Branch Office vs Subsidiary in India — Which Structure is Right for You? 2026
One of the first decisions a foreign company faces when entering India is the choice of legal structure. The two most common options for commercial operations are a Branch Office (BO) and a Private Limited Company (subsidiary). This article compares them across tax treatment, liability, permitted activities, FEMA implications, and operating flexibility.
What is a Branch Office in India?
A Branch Office is an extension of the foreign parent company in India. It is not a separate legal entity — it is the parent company itself operating in India. Branch Offices must be established with RBI approval (through an AD Bank) and are governed by the RBI Master Circular on BOs. A Branch Office can carry out a limited range of activities in India: export/import of goods, professional services, research work sponsored by the parent, representing the parent company and acting as buying/selling agent, rendering IT and software development services, technical and consultancy services, and foreign airline/shipping company operations.
What is a Subsidiary (Private Limited Company)?
A Private Limited Company is a separate legal entity incorporated under the Companies Act, 2013. It has its own PAN, CIN, and legal personality. The foreign parent holds equity in the subsidiary (up to 100% in most sectors). The subsidiary can engage in any lawful commercial activity permitted under its Memorandum of Association, within the FDI sector restrictions applicable to the specific business activity.
Key Comparison: Branch Office vs Subsidiary
Tax Treatment
Branch Office: taxed as a foreign company in India at 40% on net income (plus 2% education cess and 4% health and education cess on income attributable to India operations). Profit remittance to the parent attracts an additional 15% "branch profits tax" equivalent, effectively making the gross tax rate higher than a domestic company. No dividend distribution tax applies, but the effective rate is unfavourable for profitable operations.
Subsidiary: taxed as an Indian domestic company. New manufacturing companies can elect the Section 115BAB regime at 15% (plus surcharge). Existing companies under Section 115BAA pay 22% (plus surcharge). This makes the subsidiary the significantly more tax-efficient structure for profitable India operations.
Liability
Branch Office: the foreign parent has unlimited liability for the Branch Office's obligations in India. Any judgment against the Branch Office is directly enforceable against the parent company.
Subsidiary: liability is generally limited to the equity invested in the subsidiary. The parent's assets are protected from subsidiary creditors (with narrow exceptions for personal guarantees or lifting of corporate veil in cases of fraud).
Permitted Activities
Branch Office: restricted to the activities listed in the RBI approval and the limited list of permitted BO activities. Cannot engage in manufacturing, retail trading, or agriculture.
Subsidiary: can engage in any lawful commercial activity within FDI sector limits. Full flexibility to manufacture, trade, provide services, hire employees, acquire assets, and raise debt.
Setup Time and Cost
Branch Office: requires RBI approval through an AD Bank, which typically takes 4–8 weeks and involves submitting the parent company's financial statements, certificate of incorporation, and business plan.
Subsidiary: 10–15 business days for MCA incorporation; no RBI prior approval required for automatic route sectors.
When to Choose a Branch Office
A Branch Office is appropriate when: (1) the India operations will be limited in scope and duration (a specific project, initial market testing), (2) the activities are restricted to representing the parent, providing technical services, or exporting, and (3) the entity will not be profitable in India and tax efficiency is not a concern.
When to Choose a Subsidiary
A subsidiary is appropriate for virtually all commercial operations: technology development centres, distribution entities, manufacturing operations, financial services, and any operation that will employ significant staff, generate Indian-source income, or scale over the medium to long term. The tax advantage (22% vs 40%) and liability protection make the subsidiary the preferred structure in almost all cases.
Not sure which structure is right for your India entry?
Shardhan provides free structure advisory as part of our India Market Entry engagement. Speak with our India Entry team.