GST and TDS Compliance for Liaison Offices: What You Need to Know

Setting up a liaison office in India can be a planned move for foreign nations searching to explore business opportunities without getting engaged in direct commercial operations. Meanwhile, these offices are mainly set up for the representation and communication of ideas. They are still accountable to important regulatory frameworks,mainly related to tax compliance. Two important perspectives of foreign businesses should be attentive to are.
 

•  GST (Goods and Services Tax)
•  TDS (Tax Deducted at Source)

Understanding the responsibility of a Liaison Office

In India, a liaison office  works  as a communication bridge between the parent company and  even the future partners and clients. It is not allowed to  take any trading, commercial or industrial activity, and its  cost  should be completely  through inward remittances from the parent body.

Instead of the non-commercial nature of liaison offices, the Indian regulatory framework mandates specific  compliances  that  should  be followed  up  diligently.

GST Compliance for Liaison Offices

The most common query related to the foreign organization  is  if  the liaison offices require collecting  a GST registration.  As per the Central Board of Indirect Taxes and Customs and the provisions under the GST Act, liaison offices are not engaged in the supply of goods or services. Therefore, it is not possible to register under GST.

Meanwhile, the conditions turn quite complicated in cases where authorities distinguish certain activities as indirect services. In some cases:
 

•  It is    important    to    evaluate    whether the liaison office's activities can be    understood as    a taxable supply.
•  An explanation from the Advance Ruling Authority may be required to ensure accurate interpretation and fulfilment.
•  Any unintentional breach could lead to penalties or prospect GST liabilities.
   

TDS Compliance for Liaison Offices

Even though a liaison office doesn’t pay income in India, it may still be liable to deduct TDS in some conditions. It comprises the payment made for:

•  Salaries to Indian employees
•  Payment of Rent for office premises
•  Professional or technical services from Indian vendors
•  Contracts and other operational costs accountable to TDS provisions
   

TDS demands:

Liaison offices are obligatory to find a TAN.

•  The TDS should be deducted at applicable rates and liable to be deposited within the due dates.
•  Quarterly TDS returns should be filed according to the Indian Income Tax rules.
•  Form 16/16A must be issued to the payees after proper deduction.
•  Failure to fulfil TDS obligations can lead to high penalties, interest, and trial under the Indian Income Tax Act.

Significance of the Expert Guidance

Given the responsive nature of fulfilment for liaison offices, particularly for non-resident entities    untried  with Indian tax laws, professional  advisory turns    important. Missteps in compliance, even if unplanned, can attract regulatory inspection, and penalties, and harm reputational confidence.

The common challenges faced by foreign businesses comprise:

•  Misunderstanding of what constitutes taxable action
•  Wrong assumptions that liaison offices are completely exempt from Indian tax laws
•  Hold up in the TDS filings due to lack of local assistance.

Whether you belong to Singapore, the USA, the UK, Japan, or Australia…

If you're based in Singapore, the US, the UK, Japan, or Australia and are exploring opportunities to enter or produce in the Indian market through a liaison office. It is important to follow up and navigate Indian regulations with clearness. While liaison offices give a low-risk route to set up a presence in India, understanding and    gratifying    your GST and TDS obligations should be compulsory.

Company Bio

PRAKASH K PRAKASH is a reliable name in India’s financial and regulatory consulting space. They give dedicated support to global businesses aiming to establish a presence in India. Focused on services for liaison offices, the firm gives customized guidance on GST compliance, TDS deductions, regulatory approvals and RBI filings. Whether you're situated in Singapore, Japan, Australia, the USA, or the UK, PKP & Co. make sure that your Indian operations are compliant, clear, and built on solid regulatory bases.