Strategy and development Subsidiary set-up

How Do You Establish a Subsidiary in India? Entity Types and Setup Steps

Bhargavi Venugopal
Author

August 17, 2026
Published On

Most foreign companies establishing a subsidiary in India as part of a genuine India market entry choose between three structures:

Private Limited Company (wholly owned subsidiary) — the default choice for foreign SMEs and mid-market companies, allowing up to 100% foreign ownership under the automatic route in most sectors, without a local partner.
Liaison office — permitted only for non-commercial activities (market research, representing the parent), and cannot generate India-sourced revenue.
Branch office — allows revenue-generating activity but is taxed at a materially higher rate and requires RBI approval for most activities.

For companies planning an operating presence rather than a purely representative one, the wholly owned subsidiary is almost always the right call: it caps the parent company's liability, opens access to the concessional tax regime, and is now fast to register.

Core setup steps:

Obtain Digital Signature Certificates (DSC) and Director Identification Numbers (DIN) for the proposed directors.
Reserve the company name via the SPICe+ Part A service on the MCA portal.
File incorporation documents (SPICe+ Part B, Memorandum and Articles of Association) with the Registrar of Companies.
Apply for PAN, TAN, and GST registration where applicable from day one.
Open a corporate bank account and complete FDI reporting via Form FC-GPR once the parent company's investment is received.
Appoint at least one India-resident director, as required under the Companies Act, 2013.

What the typical structure looks like

A typical subsidiary has at least two directors, often including two or more representatives of the foreign parent, plus at least one India-resident director to satisfy the local residency requirement.

There are also normally at least two shareholders — these can be entirely foreign or a mix of foreign and Indian shareholders, depending on the ownership structure. In sectors allowing 100% foreign ownership, the foreign parent can retain full ownership without needing an Indian business partner.

But — and this is where setup-focused guides usually stop — incorporation is the beginning of the compliance relationship with Indian regulators, not the end of it. The legal and regulatory requirements, tax obligations, and day-to-day subsidiary administration covered in the rest of this guide continue for as long as the entity operates.

From Setup to Ongoing Administration: Why the Distinction Matters

Establishing a subsidiary in India is a project with a defined end date. Administering one is not. Once your Private Limited Company is incorporated, you inherit a recurring calendar of statutory filings, board governance requirements, tax deadlines, and HR obligations that repeat every month, quarter, and year for as long as the entity exists.

For international expansion leaders, this is where things quietly go wrong. The entity gets set up correctly, the first year runs smoothly under close attention, and then compliance ownership becomes unclear as the local team scales. A missed Annual General Meeting, a late ROC filing, or an FEMA reporting gap can each trigger penalties, and repeated lapses put directors personally at risk under the Companies Act, 2013.

Managing a subsidiary well in 2026 means building a compliance rhythm from day one, not reacting to deadlines as they arrive.

What Are the Legal and Governance Requirements for an Indian Subsidiary?

An Indian subsidiary — typically structured as a Private Limited Company — is governed primarily by the Companies Act, 2013, administered through the Registrar of Companies (ROC) under the Ministry of Corporate Affairs (MCA).

Core recurring obligations include:

Board meetings: At least four per calendar year, with a maximum gap of 120 days between two meetings.
Annual General Meeting (AGM): Held within six months of the financial year-end (by 30 September for a subsidiary following the April–March fiscal year).
Statutory registers: Maintained and updated for shareholders, directors, charges, and related-party transactions.
Annual filings with the ROC: Form AOC-4 (financial statements) and Form MGT-7 or MGT-7A (annual return), typically due within 30 and 60 days of the AGM respectively.
Director KYC (DIR-3 KYC): Filed annually for every director holding a Director Identification Number (DIN).
Statutory audit: Mandatory regardless of turnover, performed by a Chartered Accountant registered with the Institute of Chartered Accountants of India (ICAI).

A subsidiary of a foreign company must also have at least one director who is an Indian resident (someone who has stayed in India for at least 182 days in the previous financial year), which shapes how the board is composed and where governance authority effectively sits.

What Are the Tax Obligations for a Subsidiary Operating in India?

A wholly owned subsidiary incorporated in India is treated as a domestic resident company for tax purposes, which is a materially better position than operating through a branch office.

Corporate tax rates for AY 2026-27:

Structure	Effective tax rate	Notes
Domestic subsidiary opting for Section 115BAA	~25.17%	Concessional regime; most foreign-owned subsidiaries opt in
Domestic subsidiary, standard regime (turnover ≤ ₹400 crore)	~26–29%	Base 25% plus surcharge and cess
Foreign branch office / permanent establishment	~35–38%	Taxed as a foreign company on India-sourced income only

Beyond corporate tax, ongoing management involves:

Transfer pricing compliance: Any transaction with the foreign parent (management fees, royalties, intercompany loans, cost allocations) must be priced at arm's length and documented annually. This is one of the most heavily scrutinised areas for foreign-owned subsidiaries.
Thin capitalisation limits: Interest deductions on debt from the parent company are capped under Section 94B, so intercompany loan structures need to be reviewed before, not after, they're drawn down.
GST compliance: Monthly and annual GST returns if the subsidiary crosses the applicable turnover threshold or engages in taxable supplies.
Withholding tax (TDS): Deducted on payments to the foreign parent, vendors, and employees, with rates depending on the nature of payment and any applicable Double Taxation Avoidance Agreement (DTAA).
FEMA and RBI reporting: Foreign investment into the subsidiary must be reported via Form FC-GPR at the time of share allotment, and any subsequent transfer of shares via Form FC-TRS. Delayed filings attract compounding penalties from the Reserve Bank of India.

India has DTAAs with more than 90 countries, including France, which can reduce withholding tax on dividends, royalties, and technical service fees — but only if the paperwork (tax residency certificates, Form 10F) is filed correctly and on time.

How Do India's New Labour Codes Affect Subsidiary Management in 2026?

This is the single biggest HR compliance shift for foreign employers managing an Indian entity right now, and it's still in motion.

India's four Labour Codes — the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code — took legal effect on 21 November 2025, repealing 29 older central labour laws in a single notification. Central rules under all four codes were subsequently notified in May 2026.

However, labour is a concurrent subject under India's constitution, meaning each state must separately notify its own implementing rules before the codes are fully enforceable on the ground. As of mid-2026, over 30 states and union territories have notified rules for at least one code, but no uniform national commencement date has been announced. In practice, this means foreign subsidiaries need to track both central and state-level notifications for every location where they employ staff.

What subsidiaries should prepare for regardless of exact timing:

The new "wages" definition: Basic pay plus dearness allowance must equal at least 50% of total compensation (CTC). Allowance-heavy salary structures — common in IT, ITeS, and professional services — need restructuring, which typically reduces take-home pay slightly while increasing statutory contributions like gratuity and provident fund.
Gratuity and provident fund recalculation: Because gratuity and PF are calculated on the wage definition, the 50% floor increases employer contribution costs even where gross CTC stays flat.
Fixed-term employment provisions: Clarified rights for fixed-term employees, including pro-rata benefits comparable to permanent staff.
Gig and platform worker provisions: New social security obligations apply if the subsidiary engages gig or platform workers, relevant for companies building distributed or contractor-based teams in India.

Given the state-by-state rollout, subsidiaries with employees across multiple Indian states should expect uneven compliance timelines and budget for CTC restructuring exercises even before a formal state commencement date applies to them.

In-House HR Team, EOR, or Local Compliance Partner: How Should You Manage It?

There's no single right answer — it depends on headcount, growth trajectory, and how much day-to-day control you want to retain.

Approach	Best for	Trade-off
In-house HR & compliance team	Subsidiaries with 20+ employees and a stable, long-term India presence	Higher fixed cost, but full control and institutional knowledge stays in-house
Employer of Record (EOR)	Early-stage entry, testing the market, or small teams (1–15 people)	Fastest and lowest-risk to start, but less direct control over HR policy and culture
Local compliance partner / outsourced company secretary	Subsidiaries that want to keep HR in-house but need statutory filing expertise	Keeps HR strategy local while de-risking ROC, tax, and FEMA filings

Many foreign SMEs entering India start with an EOR or outsourced compliance partner for the first 12–18 months, then transition to an in-house team once headcount and revenue justify it. Given the Labour Codes are still being implemented state by state, having a local partner who actively tracks state notifications is currently one of the highest-value compliance decisions a subsidiary can make.

Common Mistakes Foreign Parent Companies Make When Managing an Indian Subsidiary

Treating the local director as a formality. The resident director requirement exists for a reason — this person carries real legal responsibility, and boards that don't engage them properly create governance gaps.
Missing the AGM and ROC filing calendar. Late AOC-4 or MGT-7 filings trigger additional fees that compound daily, and repeated non-compliance can affect the company's and directors' standing with the MCA.
Getting transfer pricing wrong on intercompany charges. Management fees or royalty charges to the Indian subsidiary that aren't benchmarked and documented are a common trigger for tax scrutiny.
Assuming Labour Code changes don't apply yet. Because implementation is uneven, some subsidiaries wait for a single national go-live date that may never arrive as a single event — state-by-state readiness is the safer approach.
Underestimating FEMA reporting deadlines. FC-GPR and FC-TRS filings have strict windows, and RBI penalties compound the longer a filing is delayed.

Frequently Asked Questions

How long does it take to establish a subsidiary in India? With the right documentation, incorporation typically takes around 3–4 months, though the timeline can run longer depending on ownership structure, documentation, and regulatory approvals involved. This includes Director KYC (DSC/DIN), name reservation, and filing with the Registrar of Companies. Opening a bank account and completing initial FDI reporting (Form FC-GPR) usually adds a few more weeks before the subsidiary is fully operational.

What is the deadline for filing annual returns for an Indian subsidiary? Form MGT-7 (or MGT-7A for small companies) is generally due within 60 days of the Annual General Meeting, and Form AOC-4 within 30 days. For a subsidiary following the April–March financial year with an AGM by 30 September, this places both filings within the following two months.

Does an Indian subsidiary need a local resident director? Yes. At least one director must have resided in India for a minimum of 182 days in the previous financial year, regardless of how many other directors sit on the board.

Are India's new Labour Codes already in effect for foreign subsidiaries? The four Labour Codes took legal effect on 21 November 2025 and central rules were notified in May 2026, but full enforcement depends on each state notifying its own rules. As of mid-2026, implementation is uneven across states, so subsidiaries should track requirements for each specific state where they employ staff rather than assuming a single national effective date.

What tax rate applies to a wholly owned subsidiary versus a branch office in India? A wholly owned subsidiary is taxed as a domestic company, with an effective rate around 25.17% under the concessional Section 115BAA regime. A branch office is taxed as a foreign company at approximately 35–38%, making the subsidiary structure the more tax-efficient option for most operating businesses.

How often does an Indian subsidiary need to hold board meetings? A minimum of four board meetings per calendar year, with no more than 120 days between any two consecutive meetings.

Should a foreign company manage its Indian subsidiary's HR in-house or outsource it? It depends on headcount and timeline. Companies testing the market or with small teams often start with an Employer of Record or outsourced compliance partner, then build an in-house HR function once the entity has stable headcount and revenue — particularly useful while the Labour Codes are still rolling out unevenly across states.

India Subsidiary Setup and Management With Local Expertise

Every one of the requirements above sits on a different calendar, involves a different regulator, and carries its own penalty structure for getting it wrong. For international expansion leaders already managing a global HR and finance function, that's a lot of specialised tracking to own directly from outside the country — whether you're still establishing a subsidiary in India or already administering one.

Expandys has spent 17 years helping international companies expand and operate across Australia, India, and the UK, supporting over 600 clients through more than 1,200 projects. Our India team, led by Country Manager Bhargavi Venugopal, works day to day with subsidiaries navigating exactly this kind of compliance calendar — from incorporation and ROC filings to transfer pricing documentation and tracking state-by-state Labour Code rollout for clients with distributed teams. Whether you need help with initial setup or ongoing managed subsidiary services covering compliance, tax, and HR administration, we're happy to talk through where the gaps typically are.

Ready to Establish or Manage Your Indian Subsidiary?

From incorporation and compliance to tax and HR administration, Expandys can help you navigate the complexities of operating in India with local expertise and ongoing support.

This article reflects India's regulatory and tax framework as of mid-2026. Labour Code state notifications, FDI sectoral rules, and compliance thresholds are subject to ongoing government updates — always confirm current requirements with a qualified advisor before making structuring decisions.

Tagged with: Strategy and development Subsidiary set-up