, I can help draft a checklist or sample auditor’s report format for a foreign company’s Indian branch audit. Would you like that?**

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