Quick answer: A branch office is an extension of a foreign company in India, set up under FEMA with approval from an AD Category-I bank. It can earn income, but only from activities the RBI lists. The parent needs a 5-year profit record and net worth of at least USD 100,000. Profits are taxed at the 35% foreign company rate.
- Permitted activities include export and import, consultancy, research, IT and software services, and technical support.
- Manufacturing and retail trading are not on the list, except manufacturing in a Special Economic Zone.
- Effective tax, with surcharge and 4% cess, runs from 36.40% to 38.22%.
- Branch profits can be remitted abroad net of Indian taxes, with documents for the AD bank.
What can a branch office do in India?
More than a liaison office, less than a company.
The RBI Master Direction on branch, liaison and project offices lists the permitted activities. They include export and import of goods, consultancy (other than legal practice), research in the parent’s field, and technical or financial collaboration. IT and software development, technical support and acting as buying or selling agent are also allowed.
The application goes in Form FNC to an AD Category-I bank. A subsidiary applicant that misses the profit or net worth tests may rely on a Letter of Comfort from a parent that meets them. The same prior-approval rules as a liaison office apply for listed countries and sensitive sectors. Each year the branch files an Annual Activity Certificate as at 31 March.
Branch office vs subsidiary: what does the tax gap cost?
Plenty. A branch is part of the foreign company, so India taxes it as a foreign company with a permanent establishment in India.
| Branch office | Wholly owned subsidiary | |
|---|---|---|
| Legal status | Part of the foreign parent | Separate Indian company |
| Base tax rate | 35% | 22% under section 200 |
| Effective rate with surcharge and cess | 36.40% to 38.22% | About 25.17% |
| Parent’s liability | Unlimited for branch debts | Limited to share capital |
Let’s say the branch makes ₹5 crore of taxable profit. That sits in the 2% surcharge band, so the effective rate is 37.13% and the tax is ₹1,85,65,000. A subsidiary at about 25.17% would pay roughly ₹1,25,85,000. About ₹60 lakh a year more, before any dividend tax on the subsidiary’s distributions. PwC’s India corporate tax summary shows the full rate bands, and our corporate tax in India entry compares the regimes.
So the branch office vs subsidiary choice is rarely about tax alone. The branch keeps profits and losses inside one company, which some groups prefer. Most still pick the subsidiary.
When does an EOR make more sense than a branch?
When the main need is staff, not Indian revenue.
A branch is an Indian permanent establishment by design. Hiring through a branch therefore puts your parent company’s Indian profits squarely in the tax net. An EOR employs your team on its own entity and invoices you for the service, so your company does not open a taxable Indian presence just to employ people.
A branch still fits a foreign company that must contract and invoice in India in its own name, such as a consultancy serving Indian clients that cannot or will not form a subsidiary. See our guide to business expansion in India for the other options.
How does Remunance help before you open a branch?
Remunance gives you an Indian team without an Indian taxable presence of your own, at a flat fee from USD 99 per employee per month with employment costs passed through at cost. When you need to trade locally, our India subsidiary formation service sets up the usual alternative to a branch. Get a branch vs subsidiary vs EOR comparison for your India plan.
What else do people ask about branch offices?
Can a branch office in India do manufacturing?
Not generally. Manufacturing is outside the permitted list, except under the general permission for branches in Special Economic Zones.
What is the tax rate for a branch office in India?
35% on taxable profit, plus surcharge of 2% or 5% above set income levels and 4% cess. That gives 36.40% to 38.22% effective.
Is a branch office a separate legal entity?
No. It is part of the foreign company. The parent is liable for its obligations, which is one reason most groups prefer a subsidiary.