6 Bank Account Types Your Subsidiary Actually Needs

Why One Bank Account Is Never Enough

When foreign companies set up a subsidiary in India, the initial instinct is to open a single current account and move on. That is a mistake. Within the first 90 days of operations, most subsidiaries discover they need at least four separate bank accounts — and by year two, typically six. Each serves a distinct regulatory, operational, or tax purpose that cannot be combined.

Indian banking regulations under FEMA and Authorized Dealer (AD) bank norms are strict about account segregation. The RBI requires that foreign exchange transactions, tax remittances, escrow arrangements, and operational funds each flow through designated channels. Mixing these up triggers compliance flags, delays repatriation, and in some cases, penalties under FEMA that can reach three times the amount involved.

This guide covers the six bank account types your India subsidiary actually needs — with specific fees, documentation requirements, and which banks offer the best terms as of 2025-2026.

1. Current Account — Your Operational Backbone

What It Is and Why You Need It

The current account is the primary operating account for your Indian subsidiary. Every rupee of revenue, vendor payment, salary disbursement, and statutory remittance flows through this account. Unlike savings accounts, current accounts carry no interest but offer unlimited transactions — which is critical for a business processing dozens of payments daily.

For a private limited company incorporated in India with foreign shareholding, the current account must be opened with an AD Category-I bank. This is non-negotiable under FEMA — only AD-I banks can handle foreign direct investment inflows and outward remittances.

Documentation Required

• Certificate of Incorporation from the Registrar of Companies (MCA)
• PAN card of the company
• Memorandum of Association and Articles of Association
• Board resolution authorizing account opening (specifying bank name, account type, and authorized signatories)
• KYC documents of all directors — passport copies, address proof, and photographs
• For foreign directors: apostilled or notarized passport copies and overseas address proof
• Proof of registered office address (utility bill or rental agreement)

Fees and Minimum Balance

When You Need It

Immediately after incorporation — before you can receive the initial FDI capital remittance, file the FC-GPR form, or issue the first employee salary. Most banks take 5-10 business days for account opening for foreign-owned entities due to enhanced KYC procedures. Plan for this in your bank account setup timeline.

RBI Update for 2026

Starting April 1, 2026, the RBI is implementing a stricter current account framework. Companies with total bank borrowings of INR 10 crore or more will face restrictions — only the bank holding at least 10% of the loan exposure can maintain the company's current account. Subsidiaries with borrowings below INR 10 crore are exempt and can continue opening current accounts freely.

2. EEFC Account — Hold Foreign Currency Without Conversion

What It Is and Why You Need It

An Exchange Earners' Foreign Currency (EEFC) account allows your subsidiary to hold export proceeds and other foreign exchange earnings in foreign currency — avoiding the cost of converting to INR and back again when you need to make international payments.

If your subsidiary earns revenue from exports, IT services, consulting fees, or any cross-border service delivery, an EEFC account saves you the 1-3% spread that banks charge on each forex conversion. For a subsidiary billing USD 500,000 annually in services, that is INR 12-36 lakh per year in avoided conversion costs.

Key RBI Rules

• EEFC accounts can only be current accounts — they earn zero interest
• 100% of foreign exchange earnings can be credited to the EEFC account
• Balances must be converted to INR if not utilized — the RBI periodically adjusts retention limits
• Only residents of India (including Indian subsidiaries of foreign companies) can open EEFC accounts
• Permitted debits: payments for imports, travel, business expenses abroad, and other current account transactions under FEMA

Documentation Required

• All documents required for the current account (see above)
• Proof of foreign exchange earnings (export invoices, service agreements, inward remittance certificates)
• Declaration that the account will be used only for permitted EEFC purposes

Which Banks Offer It

All AD Category-I banks are authorized to offer EEFC accounts. The major players — HDFC Bank, ICICI Bank, SBI, Axis Bank, and Standard Chartered — all provide EEFC facilities. However, banks with stronger forex desks (HDFC, ICICI, Standard Chartered) typically offer better conversion rates when you eventually need to move funds to INR.

When You Need It

As soon as your subsidiary starts earning in foreign currency. For IT services companies or exporters, this should be set up within the first quarter of operations. Review the comparison of current account vs EEFC vs SNRR to understand which forex account structure suits your business model.

3. Tax Deduction at Source (TDS) Account

What It Is and Why You Need It

Every Indian subsidiary is required to deduct tax at source (TDS) when making certain payments — salaries, rent, professional fees, contractor payments, interest, and cross-border remittances. The deducted tax must be deposited with the government by the 7th of the following month using a Tax Deduction Account Number (TAN).

While you can technically remit TDS from your main current account, best practice is to maintain a separate TDS account or at minimum, a dedicated sub-account. This ensures that TDS funds are not accidentally used for operational expenses — a surprisingly common problem that leads to penalties of 1.5% per month on the shortfall plus a late filing fee of INR 200 per day (capped at the TDS amount).

Key TDS Rates for Subsidiaries (FY 2025-26)

Documentation Required

• TAN (Tax Deduction Account Number) — apply via Form 49B
• PAN of the company
• Board resolution (if opening a separate dedicated account)
• Standard current account opening documents

Compliance Deadlines

• TDS deposit: 7th of the following month (30th April for March deductions)
• Quarterly TDS returns: Form 24Q (salaries), 26Q (non-salaries), 27Q (non-resident payments)
• Annual TDS certificates: Form 16 (salaries, by June 15), Form 16A (others, within 15 days of quarterly return)

When You Need It

From the first month of operations — the moment you pay rent, a professional fee, or a salary. Failure to deduct TDS makes the subsidiary liable for the tax amount plus interest. For cross-border payments to your parent company, Form 15CA/15CB filing is mandatory before the bank will process the remittance. Review our 12 compliance deadlines guide to stay on track.

4. Fixed Deposit (FD) Account — Park Surplus Capital Safely

What It Is and Why You Need It

Most foreign subsidiaries receive their initial capital as a lump sum — often INR 50 lakh to INR 5 crore or more. You will not deploy all of this on Day 1. Parking idle capital in a fixed deposit earns interest (currently 6.5-7.5% per annum at major banks for corporate FDs of 1-2 year tenures) rather than sitting at zero return in your current account.

Beyond capital deployment, FDs also serve as security for bank guarantees, performance bonds, and overdraft facilities — all common requirements when your subsidiary starts winning contracts or leasing commercial property.

Current Interest Rates (March 2026)

Important: TDS at 10% is deducted on FD interest exceeding INR 40,000 per year (INR 50,000 for senior citizens). For corporate FDs, banks deduct TDS if interest exceeds INR 5,000 in a financial year when PAN is provided — without PAN, TDS applies at 20%.

Documentation Required

• Existing current account with the same bank (most banks require this)
• Board resolution authorizing the FD and specifying the amount, tenure, and maturity instructions
• PAN of the company
• KYC of authorized signatories

When You Need It

Immediately after receiving the initial FDI capital infusion. If your subsidiary receives INR 2 crore but plans to deploy only INR 50 lakh in the first six months, parking INR 1.5 crore in an FD at 7% earns approximately INR 5.25 lakh in interest over six months. This is a straightforward way to maximize returns on your subsidiary's capital.

5. Escrow Account — Secure Funds for FDI Transactions

What It Is and Why You Need It

An escrow account is a holding account managed by a neutral third party (an AD Category-I bank) to secure funds during a transaction — most commonly share purchases, acquisitions, or earnout arrangements. If your parent company is acquiring an Indian business, investing in stages, or structuring a deal with performance milestones, an escrow account is typically required.

Under RBI rules, AD Category-I banks can open and maintain non-interest-bearing escrow accounts in Indian rupees for FDI transactions without prior RBI approval — as long as the escrow period does not exceed 6 months. Arrangements exceeding 6 months require specific RBI authorization.

Key RBI Rules for FDI Escrow Accounts

• Cash escrow accounts must be non-interest bearing
• Maximum escrow period: 6 months without RBI approval; up to 18 months for share transfer arrangements (for up to 25% of total consideration)
• Only AD Category-I banks can serve as escrow agents for funds
• SEBI-authorized Depository Participants serve as escrow agents for securities
• No fund or non-fund based facilities (loans, overdrafts) are permitted against escrow balances
• Full KYC compliance is mandatory for all parties — buyers, sellers, and escrow agents

Common Use Cases

• Share acquisitions: Buyer parks the purchase consideration in escrow pending due diligence and regulatory approvals
• Earnout arrangements: Part of the purchase price is held in escrow pending achievement of financial or operational milestones
• Warranty/indemnity holdbacks: A portion (typically 10-25%) of deal value is retained in escrow for 12-18 months to cover post-closing indemnification claims
• Open offer obligations: Under SEBI takeover regulations, acquirers must deposit the open offer consideration in escrow

Documentation Required

• Escrow agreement executed between buyer, seller, and escrow agent (bank)
• Share purchase agreement or investment agreement
• Board resolutions of both buyer and seller entities
• KYC documents of all parties (including foreign entities — apostilled/notarized)
• FEMA compliance certificate from a practicing Chartered Accountant

When You Need It

When structuring an acquisition, joint venture, or staged investment. If your parent company is buying into an Indian company or if the subsidiary itself is making an acquisition, escrow accounts protect both parties. For companies evaluating the right entry structure, see our branch office vs subsidiary comparison and the foreign subsidiary registration service.

6. Payroll Account — Dedicated Salary Disbursement

What It Is and Why You Need It

A payroll account is a dedicated current account (or a segregated sub-account) used exclusively for employee salary disbursements. While Indian law does not mandate a separate payroll account, maintaining one is an operational best practice for three reasons:

1. Cash flow protection: Payroll funds are ring-fenced from operational expenses, ensuring salaries are never delayed because a vendor payment was processed first
2. Audit trail: Clean separation of payroll transactions simplifies statutory audits, FLA return filings, and transfer pricing documentation
3. EPF/ESI compliance: Employer contributions to the Employee Provident Fund (12% of basic salary) and Employee State Insurance (3.25% of gross salary for employer's share) are tracked separately

Key Payroll Compliance Obligations

Which Banks Offer Payroll Solutions

Major banks offer integrated payroll account solutions with bulk salary upload features:

• HDFC Bank: SmartHub Payroll — bulk salary processing with auto-email of pay slips
• ICICI Bank: Corporate Internet Banking with salary upload module
• SBI: YONO Business — supports bulk NEFT/RTGS salary transfers
• Axis Bank: Axis Corporate Edge — payroll processing with EPF/ESI integration
• Yes Bank: YES Transact — dedicated payroll processing with API integrations

When You Need It

Before hiring your first employee. Indian labor law requires salary payment before the 7th of the following month for establishments with fewer than 1,000 workers, and before the 10th for larger organizations. See our payroll setup guide for foreign companies for a step-by-step walkthrough.

Choosing the Right Bank for Your Subsidiary

Not all banks are equally equipped to serve foreign-owned subsidiaries. The bank you choose for your primary current account will likely become your AD bank for all FEMA reporting, FC-GPR filings, and FDI-related remittances. Here is how the major banks compare:

For subsidiaries of US or European parent companies, Standard Chartered and HSBC offer the advantage of a global banking relationship — your parent company's relationship manager overseas can coordinate with the India team, significantly speeding up account opening and KYC processes.

Common Mistakes to Avoid

Using a Personal Account for Business Operations

Some founders try to use a personal NRO account or NRE account for the subsidiary's initial expenses. This is a FEMA violation. All subsidiary transactions must flow through the company's corporate accounts. Even a single vendor payment from a personal account creates a compliance issue that must be rectified.

Not Opening Accounts with an AD Category-I Bank

Only AD Category-I banks can process FDI inflows, file FC-GPR reports on the RBI FIRMS portal, and handle outward remittances to the parent company. Opening your primary account with a cooperative bank or a non-AD bank means you will need to open a second account with an AD-I bank anyway — doubling your KYC burden.

Delaying the EEFC Account Setup

If your subsidiary earns in foreign currency but does not have an EEFC account, every incoming payment gets auto-converted to INR at the bank's exchange rate. When you need to make an outward payment in USD or EUR, you buy foreign currency again — at a worse rate. Over 12 months, this double conversion can cost 2-4% of your forex throughput.

Ignoring TDS Account Segregation

When TDS funds are commingled with operating funds, the risk of short-deposit increases dramatically. A single late TDS deposit attracts interest at 1.5% per month from the date of deduction to the date of deposit, plus a late filing fee of INR 200 per day. For a subsidiary with INR 10 lakh in monthly TDS obligations, a 30-day delay costs INR 21,000 in interest alone.

Key Takeaways

• Start with three: At minimum, open a current account, a TDS account (or sub-account), and a fixed deposit. Add EEFC, escrow, and payroll accounts as operations scale.
• Choose an AD Category-I bank: This is mandatory for any company receiving FDI. HDFC, ICICI, SBI, Axis, and Standard Chartered are the most experienced with foreign-owned entities.
• Budget for minimum balances: Between all accounts, expect to maintain INR 1.5-3 lakh in minimum balances to avoid non-maintenance charges.
• Get KYC right the first time: Foreign director KYC — apostilled passports, notarized address proofs — is the single biggest bottleneck. Prepare these documents before applying for incorporation.
• Segregate, do not commingle: Keep TDS, payroll, and operational funds in separate accounts. The audit trail alone justifies the minimal extra cost of maintaining multiple accounts.
• Review annually: Bank charges, FD rates, and RBI norms change frequently. Conduct an annual banking review with your FEMA compliance advisor to optimize your account structure.