Bookkeeping in India: Compliance Requirements for Foreign-Owned Companies

Bookkeeping is a critical internal finance function, applicable to all kinds of business entities, including foreign-owned subsidiary companies operating in India. Properly maintained accounting records support corporate filings, tax compliance, GST reporting, statutory audits, transfer pricing documentation, and the preparation of financial statements.

An Indian subsidiary incorporated under the Companies Act 2013 must comply with the accounting and financial reporting requirements that apply to Indian companies. A foreign company operating through a branch or another registered place of business must comply with the separate provisions that apply to foreign companies under the Companies Act.

For multinational businesses, establishing an accounting system and robust bookkeeping practice that accurately records transactions in India while remaining compatible with the parent company’s reporting framework forms an important part of market entry and ongoing compliance.

What does bookkeeping mean for a foreign-owned company in India?

Bookkeeping involves systematically recording and maintaining a company’s financial transactions and supporting documents. This generally includes recording sales, purchases, expenses, payroll, assets, liabilities, receivables, payables, loans, investments, and other financial transactions.

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Under the Companies Act 2013, an Indian company must maintain books of account that provide a true and fair view of its affairs. The company must maintain these records on an accrual basis and use the double-entry system of accounting. The records must also explain transactions undertaken by the company and its branches, where applicable.

Foreign-owned businesses generally need their bookkeeping function to meet two sets of reporting requirements:

1. Indian statutory requirements, including the Companies Act, tax, goods and services tax (GST), and other regulatory requirements.
2. Group reporting requirements, including the foreign parent company’s accounting policies, consolidation procedures, management reporting, and internal controls.

Companies should reconcile these requirements through a clearly defined local accounting and reporting framework.

Key bookkeeping requirements under Indian corporate law

Bookkeeping obligations for Indian subsidiaries under the Companies Act

A foreign-owned company incorporated in India is an Indian company for corporate-law purposes. Under Section 128 of the Companies Act 2013, it must maintain books of account and relevant records and prepare financial statements for each financial year.

The books must provide a true and fair view of the company’s affairs, cover transactions at its registered office and branches, and follow the accrual basis and double-entry system. Companies generally maintain these records at their registered office, although the board may approve another location in India subject to prescribed filing requirements. Electronic maintenance is also permitted.

A foreign parent therefore cannot rely solely on its overseas accounting records; its Indian subsidiary must maintain books that independently meet Indian requirements.

Financial statement compliance with Indian accounting standards

Bookkeeping supports the company’s statutory financial statements. Section 129 requires these statements to provide a true and fair view and comply with applicable accounting standards under the Companies Act.

Depending on the company’s classification, the finance team may need to maintain records supporting Indian Accounting Standards (Ind AS) or the applicable accounting standards framework. MNC groups reporting under IFRS (International Financial Reporting Standards), US GAAP (United States Generally Accepted Accounting Principles), or another framework may therefore need a local statutory ledger or reporting layer mapped to the group’s consolidation accounts.

Bookkeeping requirements for foreign companies with an Indian presence

A foreign company with a place of business in India follows a separate framework under Chapter XXII of the Companies Act.

Under Section 381, it must prepare a balance sheet and profit and loss account for its Indian operations and submit the prescribed documents to the Registrar.

Foreign companies should maintain sufficiently detailed Indian books to distinguish transactions attributable to their Indian operations from their wider global activities.

Tax accounting and bookkeeping requirements in India

Bookkeeping provides the underlying records for corporate income tax compliance. From 1 April 2026, businesses must follow the Income Tax Act 2025 and the Income Tax Rules 2026 for the new tax-year regime. Section 62 (Maintenance of books of account) of the Income Tax Act 2025 and the related rules require covered businesses to maintain books and documents that enable the assessing officer to determine taxable income.

Accounting systems should therefore maintain reliable records supporting:

• Revenue and expenditure
• Taxable income, depreciation, deductions, and disallowances
• Related-party transactions
• Withholding and advance tax
• Tax payments and credits
• Information reported in income tax returns.

Where tax audit provisions apply, businesses must also report information on their books, their location, accounting methods, and relevant tax adjustments.

Foreign companies and permanent establishments

Foreign companies conducting business through a taxable presence in India may have additional tax accounting requirements. Their records should enable them to substantiate the income and expenses attributable to the Indian operation, including the profit and loss and balance sheet information required for tax filings.

GST records must align with company books

GST-registered businesses must maintain true and correct accounts and records under Section 35 of the Central Goods and Services Tax (CGST) Act. Their bookkeeping should therefore support records and reconciliations for:

• Outward and inward supplies
• GST collected and payable
• Input tax credit
• Credit and debit notes
• Reverse-charge transactions
• Imports and exports
• Inter-state transactions.

Under Section 36 of the CGST Act 2017, GST records generally must be retained for 72 months from the due date of the relevant annual return, subject to longer retention requirements where proceedings, appeals, revisions, or investigations are involved.

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Intercompany transaction records

Intercompany transactions are particularly important for foreign-owned companies because Indian subsidiaries and branches frequently transact with overseas group entities.

Examples include:

• Management and administrative service fees
• Technical or professional services
• Royalties and license fees
• Software and technology charges
• Interest on intercompany loans
• Reimbursement of expenses
• Purchase of goods from foreign group companies
• Export of goods or services to related entities
• Cost allocations.

These transactions should be recorded with appropriate supporting documentation and clearly identifiable counterparties.

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For example, an overseas service charge should not simply be booked as a generic administrative expense. The company should maintain the underlying agreement, invoice, proof of service, tax treatment, payment details, and relevant transfer pricing documentation.

Payroll and employee-related accounting

Payroll records should be integrated with the company’s accounting system rather than maintained separately from the statutory books.

The accounting records should support the calculation and recording of the following:

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1. Salaries and wages
2. Employer contributions
3. Employee deductions
4. Payroll-related taxes
5. Bonuses and incentives
6. Leave-related provisions
7. Gratuity and other employee benefits
8. Payments to expatriate employees where applicable.

For foreign-owned companies employing expatriates, payroll accounting may also need to be coordinated with individual income tax, withholding, immigration, and assignment-related arrangements.

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Common bookkeeping challenges for foreign-owned businesses

Foreign-owned companies entering India frequently encounter challenges such as the following:

• Using an overseas accounting framework without adequate Indian statutory mapping
• Recording intercompany transactions without sufficient documentation
• Failing to reconcile GST records with the general ledger
• Overlooking withholding tax implications when recording overseas payments
• Maintaining incomplete foreign currency transaction records
• Relying on group-level records that do not separately capture Indian operations
• Inadequate documentation for management fees and cost allocations
• Weak coordination between bookkeeping, tax, payroll, and corporate compliance teams.

These issues can become more costly during statutory audits, tax assessments, GST audits, transfer pricing reviews, or corporate regulatory inspections.

Why professional bookkeeping support can benefit foreign investors in India

For a foreign-owned company, bookkeeping is closely connected to its broader compliance architecture. Errors in the accounting records can flow into tax returns, GST filings, financial statements, transfer pricing documentation, and corporate filings.

A locally managed bookkeeping and accounting function can help foreign investors:

1. Establish India-compliant accounting procedures
2. Maintain statutory books and supporting records
3. Reconcile Indian and group reporting requirements
4. Coordinate tax and GST accounting
5. Manage intercompany accounting
6. Prepare audit-ready financial records
7. Maintain an appropriate compliance calendar

For businesses entering India or expanding an existing Indian operation, the objective should not simply be to outsource transaction recording. The accounting function should be designed to provide accurate local books, reliable management information, and a defensible compliance trail while remaining aligned with the foreign parent company’s reporting requirements.

Managing tax in India is critical for FDI companies to stay compliant with local regulations, GST requirements, and global standards such as IFRS, navigate complex filings, and apply correct tax treatments. A well-structured tax process helps to avoid penalties and stay 100% compliant.

Divyansh Shrivastava

Assistant Manager

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