Liaison & Project Office Registration India: Who Needs It and Who Does Not
Whether Liaison & Project Office Registration India applies to a given business is the first thing worth settling, and it is where most of the early questions land. The questions below are the ones raised most often in practice; the full scope of the service is on the Liaison & Project Office Registration India page.
Can a Liaison Office hire Indian employees?
Yes. An LO can employ Indian nationals or foreign nationals in India. The employees carry out liaison, coordination, promotional, and administrative activities on behalf of the foreign parent. The LO must deduct TDS on salary: under section 192 of the Income-tax Act 1961 with quarterly Form 24Q for periods up to FY 2025-26, and from tax year 2026-27 under section 392 of the Income-tax Act 2025 with quarterly Form 138. PF coverage applies once the establishment has 20 or more employees, and ESI coverage generally at 10 or more employees in notified areas; confirm the current thresholds under the labour codes. Professional Tax varies by state.
In practice: A common misconception is that LO employees are 'contract staff' outside the purview of Indian labour law. This is incorrect — employees of the LO's India office are subject to all applicable Indian employment legislation including the Code on Social Security 2020 (which now covers gratuity), the Code on Wages 2019, and applicable state Shops and Establishments law. We set up the employment compliance framework as part of the LO establishment engagement.
What is the Annual Activity Certificate (AAC) — and who can certify it?
The Annual Activity Certificate is the primary annual compliance document for an LO or PO. It certifies — based on a review of the India office's books of account, bank statements, and operations — that all activities during the year were within the scope permitted by the approval (from the AD bank or, where required, the Reserve Bank), that all expenses were met through inward remittances (for an LO), and that no commercial activity or income was generated by the LO. For a PO, it reconciles project receipts and expenses. The AAC must be certified by a statutory auditor — a practising Chartered Accountant — and submitted, with the audited financial statements, to the AD bank and the Director General of Income Tax (International Taxation), New Delhi, by 30 September for the year ending 31 March. PNPC prepares and certifies the AAC as part of our annual retainer.
In practice: The AAC is not a perfunctory form. The statutory auditor certifying it is making professional representations about the LO's/PO's compliance with FEMA. Where we identify transactions during the year that technically exceeded the LO's scope, we advise on regularisation or compounding before the AAC is filed — rather than certifying a position that is not fully defensible.
What taxes must the LO deduct from its India payments — TDS obligations?
TDS must be deducted at the applicable rate, paid to the government within the prescribed time, and returned quarterly in Form 26Q (non-salary) and Form 24Q (salary) for periods up to FY 2025-26; from 1 April 2026 the equivalent quarterly statements under the Income-tax Act 2025 are Form 140 (non-salary payments to residents) and Form 138 (salary). Failure to deduct TDS can lead to disallowance of part or all of the expense (the extent differs for resident and non-resident payees) and interest for the period of default. These consequences sit in the Income-tax Act 1961 for periods up to FY 2025-26 and in renumbered provisions of the Income-tax Act 2025 from tax year 2026-27, so confirm the current rates.
In practice: TDS compliance for an LO is not optional simply because the LO itself is not taxable. The TDS obligation flows from the nature of the payment made, not from the tax status of the payer. We set up TDS deduction schedules for all vendor and employee payments when we establish the LO and review them when the payment profile changes.
Are there sectors in which an LO is not permitted by RBI?
Yes. Applications where the applicant's principal business is in defence, telecom, private security or information and broadcasting need the Reserve Bank's prior approval (unless Government approval has already been obtained), as do applications from NGOs, non-profit bodies and foreign government bodies. Country of origin also matters: an applicant that is a citizen of or registered in Pakistan needs the Reserve Bank's prior approval, and applicants from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau face additional conditions, including prior approval for offices in specified regions. Such applications are processed by the Reserve Bank in consultation with the Government of India rather than under the normal AD bank route. Separately, equity investment from countries sharing a land border with India is governed by the FDI rules in Press Note 3 (2020), as amended by Press Note 2 (2026). The lists and conditions change, so confirm the current position before filing. PNPC assesses the applicant's ownership structure and country of origin before any application is filed.
In practice: The land-border country restriction is one of the most frequently missed eligibility criteria in LO/PO applications. Check both where the applicant is registered and, for any planned equity investment, where its beneficial owners sit, because the FDI rules for land-border countries look through to beneficial ownership.
What is the process for changing the registered address of an LO or PO in India?
A change of registered address requires: (1) intimation to the AD bank for a move within the same city, or the AD bank's prior approval for a move to another city; (2) filing Form FC-2 (amendment to the FC-1 registration) with the ROC within the prescribed time; (3) updating PAN records with the Income Tax Department; and (4) updating GST registration (if applicable). Within the same city, an address change is primarily an administrative intimation matter. A move to another city, within or across states, needs the AD bank's prior approval.
In practice: We handle address changes for LOs and POs routinely as part of our retainer. The most common scenario is a company moving from one business park to another in the same city — this requires ROC and AD bank intimation but no prior RBI approval. Cross-state moves require more careful management.
What happens to the LO or PO employees when it is closed?
On closure of an LO or PO, all employees must be formally terminated in accordance with the applicable Indian labour laws — gratuity under the Code on Social Security 2020 (where the service condition is met), the Industrial Relations Code 2020 for establishments above the prescribed size, and all accrued leave encashment, notice pay, and PF/ESIC settlements must be made before the closure application is filed with the AD bank. The AD bank will require an auditor's certificate that all liabilities in India — including employee dues — have been met or adequately provided for before permitting final remittance. Unpaid employee dues at the time of closure constitute a serious legal and reputational risk for the foreign parent.
In practice: Employee settlement at LO/PO closure is a compliance area that must be managed proactively — not left to the last month. We advise on the employment termination timeline and documentation requirements as part of the closure engagement, well before the expected closure date.
Can an LO receive foreign currency remittances for expenses in any currency?
Yes. An LO can receive remittances from the foreign parent in any permitted foreign currency — USD, EUR, AED, GBP, SGD, or other currencies allowed under FEMA. The remittance is credited to the LO's designated AD bank account, where it is converted to Indian Rupees at the prevailing exchange rate. The FIRC (Foreign Inward Remittance Certificate) issued by the AD bank for each remittance is a critical compliance document — it evidences that the LO's expenses are being met from abroad, which is a mandatory condition for the AAC. PNPC advises on the remittance frequency and amount to ensure the LO account reflects a clear correlation between inward remittances and actual expenses.
In practice: A common audit finding in AAC preparation is that the LO has received remittances in round numbers that do not track the actual expense pattern — creating questions about whether excess funds were retained or misused. We recommend that the foreign parent remit amounts closely correlated to actual expense forecasts, and that the timing of remittances is well-documented.
Where this sits in the wider engagement
Liaison & Project Office Registration India rarely arrives on its own. The statutory basis and the current requirements are set out on the Liaison & Project Office Registration India service page, and the related services are grouped under Business Setup.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Liaison & Project Office Registration India we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.