Submission of statement by a non-resident having liaison office.

505

Every person, being a non-resident, having a liaison office in India set up as per the guidelines issued by the Reserve Bank of India under the Foreign Exchange Management Act, 1999, shall, in respect of its activities in a tax year, prepare and deliver to the Assessing Officer having jurisdiction, within sixty days from the end of such tax year, a statement, in such form and containing such particulars, as prescribed.

Explanation

Section Summary:

Section 505 of the new income tax law mandates that non-residents operating a liaison office in India, as approved by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA), 1999, must submit a detailed statement of their activities in India to the Assessing Officer. This statement must be filed within 60 days from the end of the tax year (March 31). The purpose is to ensure transparency and compliance regarding the activities of liaison offices, which are restricted to limited functions like market research or representing the parent company.

Key Changes:

• New Reporting Requirement: Previously, liaison offices were not explicitly required to submit a formal statement of their activities to the tax authorities. This section introduces a new compliance obligation.
• Specific Timeline: The statement must be filed within 60 days from the end of the tax year, which is a new deadline introduced under this section.

Practical Implications:

• For Non-Residents with Liaison Offices: Non-resident entities with liaison offices in India must now prepare and submit a detailed statement of their activities annually. This adds to their compliance burden but ensures better oversight by tax authorities.
• For Tax Authorities: This provision allows the Assessing Officer to monitor the activities of liaison offices more effectively, ensuring they adhere to the restrictions imposed by RBI and do not engage in revenue-generating activities.

Critical Concepts:

• Liaison Office: A liaison office is a representative office set up by a foreign company in India to undertake limited activities such as market research, promoting parent company products, or acting as a communication channel. It is not allowed to engage in commercial activities or earn income in India.
• Assessing Officer: The tax officer responsible for assessing and verifying the tax returns and compliance of taxpayers in a specific jurisdiction.

Compliance Steps:

1. Prepare the Statement: Non-residents must prepare a statement detailing their liaison office's activities during the tax year. The format and particulars of the statement will be prescribed by the tax authorities.
2. Submit to Assessing Officer: The statement must be delivered to the Assessing Officer within 60 days from the end of the tax year (i.e., by May 30).
3. Maintain Records: Ensure all supporting documents and records related to the liaison office's activities are maintained for potential verification by tax authorities.

Example:

A US-based company, XYZ Inc., has a liaison office in Mumbai approved by the RBI. The office is engaged in market research and promoting XYZ Inc.'s products in India. Under Section 505, XYZ Inc. must prepare a statement detailing its activities (e.g., market research reports, promotional events conducted) for the financial year ending March 31, 2024, and submit it to the Assessing Officer by May 30, 2024. Failure to do so may result in penalties or scrutiny by tax authorities.

This section ensures that liaison offices remain compliant with their restricted roles and do not engage in unauthorized activities.