Liasion office Income tax compliance

 Liaison office ("LO") - Annual compliance under Income Tax Act, 1961 ("IT Act") and related proposed amendment via The Finance (No. 2) Bill, 2024

>How LO works ?
A LO helps foreign companies enter the Indian market without actually doing business there. It:
-Gives insights into the Indian business environment;
-Identifies market opportunities;
-Promotes the foreign company and its products in India;
-Operates as a cost center with no income, only expenses funded by the foreign company.

>Annual Compliance under the IT Act :
-Before Finance Act 2011: LOs didn’t need to file income tax returns since they had no income from India.
-After Finance Act 2011: LOs must file an annual statement u/s 285 of the IT Act.

>Section 285
-Annual statement in Form 49C (Rule 114DA)
-Must be filed within 60 days from end of the Financial Year ("FY").
-Is there any penalty, If not filed within 60 days ? - No

>Proposed amendments (w.e.f. 1st April 2025):
-New Rules: New rules will be proposed for filing annual statement, possibly changing the 60-day filing period.
-Penalties: A new penalty (Section 271GC) will be introduced:
₹1,000 per day for up to 3 months (around ₹90,000)
₹1 lakh flat if delayed beyond 3 months

>Other consequential adjustments:
-Section 273B: Penalties may be waived if you can show a valid reason for the delay.
-Section 285: The filing deadline will be updated to fit the new rules