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LO/BO Reporting to Income Tax: AAC with Audited Statements

Current · Source: Reserve Bank of India · RBI/2012-13/311 · issued 26 Nov 2012 · ~1 min read
Quick answerRBI now requires LOs/BOs to submit audited financials with the Annual Activity Certificate to DGIT (International Taxation). AD banks must also endorse renewal copies to the same office. Compliance is mandatory under FEMA.
The rule, in the simplest words
How it plays out — a real example

A forex & trade-finance officer in Indore, Priya, is helping a foreign company renew its Liaison Office permission. She checks the new rule and tells the company's manager, 'Please attach your audited financial statements and receipt-payment account with the Annual Activity Certificate before sending it to the tax office. Also, I will send a copy of your renewal to the same office as required.' This way, Priya keeps her bank compliant and avoids any penalties.

What changed

Previously, LOs/BOs only had to furnish the Annual Activity Certificate to the DGIT. Now, the AAC must be accompanied by audited financial statements including receipt and payment account. Additionally, AD banks must endorse a copy of each renewal of LO permission to the DGIT office.

What it means for you

Banks acting as AD Category-I must ensure their LO/BO clients submit complete documentation—AAC plus audited financials—to tax authorities. This tightens oversight and aligns FEMA reporting with income tax compliance. Non-compliance could lead to regulatory action.

What you must do

Who it affects

Authorised Dealer Category - I banks, Foreign entities operating Liaison Offices or Branch Offices in India, Income Tax authorities (DGIT International Taxation)

❓ Common questions

What documents must accompany the Annual Activity Certificate?

The AAC must be accompanied by audited financial statements, including a receipt and payment account.

Do AD banks need to do anything at the time of LO renewal?

Yes, AD banks must endorse a copy of each renewal of LO permission to the office of DGIT (International Taxation).

Under which legal provisions is this circular issued?

It is issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999.

📜 Read the original circular — full text as issued by RBI
RBI/2012-13/311 A.P. (DIR Series) Circular No. 55 November 26, 2012 To       All Authorised Dealers Category - I Banks Madam / Sir, Liaison Office (LO) / Branch Office (BO) in India by Foreign Entities – Reporting to Income Tax Authorities. Attention of Authorised Dealer Category – I banks is invited to A.P. (DIR Series) Circular No. 24 dated 30.12.2009 in terms of which LOs/BOs are required to furnish copy of the Annual Activity Certificate (AAC) to Director General of Income Tax (International Taxation), Drum Shaped Building, I.P. Estate, New Delhi 110002. 2.  It is clarified that copies of the AACs submitted to the DGIT (International Taxation) should be accompanied by audited financial statements including receipt and payment account. 3. Further, at the time of renewal of permission of LOs by AD banks, they may note to endorse a copy of each such renewal to the office of the DGIT (international Taxation). 4. AD Category - I banks may bring the contents of this circular to the notice of their constituents/customers concerned and ensure compliance. 5. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law. Yours faithfully, (Rudra  Narayan Kar) Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2012-13/311 · issued 26 Nov 2012. The plain-English explanation above is BankPulse’s own independent summary.
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Worked example & action-note template

Example: if you are a Compliance officer at a bank this circular applies to (Authorised Dealer Category - I banks, Foreign entities operating Liaison Offices or Branch Offices in India, Income Tax authorities (DGIT International Taxation)), your first concrete step on “LO/BO Reporting to Income Tax: AAC with Audited Statements” is: “Advise all LO/BO clients to attach audited financial statements (including receipt and payment account) with their Annual Activity Certificate when submitting to DGIT (International Taxation).” (RBI issued this 26 Nov 2012).

  1. Circular: RBI/2012-13/311 -- LO/BO Reporting to Income Tax: AAC with Audited Statements
  2. Issued: 26 Nov 2012
  3. Action required: Advise all LO/BO clients to attach audited financial statements (including receipt and payment account) with their Annual Activity Certificate when submitting to DGIT (International Taxation).
  4. Action required: At the time of renewing LO permissions, endorse a copy of the renewal to the office of DGIT (International Taxation).
  5. Action required: Update internal compliance checklists to verify that AAC submissions include the required audited financials before processing renewals.
  6. Action required: Communicate these requirements clearly to all concerned constituents and customers.
  7. Owner: ____________ Target date: ____________
  8. Board/committee approval needed? Y / N
  9. Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

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Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=7725&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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