doing_business_india

Guide
For
Foreign Nationals
Wanting to Do Business in India
April 2024 Edition

(Tenth Edition)
www.indialegalhelp.com
(This Guide is strictly for information only. While all efforts have been made to ensure accuracy and correctness of information
provided, no warranties / assurances are provided or implied. Readers are advised to consult a Legal Professional / Company
Secretary / Chartered Accountant before taking any business decisions. Anil Chawla Law Associates LLP does not accept
any liability, either direct or indirect, with regard to any damages / consequences / results arising due to use of the information
contained in this Guide.)
Guide for Foreign Nationals Wanting to do Business in India
Avenues for Foreign Entrepreneurs
FDI – Foreign Direct Investment

LLP – Limited Liability Partnership Firm
NRI – Non-resident Indian
PIO – Person of Indian Origin
Govt. - Government
April 2024 © Anil Chawla Law Associates LLP

Table of Contents
Description Page No.
1. For whom is this guide useful 1
2. Who can invest 2
3. Sectors / activities and Government policy 3
4. Available structures for testing the waters 8
5. Permitted structures for investment 13
6. Steps to get a new LLP firm incorporated in India 22
7. Steps to get a new company incorporated in India 24
8. PAN for foreign residents (Indian citizens) 27
9. Share capital structure 29
10. External commercial borrowing 30
11. Bank accounts of foreign residents in Indian rupees 37
12. Bank accounts in foreign currency 40
13. Technology transfer, brand licensing and royalty 43
14. Indian visa for directors and employees 44
15. Indian taxation system 58
16. Labour laws 64
17. Business culture 66
18. Corruption 69
19. GIFT – International Financial Services Centre 70
About Us 72
Notes:
Anil Chawla Law Associates LLP is registered with limited liability and bears LLPIN AAA-8450.
This Guide is an academic exercise. It does not offer any advice or suggestion to any individual or firm or
company.
April 2024 © Anil Chawla Law Associates LLP

1. For whom is this guide useful
This Guide is meant for global entrepreneurs and business houses, who are looking at India
as a country with immense potential.
Typically, if you are planning an investment in the range of less than USD Twenty million, this
Guide should be useful for you. This Guide is for foreign nationals who are planning to set up
businesses in India using the automatic approval route of Reserve Bank of India.
The Guide takes an entrepreneur’s view of every matter. It is practical and down-to-earth. It is
not intended to be an academic treatise and is surely not a text book either. It is written by a
law firm that is entrepreneur-driven and prides itself on taking a hardcore pragmatic
perspective on every matter.
An entrepreneur is one who makes possible and profitable what seems impossible and
unviable to everyone else. We, Anil Chawla Law Associates LLP, are committed to making
your India-entry dreams not just possible, but smooth, easy and profitable too. We are in the
business of holding your hand through the difficult terrain that Indian business environment
appears to most outsiders.
This Guide is not for you if you are an institutional investor investing in Indian stock market or
debt market. So, Foreign Portfolio Investors (FPIs) or Venture Capital Funds are not likely to
find this guide useful. However, if you are an entrepreneur planning to set up an enterprise
whether in manufacturing sector or in services sector, this Guide will help you get a quick
overall view.
This Guide is the first step in your business’s journey to India. It will help you get an overall
view of what lies ahead.
Anil Chawla
Senior Partner,
Advocate and Insolvency Professional
April 2024 © Anil Chawla Law Associates LLP Page No. 1

2. Who can invest
India welcomes citizens of almost all countries to invest in India. However, with effect from 17
April 2020, citizens / companies of all countries that share land border with India (Pakistan,
Afghanistan, Bangladesh, China, Nepal, Bhutan, and Myanmar) require government
approval even when investing in sectors that are under automatic route. Notably, entities from
other countries with beneficiary / beneficiaries from any of these countries will also
need government approval.
Notably, this clause imposes restrictions on the basis of beneficiaries of the investing entity.

3. Sectors / activities and Government policy
Government of India has put in place a policy framework on Foreign Direct Investment (FDI).
This framework is embodied in the Circular on Consolidated FDI Policy. The Department for
Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce & Industry,
Government of India makes policy pronouncements on FDI through Press Notes/ Press
Releases. The procedural instructions are issued by the Reserve Bank of India vide A.P. Dir.
(series) Circulars. The regulatory framework, over a period of time, thus, consists of Acts,
Regulations, Press Notes, Press Releases, Clarifications, etc.
Foreign citizens or companies can make investments in shares or debentures of an Indian

company, through either the Automatic Route or the Government Route. Under the Automatic
Route, the non-resident investor or the Indian company does not require any approval from
Government of India for the investment. Under the Government Route, prior approval of the
Government of India is required. Proposals for foreign investment under Government route
are examined by the competent authority as per the Standard Operating Procedure available
at http://www.fifp.gov.in/Forms/SOP.pdf or .
https://dpiit.gov.in/sites/default/files/fifp_Revised_SOP_22August2023.pdf
Competent authorities or concerned departments for granting approval are as follows:


The following sectors are classified as Prohibited Sectors. Foreigners are not permitted to
invest in these sectors, directly or indirectly:
(a) Lottery Business including Government /private lottery, online lotteries, etc.
(b) Gambling and Betting including casinos etc.
(c) Chit funds
(d) Nidhi company
(e) Trading in Transferable Development Rights (TDRs)
(f) Real Estate Business or Construction of Farm Houses (excluding development of
townships, construction of residential / commercial premises, roads or bridges and duly
registered Real Estate Investment Trusts)

(g) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco
substitutes
(h) Activities / sectors not open to private sector investment e.g. Atomic Energy and
Railway Transport (other than permitted activities).
(i) Foreign Technology collaboration in any form for Lottery Business and Gambling and
Betting activities (including licensing for franchise, trademark, brand name,
management contract)
Foreign residents are allowed to invest through Government Route in some specified sectors.
Some of the sectors under Government Route are as follows:
 Mining and mineral separation of titanium bearing minerals & ores

 Defence Industry (up to 74% Automatic) Government route beyond 74% wherever it is
likely to result in access to modern technology or for other reasons to be recorded
 Broadcasting (FM Radio) and up - linking of News and Current Affairs TV channels
(maximum permitted FDI - 49%)
 Uploading / Streaming of News and Current Affairs through Digital Media (maximum
permitted FDI - 26%)
 Print Media (maximum permitted FDI - 26%) (Publishing of Scientific and technical
journals and facsimile editions of foreign newspapers is under government route up to
100%)
 Scheduled and Regional Air Transport Service (beyond 49% Government route up to
100%; Automatic up to 100% for NRIs)
 Satellites – Establishment and operation
 Private Security Agencies (Automatic up to 49%). Government route beyond 49%;
Maximum permitted FDI - 74%.
 Telecom services including Internet Service Provider and Infrastructure provider
providing dark fiber, right of way, duct space, tower etc. (Automatic up to 49%, beyond
49% Government route)
 Multi Brand Retail Trading (Maximum permitted FDI - 51%, Government route)
(permitted in a few states only)
 Private Banks (Maximum permitted FDI - 74%, Government route beyond 49%)
 Public Banks (Maximum permitted FDI - 20%)
 Pharmaceuticals – Brownfield (Automatic up to 74%, Government route beyond 74%)
 Infrastructure Company in the Securities Market (Automatic up to 49%)
 Insurance Company (Automatic up to 49%)
 Pension Sector (Automatic up to 49%)
 Power Exchanges (Automatic up to 49%)

Almost everything that does not fall under the above two categories is under the
Automatic Route, subject to some limits on share of equity that you can hold. In other
words, if the activity that you have in mind is not mentioned above, you can, generally
speaking, presume that it is open for investment without need for any approval or permission
from any authority. All that you need to do is to bring the money in India through the normal
banking channels and fill up some forms that your Bank in India will ask you for. It will however,
be advisable to check if there are any specific conditions or caps on investments in the sector
that you are planning to enter before you move your investments.

4. Available structures for testing the waters
It is often advisable for a foreign entity to get a feel of the country before committing large
investments. At this stage, one may be interested in using structures that allow easy entry as
well as exit. For testing the waters, establishing a Liaison Office (LO) or Branch Office (BO) in
India is ideally suited.
A Liaison Office (also known as Representative Office) can undertake only liaison activities,
i.e. it can act as a channel of communication between Head Office abroad and parties in India.
It is not allowed to undertake any business activity in India and cannot earn any income in
India. Expenses of such offices are to be met entirely through inward remittances of foreign
exchange from the Head Office outside India. The role of such offices is, therefore, limited to
collecting information about possible market opportunities and providing information about the
company and its products to the prospective Indian customers. Permission to set up such
offices is initially granted for a period of 3 years and this may be extended from time to time.
A Liaison Office can undertake the following activities in India:
i Representing in India the parent company / group companies.
ii Promoting export / import from / to India.
iii Promoting technical / financial collaborations between parent / group companies and
companies in India.
iv Acting as a communication channel between the parent company and Indian

companies.
Companies incorporated outside India and engaged in manufacturing or trading activities are
allowed to set up Branch Offices in India with specific approval of the Reserve Bank. Such
Branch Offices are permitted to represent the parent / group companies and undertake the
following activities in India:
i Export / Import of goods.
ii Rendering professional or consultancy services.
iii Carrying out research work, in areas in which the parent company is engaged.
iv Promoting technical or financial collaborations between Indian companies and parent

or overseas group company.
v Representing the parent company in India and acting as buying / selling agent in India.
vi Rendering services in information technology and development of software in India.

vii Rendering technical support to the products supplied by parent/group companies.
viii Foreign airline / shipping company.
Normally, the Branch Office should be engaged in the activity in which the parent company is
engaged. In addition, the following should be noted:
a Retail trading activities of any nature is not allowed for a Branch Office in India.
b A Branch Office is not allowed to carry out manufacturing or processing activities in

India, directly or indirectly.
c Profits earned by the Branch Offices are freely remittable from India, subject to
payment of applicable taxes.
Reserve Bank has given general permission to foreign companies for establishing branch /
unit in Special Economic Zones (SEZs) to undertake manufacturing and service activities.
The general permission is subject to the following conditions:
a such units are functioning in those sectors where 100 per cent FDI is permitted;
b such units comply with Chapter XXII of the Companies Act, 2013, which relates to
Companies Incorporated Outside India;
c such units function on a stand-alone basis.
Procedure for LO / BO Permission
A body corporate incorporated outside India (including a firm or other association of

individuals), desirous of opening a Liaison Office (LO) / Branch Office (BO) in India have to
obtain permission from the Reserve Bank. The applications from such entities will be
considered by Reserve Bank under two routes:
Reserve Bank Route — Where principal business of the foreign entity falls under sectors
where 100 per cent Foreign Direct Investment (FDI) is permissible under the automatic route.
Government Route — Where principal business of the foreign entity falls under the sectors
where 100 per cent FDI is not permissible under the automatic route. Applications from entities
falling under this category and those from Non - Government Organizations / Non - Profit
Organizations / Government Bodies / Departments are considered by the Reserve Bank in
consultation with the Ministry of Finance, Government of India.
The following additional criteria are also considered by the Reserve Bank while sanctioning
Liaison / Branch Offices of foreign entities:

Track Record
For BO — The foreign entity wishing to set up a BO must have a profit-making track record
during the immediately preceding five financial years in the home country.
For LO — The foreign entity wishing to set up a LO must have a profit-making track record
during the immediately preceding three financial years in the home country.
Net Worth [total of paid-up capital and free reserves, less intangible assets as per the latest
Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any
Registered Accounts Practitioner by whatever name].
For BO — not less than USD 100,000 or its equivalent
For LO — not less than USD 50,000 or its equivalent
The application for establishing BO / LO in India should be forwarded by the foreign entity
through a designated AD Category - I bank to the General Manager, Reserve Bank of India,
Central Office Cell, Foreign Exchange Department, 6, Sansad Marg, New Delhi – 110001,
along with the prescribed documents including:
 English version of the Certificate of Incorporation / Registration or Memorandum & Articles

of Association attested by Indian Embassy / Notary Public in the Country of Registration;
(in case an English version is being submitted it has to be attested by a notary and cross
verified / attested by Indian Embassy / Consulate)

 Audited Balance Sheet for the past three / five years in case of branch office / liaison office
respectively. If the applicant’s country does not insist on audit of accounts, an Account
Statement certified by a Certified Public Accountant showing the net worth;
 Bankers' Report from the applicant’s banker in the host country / country of registration
showing the number of years the applicant has had banking relations with that bank.
The Branch / Liaison offices established with the Reserve Bank's approval will be allotted a
Unique Identification Number.
The BOs / LOs shall also obtain Permanent Account Number (PAN) from the Income Tax
Authorities on setting up the offices in India.
Project Office
Reserve Bank has granted general permission to foreign companies to establish Project
Offices in India, provided they have secured a contract from an Indian company to execute a
project in India, and
i. the project is funded directly by inward remittance from abroad; or
ii. the project is funded by a bilateral or multilateral International Financing Agency; or
iii. the project has been cleared by an appropriate authority; or
iv. a company or entity in India awarding the contract has been granted Term Loan by a
Public Financial Institution or a bank in India for the project.
However, if the above criteria are not met, the foreign entity has to approach the Reserve Bank
of India, Central Office, for approval.
Other Restrictions
In the following cases, applicants shall require prior approval of Reserve Bank of India.
(a) Applicants (whether individual or company) from Pakistan;
(b) Foreign citizens or companies of Bangladesh, Sri Lanka, Afghanistan, Iran, China,
Hong Kong, Macau wanting to open a BO / LO / PO in Jammu and Kashmir / North
East region / Andaman and Nicobar Islands;
(c) Principal business falls in one of the four sectors – Defence, Telecom, Private Security
and Information and Broadcasting.

(d) Foreign entity is a Non-Government Organisation or Non-Profit Organisation or Body
/ Agency / Department of a foreign government. If such entity is engaged, partly or
wholly, in any of the activities covered under Foreign Contribution (Regulation) Act,
2010, it shall obtain a certificate of registration under the said Act and shall not seek
permission under Foreign Exchange Management Act.
Reserve Bank of India shall process application in consultation with the Government of India.
Applicants from countries mentioned in (a) and (b) above desirous of opening BO / LO / PO
in India shall also have to register with the state police authorities.
Using a Local Associate
While opening BO / LO is the legal option available to foreign entities coming to India, a popular
option is to have a relationship with a local associate in India. The local associate can do all
that a BO / LO may do at a much lower cost. The local associate may also bring in some
understanding of Indian business methods, markets and also some valuable contacts.
The key to using the local associate most efficiently is to define in clear terms the role of local
associate. Typically, the local associate may do some or all of the following functions:
 Carry out Market Research either using his own resources or using third party
resources
 Act as a distributor or indenting agent for the foreign entity
 Act as a sourcing or purchasing agent for the foreign entity
 Provide pre-sales and after-sales support & services to Indian clients of the foreign
entity
 Act as quality inspection agency with regard to any goods purchased from India by the
foreign entity
The relationship with local associate can be formalized by either a Memorandum of

Understanding (MOU) or by a formal agreement.
The advantage of using a local associate is also that in case the operations in India gather
steam and it is decided to make investments and strengthen presence in India, the local
associate can act as a collaborator.
Generally speaking, no approval from any authority is required for the relationship with a local
associate.

5. Permitted structures for investment
A company incorporated under the Companies Act of India is the most preferred vehicle for
doing business in India. Limited Liability Partnership Firm is the other permitted structure.
Other forms of business organizations like proprietary firm, partnership firm, trust etc. are
either not permitted or not advised for foreigners wanting to do business in India.
The option of Limited Liability Partnership (LLP) firm has become available since
November 2015. The relevant extract from FDI Policy dated 15 October 2020 is as follows:
It should be noted that foreign investment is permitted in an LLP only if the LLP is
engaged in activities where (a) 100% foreign equity ownership is permitted under
automatic route and (b) there are no performance conditions prescribed under the FDI
Policy. For example, an LLP engaged in construction development or industrial parks will not
be eligible to receive foreign direct investment (FDI) since there are “FDI-linked performance
conditions” for the two sectors even though 100% FDI under automatic route is permitted in
the two sectors.
More details about LLP are given below.

LLP Firm under The Limited Liability Partnership Act, 2008
The Limited Liability Partnership Act, 2008 came into force in 2009. Before the passing of the
Act, partners in a partnership firm had unlimited liability. A limited liability partnership (LLP)
firm can be seen to combine the simplicity of a partnership firm with the advantage of limited
liability earlier available only in case of a company.
A quick comparison of a partnership firm, LLP and a private limited company is as follows:
Parameter Partnership Firm LLP Pvt. Ltd. Co. Comments
Applicable Law The Indian Partnership The Limited Liability The Companies Act,
Act, 1932 Partnership Act, 2008 2013
Cost of Formation Less than Rs. 5,000. About Rs. 20,000- to Rs. > Rs. 50,000- depends Indicative figures. Actual may
vary.
Registration is not 100,000- (depends on on authorized share
compulsory. capital). Registration is capital and state where
compulsory. registered office is
located.
Minimum Capital Not prescribed Not prescribed Not prescribed Used to be Rs. 100,000 for
private ltd. co. and Rs. 500,000
for public limited company
Distinct Entity Firm has no distinct LLP is a separate entity Company is a separate
identity separate from distinct from its partners. entity distinct from its
partners. shareholders.
Minimum number Two partners Two partners Two shareholders It is possible to incorporate a
one-person company with just
of members one member. Though it is not a
preferred option.
Maximum 10 for banking busniess. No upper limit on number Maximum 200 members There is no upper limit for a
For other businesses 20. of partners public limited company.
members
Charter Partnership Deed LLP Agreement Memorandum of A Certificate of Incorporation is
Documents Association and Articles necessary for LLP and a

company.
of Association
Resident Director No requirement of One of the Designated At least one director must The person who is resident of
resident partner. But Partners must be be resident of India India need not be citizen of
India.
since foreign investment resident of India
is not permitted,
foreigners cannot be
partners.
Managed By Partners Designated Partners Directors
Statutory Almost nil formalities Two forms to be filed Complicated.

Formalities during every year. Burden of Professional assistance
the life of the compliances low. from Company Secretary
entity necessary.

Parameter Partnership Firm LLP Pvt. Ltd. Co. Comments
Audit Not Required Not Required for small Compulsory

firms
Foreign Not Permitted Permitted only in Subject to FDI Policy LLP's have been allowed to
activities where 100% received foreign investment in
Investment November 2015.
FDI is allowed by
automatic route without
conditions.
Legal Legal proceedings to be Legal proceedings are Legal proceedings are This applies only in case of civil
carried out against the carried out against the carried out against the disputes. Corporate veil is often
Proceedings lifted in case of criminal
Against the partners personally LLP firm and not the Company and not its matters. Even in defaults under
Entity, its owners partners personally. shareholders and labour laws and such other
directors. laws, directors are held liable.
and directors
Winding Up Very Easy Easy Very Difficult
Punishment for Mild Mild to Moderate Extremely High; May

default involve imprisonment up
to seven years
We recommend the LLP structure due to its simplicity, ease of incorporation, tax advantages
and also because it is much easier to wind up an LLP as compared to a company.
Some salient points about LLP’s are as follows:
 LLP gives the benefits of limited liability of a company and the flexibility of a partnership.
 LLP firm can continue its existence irrespective of changes in partners. It is capable of
entering into contracts and holding property in its own name.
 LLP firm is a separate legal entity. It is liable to the full extent of its assets but liability of
the partners is limited to their agreed contribution in the LLP.
 Further, no partner is liable on account of independent or un-authorized actions of other

partners, thus individual partners are shielded from joint liability created by another
partner’s wrongful business decisions or misconduct.
 Mutual rights and duties of partners within a LLP are governed by an agreement
between the partners or between the partners and the LLP as the case may be.
LLP structure is becoming popular in India due to its simplicity and also because of the
extremely harsh penalties imposed by Companies Act, 2013. Unless there are compelling
reasons to choose company structure, for small to medium scale of operations LLP structure
is highly recommended. As operations grow, LLP firm can be converted into a company.

As mentioned earlier, foreign investment is permitted through LLP only in the sectors where
100% FDI is permitted without any performance-conditions. Some of the important sectors
where foreign investment can be routed through LLP structure are as follows:
 Airports – Greenfield projects and Existing Projects
 Civil Aviation Sector – Maintenance and Repair Organizations
 Sectors / activities not listed in the FDI Policy

LLP structure can be most useful for foreign professional individuals or companies providing
consulting or other services either on stand-alone basis or in partnership with Indian
professionals.
Cost of incorporating a LLP Firm is related to the capital of the LLP Firm and the state in which
the registered office of the LLP Firm is located. Indicative costs for incorporating a LLP Firm
with capital of Rupees Ten Thousand, Rupees One Million, Rupees Ten Million, Rupees
Hundred Million and Rupees One Billion in the states of Delhi, Maharashtra, Gujarat and
Madhya Pradesh are given below:
Cost Of Incorporation of Limited Liability Partnership
Capital Madhya
Delhi Maharashtra Gujarat
Pradesh
Rupees
Rs. 10,000- 18,900 19,300 18,900 20,800
Rs. One Million 37,400 42,400 42,400 42,400
Rs. Ten Million 48,450 58,450 53,450 53,450
Rs. Hundred Million 53,450 63,450 58,450 58,450
Rs. One Billion 87,650 97,650 92,650 92,650

Note: The above figures give an indicative estimate. Actual costs may vary.
It is recommended that adequate attention is paid to drafting of the LLP Deed since
management of the LLP Firm and relations between the Partners of the Firm are governed by
the LLP Deed. A well-drafted LLP Deed may cost Rs. 100,000- or more depending on the
complexity and the legal professional involved.
Company under The Companies Act, 2013
Companies Act 2013 replaced the Companies Act 1956. The Companies (Amendment) Act,
2020 has substantially amended the Companies Act, 2013. The purpose of the amendment is

to decriminalize many offences, permit Indian companies to list abroad and such other
matters.
Company, under the Companies Act 2013 is a voluntary coming together (and registering
under the Companies Act) of persons for the purpose of doing business having a distinct name
and limited liability. It is a juristic person having a separate legal entity distinct from the
members who constitute it, capable of rights and duties of its own and endowed with the
potential of perpetual succession.
The major constituents of a company are its members (shareholders), who are the ultimate
owners and appoint its directors. It is an important feature of the company form of business,
that there is a gap between the ownership and control over the affairs of the company. In real
sense the members are the owners of a company, but it is being managed by the directors
who are elected representatives of its members.
At the time of incorporation, the promoters of the company must disclose the names of the
initial shareholders, names of first directors, first registered office of the company, objects for
which the company is being formed and its authorized share capital. Authorized share capital
is the maximum capital that the shareholders propose to bring into the company. The cost of
incorporating a company is related to its authorized share capital. Paid-up capital of a
company is the actual amount of money that the shareholders of the company have
contributed as share capital on any particular date. Paid-up capital must be less than or equal
to the Authorized Share Capital.
A company may be either a private limited company or may be a public limited company.
A private limited company must have at least two shareholders and can have maximum two
hundred shareholders. There is no compulsion of minimum paid up share capital for setting
up a private limited Company.
The Companies Act, 2013 also permits a private company to be a One Person company with
just one shareholder. In such a company, it is necessary to file the name (along with consent)
of one other person who will become the shareholder in case of death or incapacity of the
original shareholder. Such a company will be required to mention the fact that it is a One-
person-company on all its letter-heads, business correspondence etc.
A public company must have at least seven shareholders. There is no upper limit on number
of shareholders of a public company. After the coming into force of The Companies
(Amendment) Act, 2015, there is no requirement of minimum paid up share capital for
incorporating a public limited Company.
Cost of incorporating a company is related to the authorized capital of the company and the
state in which the registered office of the company is located. Indicative costs for incorporating
a private limited company with authorized share capital of Rupees One Million, Rupees Ten
Million, Rupees Hundred Million and Rupees One Billion in the states of Delhi, Maharashtra,
Gujarat and Madhya Pradesh are given below:

Cost Of Incorporation of Private Limited Company

Authorized Share Madhya
Capital Delhi Maharashtra Gujarat
Pradesh
Rupees
Rs. One Million 76,810 77,400 80,220 82,610
Rs. Ten Million 2,25,410 2,30,500 2,60,320 2,25,710
Rs. Hundred Million 8,35,410 8,85,500 11,85,320 8,35,710
Rs. One Billion 67,60,410 72,60,500 57,60,320 57,60,710

Note: The above figures give an indicative estimate. Actual costs may vary.
The cost of incorporating a public limited company will be nominally higher than a private
limited company (Difference in cost is about Rs. 5,000).
It is not difficult to increase the authorized share capital by paying the difference in fees.
However, if share capital is coming by way of foreign investment and is subject to government
approval (as against automatic approval by Reserve Bank of India), significant time may be
consumed for getting approval of government for increase of authorized share capital.
Time taken for incorporating a company is likely to be less than 2 weeks if the Shareholders
and Directors are Indian.
In case of foreign shareholders and directors, the most important step is to get digital signature
(DSC) for foreign citizens / residents. This needs submission of relevant identity and address
proofs: Relevant regulations read as follows:

Note: DSC issuing companies have introduced paperless DSC issue

procedure since March 2020. It is now possible to get a DSC without the above
cumbersome process of notarizing and apostille. The required documents and
a photograph can be sent by WhatsApp. An OTP (One Time Password) will be
received on mobile. The OTP will need to be conveyed quickly to the
representative of DSC. This will be followed by an email verification and a video
verification. Process can be finished in less than a day. Once DSC is issued,
the holder of DSC can become a promoter / first shareholder / director of a new
company being incorporated. A Form SPICe has to be filled up which includes
application for Director Identification Number (DIN).
In case a foreign citizen / resident wishes to become director in an existing Indian company,
the person should first get a DSC and subsequently fill up form DIR-3 for allotment of DIN. A
Practicing Company Secretary in India will be able to help you get both DSC and DIN.
If the shareholders of the company are foreign citizens, they should bring their contribution to
share capital by transfer from their foreign bank account through normal banking channel.
A foreigner can act as Director of an Indian company. No permissions are needed for this. It
is possible to have a company with only foreign citizens as directors. However, section 149(3)
of the Companies Act, 2013 makes it mandatory for every company to have a Director who
stays in India for a total period of at least 182 days during the financial year. In case of newly
incorporated company, a Resident Director shall need to stay for proportionate number of days
in the financial year in which the company was incorporated. It may be noted that such a
resident Director need not be a citizen of India.
A foreign national may use the services of a legal professional or local business associate for
meeting the above requirement. In case the foreign national becomes a resident of India after

incorporation of the company, it will not be necessary for him / her to use the services of the
legal professional or local business associate.
Let us see this by an example. An Indian company is incorporated by three foreign residents
on say 1st August 2024. One of the three promoters shifts to India on 1st November 2024. So,
the company has been in existence for a total of 243 days during the financial year 1st April
2024 to 31st March 2025. The company will need to have a director resident in India for 122
days. Since the promoter moved to India on 1st November, the number of days spent by him
in India during the financial year were 151 days. Hence, the company has satisfied the
requirements of section 149(3) of the Companies Act, 2013.
A foreign citizen appointed as Director of an Indian company may live abroad. In other words,
he / she need not be resident of India. He / she may conduct the business of the company
while living abroad.
Schedule V of the Companies Act, 2013 read with section 196 of the Act make it mandatory
that a person appointed as Managing Director / Whole-time Director of a company is resident
of India.
Appointing a non-resident as Managing Director will require permission of Government of

India.
Board of Directors is required to meet at least once in every three months. Under sec. 173 of
the Companies Act, 2013, the Board must meet at least four times in every year with not more
than 120 days between two meetings. A small company can hold only one meeting in every
half of the calendar year with at least 90 days between two meetings.
Meetings of Board of Directors can be held anywhere in the world. Under section 173(2) of
the Companies Act, 2013 a Director may participate in a meeting of Board of Directors either
in person or through video conferencing.
Meeting of shareholders must be held at least once every year. Meeting of shareholders has
to be held once every year. Relevant extracts from section 96 of the Companies Act, 2013
read as follows:

Notably, for companies not listed on any stock exchange, annual general meeting can be held
at any place in India and can also be held by electronic mode if all the members give consent
in writing.
Entrepreneur driven small and medium companies are generally speaking not listed on stock
exchanges. Hence for such companies, meetings of Board Directors as well as of
shareholders can be held by video conferencing.
Earlier when it was mandatory to hold annual general meetings in city of registered office of
the company, some foreign-owned companies used to find a way out of this problem by having
two shareholders in India each holding, say, one share of face-value Rs. 10 each. In the annual
general meeting the only shareholders attending used to be these two Indian resident
shareholders. This way the requirement of holding a meeting of shareholders every year was
satisfied without incurring any travel costs. Now such a trickery is not required.
A foreign / offshore legal entity or person can act as a founder of the Indian company which
will be owned 100% by the foreign citizens or companies. There is no legal requirement for
one shareholder or director to be Indian citizen though the Companies Act, 2013 makes one
Indian resident director mandatory (as discussed above). For the sake of convenience, many
foreign owned companies have an Indian shareholder and director. Such Indian shareholder
and director is typically a professional with no investment in the company and holding only
one token share of Rs. 10.

6. Steps to get a new LLP firm incorporated in India
Note: Procedures of incorporation and related processes are in a state of flux in India.
Government of India is constantly trying to simplify processes and procedures for improving
the Ease of Doing Business in India. Hence, as and when you go for incorporation, the actual
procedures, costs and processes may be drastically different from the ones given in this
chapter. Kindly consult a Practicing Company Secretary or other professional for the correct
relevant procedure, cost and process.
Every LLP Firm must have at least two Partners and two Designated Partners. The Partners
can be Designated Partners.
 Each of the first partners, who are Indian citizens (including non-residents) of the new
LLP Firm needs to get a Permanent Identification Number (PAN) from Income Tax
Department of Government of India.
 Foreign partners do not need a Permanent Identification Number (PAN) from Income
Tax Department of Government of India.
 Each person wanting to become a Designated Partner must have a digital signature
(DSC). The digital signature is to be purchased from a company in India. One needs a
digital signature to apply for DPIN (explained below). Documents needed for getting a
DSC are explained in Chapter 5 above.
 Each of the first Designated Partners of the new LLP Firm needs to get Designated
Partner Identification Number (DPIN). If the partners already possess a Director
Identification Number (DIN) as required under Companies Act, 2013, then a fresh
application for DPIN shall not be made. DIN in such cases is considered equivalent to
DPIN. A person who does not have DPIN may either apply for it separately or may
apply for it as part of the Form for Incorporation of LLP. Maximum two persons can
apply as part of the Form for Incorporation of LLP.
 Decide the state in which the registered office of the LLP Firm will be located. It is easy
for a LLP Firm to change the registered office within a state. It is a bit difficult to change
the location of office of an LLP Firm when the change involves moving from one state
to another. The LLP Agreement should provide for change of registered office from
one state to another. In case of shifting from one state to another, consent of secured
creditors is necessary. Moreover, it is required to publish a public notice in
newspapers.
 Decide the Contribution (capital) to be contributed by each of the partners.
 Decide the main objects of the LLP Firm.

 Select, in order of preference, at least one suitable name up to a maximum of six
names, indicative of the main objects of the LLP Firm.
 Ensure that the name does not resemble the name of any other already registered LLP
Firm by availing the services of checking name availability on the portal of Ministry of
Corporate Affairs. The selected name should also not violate the provisions of
Emblems and Names (Prevention of Improper Use) Act, 1950. It should not also
resemble name of any other LLP or company or registered trade mark.
 You will need the services of a Practicing Company Secretary to do further steps for
incorporation of the LLP Firm.
 After due formalities are completed by the Practicing Company Secretary, Corporate
Identity is generated and a Certificate of Incorporation is issued by the RoC (Registrar
of Companies).
 Arrange for the drafting of the LLP Agreement by solicitors / company secretary, and
printing of the same.
 Arrange for stamping of the LLP Agreement with the appropriate stamp duty.
 Get the LLP Agreement signed by the partners. It may be noted that it is not necessary
for an LLP Firm to have an LLP Agreement. In case a firm decides to do without an
LLP Agreement, the provisions of First Schedule of LLP Act will apply. However, it is
advisable to have an LLP Agreement meticulously drafted by a competent
professional. Generally speaking, a practicing company secretary or chartered
accountant is not competent to draft an LLP Agreement involving one or more foreign
partner(s) unless you are looking for something standard off-the-shelf (in which case
ChatGPT may be cheaper option).
 Instruct the Practicing Company Secretary to file the LLP Agreement with the RoC in
prescribed form within 30 days of the incorporation of the LLP Firm (Optional step).
Professional assistance is necessary for completing the above steps. It is suggested that a
Practicing Company Secretary is engaged for the job. Sometimes, Practicing Chartered
Accountants also take up the above job in India.

7. Steps to get a new company incorporated in India
Note: Procedures of incorporation and related processes are in a state of flux in India.
Government of India is constantly trying to simplify processes and procedures for improving
the Ease of Doing Business in India. Hence, as and when you go for incorporation, the actual
procedures, costs and processes may be drastically different from the ones given in this
chapter. Kindly consult a Practicing Company Secretary or other professional for the correct
relevant procedure, cost and process.
 Each of the first shareholders and directors, who are Indian citizens (including
non-residents) of the new company needs to get a Permanent Identification Number
(PAN) from Income Tax Department of Government of India.
 Foreign shareholders and directors do not need a Permanent Identification Number

(PAN) from Income Tax Department of Government of India.
 Each of the promoters must have a digital signature (DSC). The digital signature is
to be purchased from a company in India. One needs a digital signature to apply for
DIN. Please refer to Chapter 5 above for the documents required in this regard.
 Each of the first shareholders and directors of the new company needs to get Director
Identification Number (DIN). One person can have only one DIN (or DPIN). It is an
offence to get more than one DIN. For a new company, the first shareholders can apply
for DIN as part of the form for incorporation of company.
 Decide the state in which the registered office of the company will be located. While it
is easy for a company to change the registered office within a state, it is cumbersome
and expensive to shift from one state to another.
 Decide the Authorized Capital of the proposed company. There is no minimum or

maximum prescribed capital for a company.
 Decide whether the company will be a private limited company or public limited
company.
 Decide the main objects of the company.
 Select, in order of preference, at least one suitable name up to a maximum of six

names, indicative of the main objects of the company.
 Ensure that the name does not resemble the name of any other already registered
company by availing the services of checking name availability on the portal of Ministry
of Corporate Affairs. The selected name should also not violate the provisions of
Emblems and Names (Prevention of Improper Use) Act, 1950. It should not also
resemble name of any other company or registered trade mark.

 After the name approval, you will need the services of a Practicing Company Secretary
to do further steps for incorporation of the company.
It is now possible to apply for Permanent Account Number (PAN) under income
tax as well as registrations under Goods and Services Tax (GST), Employees
State Insurance (ESI) and Employees Provident Fund at the time of
incorporating a company. This avoids application to multiple authorities before
starting business.
A Practicing Company Secretary is the best person to get the above steps completed. The
charges may vary from city to city and also based on the reputation of the Practicing Company
Secretary. It is advisable to tell the Company Secretary the proposed authorized share capital,
the state in which the company is proposed to be incorporated, number of first shareholders /
directors and whether the proposed company will be a private limited or public limited. Based
on this information, the Company Secretary will be in a position to give an offer for the total
costs including fees payable to the Government, stamp duty, other expenses and his / her
fees.
One needs to arrange for drafting of the memorandum and articles of association. Often, the
Practicing Company Secretary handling company incorporation will have a standard draft
which can be used in most cases. However, if the new company is a joint venture it is advisable
to have a well drafted Shareholders’ Agreement (SHA). The SHA can be incorporated into
Articles of Association of the new company. Generally speaking, a Practicing Company
Secretary is not the best person to get the SHA drafted. A specialist legal professional with
experience of SHAs is likely to be better equipped for the job.
Many Chartered Accountants also offer services in relation to incorporating a company.

However, strictly speaking, this is the job of a company secretary and not of a chartered
accountant.
Company incorporation work by Practicing Company Secretary does not include the
formalities that one needs to complete with Reserve Bank of India even when the investment
is under 100% Automatic Approval Route.
Quick Easy Approach For Foreign Companies And Citizens
Often a foreign company / citizen or Non-Resident Indian wishes to start operations in India
very quickly. Delays in getting digital signature and DIN lead to the company incorporation
process getting delayed. During such times, it may be a good option to follow the following
steps:
 Two Indian resident-citizens (A and B) who already have PAN and DIN incorporate an
Indian company with the name, objects and authorized capital as required by the
promoter based abroad.

 A and B are the initial directors of the new Indian company.
 As and when the foreign promoter has completed all the formalities related to DIN etc.,
A and B transfer all shares held by them in the new company to the foreign promoter.
 After transfer of shares, new directors are appointed. Immediately thereafter, both A and
B resign as directors.
 In case it is so required, either A or B can continue as a Director to comply with the

requirements of resident director.
 Either A or B or both can continue to hold one share each of Rs. 10 as long as so
required by the foreign promoter. This, as mentioned earlier, can make it easy to hold
Annual General Meetings without incurring travel costs.
Foreign promoter does not have to travel to India for completing the above formalities. He /
she does not also need to send documents to India by courier. By following the above
procedure, it is possible to create and own a company in India without ever stepping on Indian
soil. Of course, once the company and all registrations are in place, it is time to get down to
business and for that you may surely have to visit the country.

8. PAN for foreign residents (Indian citizens)
Getting Permanent Identification Number (PAN) from Income Tax Department of Government
of India is necessary before any Indian citizen, (even when resident outside India) invests in
a company in India or becomes a Director in an Indian company. It is advisable for foreign
citizens investing in India to get PAN. Getting a PAN is a simple process that any person
resident outside India can do without the need for professional help and coming to India.
We suggest that an Indian citizen (who wishes to set up a company in India) should first get a
digital signature after submitting attested documents as mentioned in Chapter 5. Once the
digital signature is obtained, application for PAN becomes a simple online process.
There are only two agencies for issue of PAN:
 Tax Information Network of Income Tax Department

https://tin.tin.nsdl.com/pan/form49Adsc.html
 UTI infrastructure Technology and Services Ltd.

https://www.pan.utiitsl.com/PAN/newA.html
Please remember that no other person or agency can issue PAN. Any website or person who
claims to provide PAN may be a fraud.
Using digital signature (DSC) it is possible to get PAN online without the need to submit any
physical documents. Key steps are as follows:
(a) Please keep ready with you scanned image of photograph, signatures (physical
signature on a white paper) and supporting documents i.e. Proof of Identity (POI) /
Proof of Address (POA) / Proof of Date of Birth (PODB). The photo/signature and
supporting documents should be scanned as per following specifications:
Sr. No. Parameters Photograph Signature Supporting documents
1. Resolution (in DPI) 200 DPI 200 DPI 200 DPI
2. Type Color Color Black & White
3. File type JPEG JPEG PDF / A or JPEG
4. Size Max. 20 KB Max. 10 KB Max. 300KB/per page
5. Dimension 3.5X2.5 cms. 2X4.5 cms
(b) Fill Form 49A online at any of the above two websites and submit the form.
(c) A confirmation screen with all the data filled by the applicant will be displayed. On
confirmation, an acknowledgement will be displayed. The acknowledgement will
contain a unique 15-digit acknowledgement number.

(d) The applicant should save and print this acknowledgment.
(e) Application will be signed using the DSC. It is necessary that the details in the DSC
and the PAN application are the same.
(f) Payment of application fee can be done using Credit card / Debit card or Net banking
facility only. Fees are as follows:
GST @ Amount to
Sr. Fees Total
Parameters 18% be charged
No. Rs. Rs.
Rs. Rs.
PAN Applications - Applicant opts for physical PAN Card
Dispatch of physical PAN Card in India

1. 86.00 15.48 101.48 101.00
(Communication address is Indian address)
Dispatch of physical PAN Card outside India

2. (where foreign address is provided as address 857.00 154.26 1,011.26 1,011.00
for communication)
PAN Applications - Applicant opts for only e-PAN Card (No physical card requested)
1. Communication address is Indian Address 56.00 10.08 66.08 66.00
2. Communication address is foreign address 56.00 10.08 66.08 66.00
(g) Ordinarily, there is no need to send any physical documents. However, in case any
discrepancy is noticed the issuing agency may ask for physical documents.
One essentially needs two documents – one for proof of identity (including date of birth) and
one for proof of address. The documents required are as follows:
Proof of Identity Document – Copy of
 Passport
Proof of Address Document – Copy of
 Passport; or
 Bank account statement in the country of residence; or
 Non-resident External (NRE) bank account statement in India

9. Share capital structure
An Indian company can have only two types of share capital
 Equity Share Capital – with voting rights
 Preference Share Capital – with preferential rights as regards either dividend or

repayment
Right to vote of holders of Preference Shares is limited to matters that directly affect the rights
attached to Preference Shares.
Equity shareholders vote in general meetings (meetings of members / shareholders) with

voting rights in proportion to the share of the paid-up equity capital of the company. Hence,
control on management of a company is directly proportional to the number of equity shares
held in the company by a person.
One needs to be holding 10% (ten per cent) of the paid-up equity capital of a company to call
for an extraordinary general meeting of the shareholders. Even to file a complaint before a
Tribunal that the affairs of the company are being conducted in a manner which is prejudicial
to public interest or is oppressive to any member or members, one needs to hold one tenth of
the paid-up equity capital of the company. Hence, it is advisable for foreign entities to hold at
least 10% of the paid-up equity capital of the Indian company at all times.
Many matters that come up before a meeting of the shareholders of a company require to be
passed by a Special Resolution. Typical examples of such matters include modification of
memorandum or articles of association, increase of authorized share capital, remuneration to
directors, change of registered office, reduction of share capital, winding up of the company
etc.
A person who holds less than 26% of the paid-up equity shares of a company will not be able
to veto a Special Resolution. Hence, we advise our foreign clients to hold at least 26% of paid-
up equity of an Indian company if they desire to have a say in the management of the
company.

10. External commercial borrowing
An Indian company can take loans from banks and financial institutions in India as well as
from sources abroad. There are no restrictions on an Indian company owned by foreign
residents with regard to borrowing in India.
An Indian company is allowed to borrow from abroad. Loans taken by a company from sources
located outside India are called External Commercial Borrowings (ECB). Detailed directions
in this regard are issued by Reserve Bank of India.

Under the ECB framework, ECBs can be raised either under the automatic route or under the
approval route. For the automatic route, the cases are examined by the Authorized Dealer
Category – I (banks). Under the revised Master Directions applicable from March 2019 (last
updated on 22nd December 2023), most Indian companies (except for very large ones) will be
covered by the Automatic Route.
Under the approval route, the prospective borrowers are required to send their requests to the
RBI through their banks for examination.
The ECB Framework comprises of two options – Foreign Currency Denominated ECBs (FCY
denominated ECBs) and Indian Rupee Denominated ECBs (INR denominated ECBs).
Applicable regulations for the two options are as follows:


The minimum average maturities and all-in-cost ceiling for the two options are as under:

Whether the ECB is FCY denominated or INR denominated, the ECB cannot be utilized for
any of the following end-uses:
All ECBs will be subject to the overall annual limits as provided in the following paragraph:
The ECB proposals beyond aforesaid limits will come under the approval route.
Issuance of any type of guarantee by Indian banks, Financial Institutions and Non-Banking
Financial Companies (NBFCs) from India relating to ECB is not permitted.
Borrowing Indian company may enter into loan agreement complying with the ECB guidelines
with recognized lender for raising ECB under Automatic Route without the prior approval of
the Reserve Bank. The borrowing company must obtain a Loan Registration Number (LRN)
from the Reserve Bank of India before drawing down the ECB. The application for Loan

Registration Number mentions an authorized dealer bank which will receive the money and
also be involved with repayment.
In addition to the above, a special window has been created for start-ups. Salient features of
ECB facility for start-ups are as follows:

Three key differences in the facility for start-ups as against for other companies are as
follows:
 In case of start-ups, the all-in-cost can be as mutually agreed between the borrower
and the lender, while in case of other companies the all-in-cost is fixed at a maximum
of benchmark rate plus 550 bps for existing ECBs and benchmark rate plus 500 bps
for new ECBs.
 Minimum average maturity period for start-ups is three years for all categories of start-
ups.
 Maximum amount under the start-up facility is restricted to USD 3 million per financial
year, while other borrowers can borrow up to USD 750 million per annum.

11. Bank accounts of foreign residents in Indian rupees
There are four types of Rupee denominated accounts that a foreign citizen or entity may open
with a bank in India:
A Ordinary Non-Resident Rupee (NRO) Account
B Non-Resident (External) Rupee Account (NRE Account) – Strictly for NRI’s
C Special Non-Resident Rupee Account (SNRR Account)
D Escrow Account
Ordinary Non-Resident Rupee (NRO) Account
NRO account is the simplest form of bank account that any non-resident individual or entity
(except from Pakistan or Bangladesh) may open with a bank in India without approval or
permission from Reserve Bank of India or any other authority. In case of entity / individual from
Pakistan, approval of Reserve Bank is required. In case of entity from Bangladesh also,
approval of Reserve Bank is required. However, in case of individuals from Bangladesh,
concerned bank may permit opening of NRO account subject to verifying that the individual(s)
hold valid visa and valid residential permit.
Funds in the NRO account should be used for meeting bonafide expenses and transactions
in Indian Rupees.
NRO accounts may be opened / maintained in the form of current, savings, recurring or fixed
deposit accounts. The accounts may be held jointly with residents and / or other non-residents
and / or Persons of Indian Origin on ‘former or survivor’ basis.
Permissible Credits to NRO account: Inward remittances from outside India, legitimate dues
in India and transfers from other NRO accounts are permissible credits to NRO account.
Rupee gift / loan made by a resident to a NRI/PIO relative within the limits prescribed under
the Liberalised Remittance Scheme may be credited to the latter’s NRO account.
Permissible Debits to NRO account: The account can be debited for the purpose of local
payments, transfers to other NRO accounts or remittance of current income abroad. Apart
from these, balances in the NRO account cannot be repatriated abroad except by NRIs and
PIOs up to USD 1 million.
NRO accounts may be designated as resident accounts on the return of the account holder to
India for any purpose indicating his intention to stay in India for an uncertain period. Likewise,
when a resident Indian becomes a person resident outside India, his existing resident account
should be designated as NRO account.

Bank may allow operations on an NRO account by a Power of Attorney granted in favour of a
resident by the non-resident individual account holder provided such operations are restricted
to local payments and remittances to non-residents.
To facilitate the foreign nationals to collect their pending dues in India, banks may permit such
foreign nationals to re-designate their resident account maintained in India as NRO account
on leaving the country. The funds credited to such NRO account need to be repatriated abroad
immediately, subject to payment of the applicable income tax and other taxes in India. The
amount repatriated abroad should not exceed USD one million per financial year. The debit to
the account should be only for the purpose of repatriation to the account holder’s account
maintained abroad. The account should be closed immediately after all the dues have been
received and repatriated as per the declaration made by the account holder when the account
was designated as an NRO account.
Non-Resident External Rupee (NRE) Accounts
Only Non-resident Indians (NRIs) and Persons of Indian Origin (PIOs) are permitted to open
and maintain these accounts with authorized dealers and with banks authorized by Reserve
Bank to maintain such accounts.
Income from interest on balances standing to the credit of NRE Accounts is exempt from
Income Tax. In all other respects, NRE accounts are similar to NRO account.
Operations on an NRE account may be allowed in terms of Power of Attorney or other authority
granted in favour of a resident by the non-resident account holder, provided such operations
are restricted to withdrawals for local payments or remittance to the account holder himself
through banking channels.
Special Non-Resident Rupee (SNRR) Account
Any person resident outside India, having a business interest in India, may open a Special
Non-Resident Rupee Account (SNRR account) with an authorised dealer for the purpose of
putting through bona fide transactions in Rupees. Opening of SNRR accounts by Pakistan
and Bangladesh nationals and entities incorporated in Pakistan and Bangladesh requires prior
approval of Reserve Bank.
The business interest, apart from generic business interest, shall include the following INR
transactions, namely:
(a) Investments made in India
(b) Import of goods and services
(c) Export of goods and services

(d) Trade credit transactions and lending under External Commercial Borrowings (ECB)
framework
(e) Business related transactions outside International Financial Service Centre (IFSC) by
IFSC units at GIFT city like administrative expenses in INR outside IFSC, INR amount
from sale of scrap, Government incentives in INR, etc. The account will be maintained
with a bank in India (outside IFSC).
The SNRR account shall carry the nomenclature of the specific business for which it is in
operation and shall not earn any interest. Indian bank may, at its discretion, maintain separate
SNRR account for each category of transactions or a single SNRR Account for a person
resident outside India engaged in multiple categories of transactions provided it is able to
identify / segregate and account them category-wise.
The operations in the SNRR account shall not result in the account holder making available
foreign exchange to any person resident in India against reimbursement in rupees or in any
other manner.
The balances in the SNRR account shall be eligible for repatriation and transfers from any
NRO account to the SNRR account are prohibited.
Escrow Account
Resident or non-resident corporate/ acquirers may open Escrow account in INR with an
authorized dealer in India as an Escrow agent. Escrow account may be used for (a) Issue of
equity shares by an Indian company and for (b) Swap of equity instruments.

12. Bank accounts in foreign currency
Reserve Bank of India does not look too kindly upon foreign currency accounts. Indian
companies (even when wholly owned by foreign residents) can open a bank account
denominated in foreign currency only if the company earns foreign exchange. Such an account
is called Exchange Earners’ Foreign Currency (EEFC) Account.
A person resident in India may open an EEFC account with a bank in India.
Credits permitted to an EEFC account are as follows:
(a) 100 percent of the foreign exchange earnings by way of inward remittance through
normal banking channel, (other than loans or investments);
(b) Payments received for the purpose of counter trade;
(c) Advance remittance received by an exporter towards export of goods or services;
(d) Professional earnings including director’s fees, consultancy fees, lecture fees,
honorarium and similar other earnings received by a professional by rendering services
in his individual capacity;
(e) Interest earned on the funds held in the account;
(f) Re-credit of unutilised foreign currency earlier withdrawn from the account;
(g) Repayment of trade related loans/ advances (which were granted to the account
holder's importer customer out of balances held in the EEFC accounts);
(h) Disinvestment proceeds received by the resident account holder on conversion of

shares held by him to ADRs/ GDRs; and
(i) Payments received in foreign exchange by an Indian start-up arising out of sales /
export made by the start-up or its overseas subsidiaries.
Debits permitted to an EEFC account are as follows:
 Payment outside India towards capital or current account transactions in accordance

with the relevant rules and regulations;
 Payment in foreign exchange towards cost of goods purchased from a 100 percent
Export Oriented Unit or a Unit in an Export Processing Zone / Software Technology
Park / Electronic Hardware Technology Park;
 Payment of customs duty;

 Trade related loans / advances, by an exporter account holder to his importer customer
outside India;
 Payment in foreign exchange to a person resident in India for supply of goods / services
including payments for air fare and hotel expenditure.
Withdrawals in Rupees are permitted from this account, provided the amount so withdrawn
cannot be re-credited to the account.
The sum total of the accruals in the account during a calendar month should be converted into
Rupees on or before the last day of the succeeding calendar month after adjusting for
utilization of the balances for approved purposes or forward commitments.
Foreign Currency Accounts by NRIs and PIOs
Non-resident Indians (NRIs) or persons of Indian origin (PIOs) are allowed to open foreign
currency accounts with banks in India under the following schemes:
 Foreign Currency (Non-Resident) Accounts (Banks) Scheme - [FCNR(B)]
 Resident Foreign Currency (RFC) Accounts
FCNR(B) accounts are similar to NRE accounts mentioned in the previous chapter. The
provisions applicable to NRE accounts apply to FCNR(B) accounts as well. FCNR (B)
accounts are only in the form of term deposits. Loans can be extended against security of
funds held in FCNR (B) deposit either to the depositors or third parties. Accounts can be in
any freely convertible currency.
RFC accounts are to enable eligible returning Indians to open and maintain foreign currency
accounts with banks in India.
Foreign Currency Accounts for Companies Executing Projects
Foreign Currency Accounts of Overseas Companies executing Projects in India –

Overseas companies executing projects in India are permitted to open foreign currency
accounts with banks in India for meeting local expenses in connection with the projects in
India. Indian Banks open non-interest-bearing Foreign Currency Account for Project Offices
in India subject to the following:
i. The Project Office has been established in India, with the general / specific permission
of Reserve Bank, having the requisite approval from the concerned Project
Sanctioning Authority.

ii. The contract, under which the project has been sanctioned, specifically provides for
payment in foreign currency.
iii. Each Project has only one Foreign Currency Account.
iv. The permissible debits to the account shall be payment of project related expenditure
and credits shall be foreign currency receipts from the Project Sanctioning Authority,
and remittances from parent / group company abroad or bilateral / multilateral
international financing agency.
v. The Foreign Currency account has to be closed at the completion of the Project.
In case of disputes between the Project Office and the project sanctioning authority or other
Government/ Non-Government agencies etc., the balance held in such account shall be
converted into INR and credited to a special account which shall be dealt with as per the
settlement of the dispute.
Other Foreign Currency Accounts
Organisers of international Seminars, Conferences, Conventions, etc. – can open temporary

foreign currency accounts in India.
An exporter who has undertaken a construction contract or a turnkey project outside India or
who is exporting services or engineering goods from India on deferred payment terms may
open, hold and maintain a Foreign Currency Account with a bank in India.
A unit located in a Special Economic Zone (SEZ) - may open hold and maintain a foreign
currency account with an authorized dealer in India to credit all foreign exchange funds
received by the unit.
Ship-manning / crew managing agencies in India may maintain non-interest-bearing foreign

currency account in India for the purpose of undertaking transactions in the ordinary course of
their business.
Indian agent of shipping or airline companies incorporated outside India can maintain foreign
currency account in India for meeting the local expenses of the overseas company.
Firms and companies dealing in diamonds may open Diamond Dollar Accounts.

13. Technology transfer, brand licensing and royalty
It was mentioned in Chapter 4 about using a local associate for testing the waters. Local
associate may be useful not just as an initial support but also as a long-term business partner.
While joint ventures with equity participation from foreign company as well as Indian associate
are common, often foreign companies enter into a technology transfer / franchisee / marketing
support / brand licensing agreement with the Indian associate. This way the foreign company
can take benefit of the Indian market without making any significant investments.
An Indian company can sign a Technical Collaboration / Trademark License Agreement /

Marketing Agreement with a foreign company and pay royalty on sales to the foreign company.
There is no upper limit on royalty payments.
Executing an agreement which provides for royalty, either lump sum or as percentage of sales
or both, can be considered even when Indian company is a joint venture of the foreign entity
and its Indian partner. In such an arrangement, the foreign partner shall benefit on one hand
from the dividends on equity shares held by it and on other hand from royalty payments.
An agreement providing for royalty can be executed even when the Indian company is a wholly
owned subsidiary of the foreign company.
A few years back there were news-reports that Government of India had been considering of
reviving limits on royalty payments. However, till date no decision seems to have been taken
in this regard.

14. Indian visa for directors and employees
Note: Rules for visas are changed often by Government of India. Some of the rules given in this chapter may be
obsolete when you apply for visa. Please check from official websites. The official site of Ministry of Home Affairs,
GOI is https://www.mha.gov.in/MHA1/TourVisa.html
An Indian company can employ foreign citizens in India as well as outside India. No
permissions are needed for this. However, the foreign citizen needs an employment visa if he
/ she intends to reside in India.
Types of visas (relevant to businesses) issued by India are as follows:



E-visa
E-visa facility is available to nationals of most of the countries of the world. Please check at
https://indianvisaonline.gov.in/evisa/tvoa.html to see if your country is covered under the list
of countries eligible for e-visa.
The following points should be noted for e-visa facility:
1. Please visit https://indianvisaonline.gov.in/evisa/tvoa.html to apply for e-visa.
2. E-visa is issued when sole objective is one of the following:
a) Recreation and sightseeing
b) Casual visit to meet friends and relatives
c) Attending short term yoga programme or short term courses on local

languages, music, dance, arts & crafts, cooking, medicine etc. which should
not be a formal or structured course / programme

d) Voluntary work of short duration (for a maximum period of one month, which
do not involve any monetary payment or consideration of any kind in return)
e) Medical treatment, including treatment under Indian systems of medicine
f) As attendant to e-Medical visa holder
g) Business purpose
h) Attending a conference/ seminar/ workshop
3. e-Visa has 8 sub-categories viz. e-Tourist Visa, e-Business Visa, e-Conference Visa,
e-Medical Visa, e-Medical Attendant Visa, e-Ayush Visa, e-Ayush Attendant Visa and
e-Emergency X-Misc Visa. A foreign national will also be permitted to club these
activities provided he / she had clearly indicated the same in the application form along
with requisite documents.
4. The validity of e-Visa would be according to the e-Visa service requested in the
application form as –
a) For e-Tourist Visa (01 year / 05 years), the validity would be 365 days / 05
years from the date of grant of ETA (Electronic Travel Authorization) with
Multiple entries and Maximum stay in India during one calendar year should
not exceed 180 days.
b) For e-Tourist Visa (30 days), the validity would be 30 days from the date of
the first arrival in India. Double entries will be granted within the e-Visa validity
period stamped on the Passport. The first arrival must be between the date of
issue and expiry of ETA.
c) For e-Business Visa, the validity would be 365 days from the date of grant of
ETA with Multiple entries and continuous stay during each visit which shall not
exceed 180 days and no registration would be required if stay is for a period of
less than 180 days. However, if the intention is to stay for more than 180 days,
then the foreigner shall get himself/herself registered with the FRRO/FRO
concerned (https://indianfrro.gov.in) within two weeks after the expiry of 180
days of his/her arrival in India.
d) For e-Conference Visa, the validity would be 30 days from the date of arrival
in India with Single entry.
e) For e-Medical Visa, the validity would be 60 days from the date of first arrival
in India and triple entry will be allowed within the e-Visa validity period stamped
on the Passport.

f) For e-Medical Attendant Visa, the validity would be 60 days from the date of
first arrival in India and triple entry will be allowed within the e-Visa validity
period stamped on the Passport.
5. For e-Tourist Visa (01 year / 05 years), e-Business Visa, e-Medical, e-Medical
Attendant and e-Conference visa, applicants may apply online minimum 4 days in
advance of the date of arrival. Such application can be made 120 days in advance
from proposed date of travel.
6. For e-Tourist Visa (30 days), applicants may apply online minimum 4 days in advance
of the date of arrival. Such application can be made 30 days in advance from proposed
date of travel.
7. E-visa is not extendable and is not convertible to any other type of visa.
8. e-Visa will be allowed for a maximum of two times in a calendar year to a foreigner.
9. Passport must have at least six-month validity.
10. An applicant should have return ticket or onward journey ticket, with sufficient money
to spend during his/her stay in India.
11. Pakistani passport-holders and persons of Pakistani origin are not eligible for e-visa.
12. E-tourist Visa fees depend on the type of visa applied for and the country from which
application is submitted (min USD 10 and max USD 80; plus bank charges 2.5%).
Kindly refer https://indianvisaonline.gov.in/evisa/images/Etourist_fee_final.pdf
13. Applicant should carry a copy of Electronic Travel Authorization (ETA) along with him
/ her at the time of travel.
14. E-visa is valid for entry through 28 airports - Ahmedabad, Amritsar, Bagdogra,
Bengaluru, Bhubaneshwar, Calicut, Chennai, Chandigarh, Cochin, Coimbatore, Delhi,
Gaya, Goa, Guwahati, Hyderabad, Jaipur, Kolkata, Lucknow, Madurai, Mangalore,
Mumbai, Nagpur, Port Blair, Pune, Tiruchirappalli, Trivandrum, Varanasi &
Visakhapatnam.
15. E-visa is also valid for entry through five seaports - (1) Mumbai (2) Cochin (3) Goa (4)
Chennai and (5) Mangalore for cruise tourists.
16. There are no restrictions for exit. A holder of e-visa may exit from any airport or seaport
or land port.
Please refer https://indianvisaonline.gov.in/evisa/tvoa.html for the latest on e-visas and also

for applying.

Business Visa
A Business visa may be granted to a foreigner for the following purposes (relevant to this
Guide):-
i. Foreign nationals who wish to visit India to establish an industrial / business venture
or to explore possibilities to set up industrial/business venture, other than
Proprietorship Firms and Partnership Firms, in India.
ii. Foreign nationals coming to India to purchase / sell industrial products or commercial
products or consumer durables.
iii. Foreign nationals coming to India for technical meetings / discussions, attending
Board meetings or general meetings for providing business services support.
iv. Foreign nationals coming to India for recruitment of manpower.
v. Foreign nationals who are partners in the business and/or functioning as Directors of
the company.
vi. Foreign nationals coming to India for consultations regarding exhibitions or for
participation in exhibitions, trade fairs, business fairs etc.
vii. Foreign buyers who come to transact business with suppliers / potential suppliers at
locations in India, to evaluate or monitor quality, give specifications, place orders,
negotiate further supplies etc., relating to goods or services procured from India.
viii. Foreign experts / specialists on a visit of short duration in connection with an ongoing
project with the objective of monitoring the progress of the work, conducting meetings
with Indian customers and/or to provide technical guidance.
ix. Foreign nationals coming to India for pre-sales or post-sales activity not amounting
to actual execution of any contract or project.
x. Foreign trainees of multinational companies / corporate houses coming for in-house

training in the regional hubs of the concerned company located in India.
xi. Foreign nationals coming as tour conductors and travel agents and / or conducting
business tours of foreigners or business relating to it, etc.
Conditions for grant of Business Visa
i. The foreign national should be a person of assured financial standing (sufficient proof
of his/ her financial standing and expertise in the field of intended business will be
checked thoroughly while granting the visa).

ii. The foreign national should not be visiting India for the business of money lending or
for running a petty business or petty trade or for full time employment in India, etc.
iii. The foreign national shall comply with all other requirements like payment of tax
liabilities etc.
Documents required for grant of business visa are as follows:
a. A valid travel document and a re-entry permit, if required under the law of the country
concerned.
b. Proof of financial standing and expertise in the field of intended business.
c. Documents/ papers pertaining to proposed business activity such as registration of the

company under the Companies Act, proof of registration of the firm with the State
Industries Department or the Export Promotion Council concerned or any recognized
promotional body in the relevant field of industry or trade etc.

Duration of Business Visa
India Business Card to Businessmen from SAARC countries

Special Provision for Business Visa to Chinese nationals
Extension of Business Visa
In case business visa is granted for a period less than five years by the Indian Missions, the
same can be extended up to a maximum period of five years subject to following:
(a) The gross sales / turnover from the business activities, for which the foreigner has
been granted visa, is not less than Rs.10 million per annum (to be achieved within
2 years of setting up the business) in case the purpose of the visa is to establish an
industrial / business venture or to explore possibilities to set up industrial/business
venture.
(b) In other categories, visa extension shall be subject to submission of documents of

proof of doing business/ consultancy.
(c) Extension of Business Visa may be granted by the FRRO /FRO concerned on year-to-
year basis.
(d) The period of extension shall not be beyond five years from the date of issue of the
Business visa.

Employment Visa
An Employment Visa is granted to foreigners desiring to come to India for the purpose of
employment, subject to fulfillment of the following conditions:
i. The applicant is a highly skilled and/or qualified professional, who is being

engaged or appointed by a company in India on contract or employment basis.
ii. Employment Visa shall not be granted for jobs for which qualified Indians are available.
Employment Visa shall also not be granted for routine, ordinary or secretarial/clerical
jobs.
iii. The foreign national being sponsored for an employment visa in any sector should
draw a gross salary in excess of Rs. 16.25 lakhs (Rs. 1.625 million) per annum.
However, this condition of annual floor limit on income will not apply to : (a) Ethnic
cooks employed by foreign Missions in India (this will not apply to ethnic cooks
employed in commercial venture), (b) Language teachers ( other than English
language teachers) / translators (this will not include teachers employed to teach
particular subjects in foreign language), (c) staff working for the concerned Embassy/
High Commission in India, (d) foreigners, eligible for ‘E’ visa for honorary work with the
NGOs registered in the country without salary, and a few other categories not relevant
to this Guide.
iv. The salary threshold limit of Rs. 16.25 lakhs per annum will be worked out taking into
account the salary and all other allowances paid to the foreign national in cash and
also perquisites like rent free accommodation etc. which are included in the salary for
the purpose of calculating income tax. Such perquisites should be quantified and
indicated in the Employment Contract.
v. Nationals of Bangladesh, who are married to Indian nationals and who are not eligible
for registration as OCI cardholder must draw a minimum salary of Rs. 9.10 lakhs (Rs.
910,000-) per annum for being eligible for grant of Employment Visa.

Validity of Employment visa (for other than Japanese nationals) will be as follows:-

Validity of Employment Visa for Japanese nationals
Extension of Employment Visa
The Employment visa may be extended by the FRRO / FRO concerned beyond the initial visa
validity period, up to a total period of 5 years from the date of issue of the initial Employment
Visa, on year to year basis.
Documents required for employment visa are as follows:
 A valid passport and a re-entry permit, if required under the law of the country of
nationality of the applicant.
 Proof of his/her employment or contract or engagement by the company / firm /

organization, etc. in India.
 Documentary proof of his / her educational qualifications and professional expertise.
 Documents pertaining to the proposed employment, like the registration of the

company under the Companies Act, proof of registration of the firm in the State
Industries Department or the Export Promotion Council concerned, or any recognized
promotional body in the field of industry and trade etc.
Other Notable Points for Business & Employment Visa
Business Visa as well as Employment Visa cannot be converted to any other kind of visa
during the stay of the foreigner in India except if he / she marries an Indian national.
Business / Employment visa of a foreigner who falls ill after entry into India rendering him / her
unfit to travel and require specialized medical treatment can be converted to Medical visa if

he / she is eligible for grant of Medical Visa and medical certificate is obtained from
government / government-recognized hospital.
A foreign national coming for executing projects / contracts will have to come only on an
Employment Visa.
No change of employer is permitted during the currency of the Employment Visa within India
except in respect of change of employment between a registered holding company and its
subsidiary and vice-versa or between subsidiaries of a registered holding company.
Visa for Family Members
Family members / dependents of a foreigner who is granted ‘Business visa’ / ‘Employment

Visa’ may be granted `X' visa subject to usual security checks provided the family members
are otherwise eligible for grant of such a visa. Its validity will be co-terminus with the validity
of the visa of the principal visa holder or for such shorter period as may be considered
necessary by the Indian Mission.

15. Indian taxation system
India has a three-tier taxation structure which can be summed up as follows:
India is a federal republic with clear division of powers between the Central Government and
the Government of States. Constitution of India has created a two-tier structure dividing
powers between the Union of India and the states. Local bodies like municipal corporations /
village panchayats derive their powers from the powers of the state by suitable legislation
passed by each state legislature. This delegation by the states to local bodies has added a
third tier to the taxation structure as provided in the Constitution.
Let us have a quick look at the three tiers of taxation and different taxes in each tier.
Union Taxes
Parliament of India approves laws that impose taxes. Generally speaking, every year in the
month of February the finance minister presents a budget to the Parliament. The presentation
of annual budget of Union of India to the Parliament is watched by whole country with bated
breath since union taxes are modified. However, after the introduction of GST the importance
of Union Budget has reduced considerably. GST Council consisting of representatives from
Union Ministry of Finance as well as state governments meets many times in a year and makes
changes to GST rates and procedures to GST as may be required from time to time. It is these
frequent changes to GST regime that has made GST a nightmare for businesses and
professionals.

Major sources of central revenue are as follows:
Income Tax
Income Tax Act, 1961 prescribes that income earned by all residents is subject to Income Tax.
In February 2020, Union Finance Minister introduced a new method of calculating individual’s
income tax liability. One may either choose the new regime with slightly lower rates but without
any deductions OR one may choose to be under the old regime where some deductions were
permitted.
If an individual opts for the new regime, then his / her income will be taxed as per the following
tax slabs for financial year 2024-25 (1 April 2024 to 31 March 2025):
Income tax + Surcharge + Health &

Total income (Rs)
Education Cess
Up to Rs. 300,000- Nil
5%
From 300,001 to Rs 600,000 of total income minus Rs. 300,000
Less tax rebate of Rs. 12,500-
Rs. 15,600- +
From 600,001 to Rs 900,000
10.4% of total income minus Rs. 600,000
Rs. 46,800- +
From 900,001 to 1,200,000
15.6% of total income minus Rs. 900,000
Rs. 93,600- +
From 1,200,001 to Rs 1,500,000
20.8% of total income minus Rs. 1,200,000
Rs. 156,000- +
Above 1.5 million to 5 million
31.2% of total income minus Rs. 1,500,000-
Tax as calculated for >1.5 million

Above 5 million to 10 million
Plus Surcharge of 10%

Above 10 million to 20 million

Above 20 million

Individuals with a net taxable income of up to Rs 500,000 will be able to avail tax rebate of
Rs. 12,500 in both, the existing and new, tax regimes. Effectively, this means that individual
taxpayers having net taxable income of up to Rs 500,000 will continue to pay zero tax.
Individuals opting for the new tax regime will not be able to avail common tax breaks such as
deductions under section 80C for maximum of Rs 150,000 by investing in specified
instruments, section 80D for medical insurance paid, house rent allowance, leave travel
allowance etc.
In the calculation given above, surcharge has been included. Surcharge is applicable on the
income tax amount. In addition, education and health cess at the rate of 4% is levied on the
total of tax and surcharge. Surcharge and cess rates are the same in old and new regime.
Surcharge rates are as follows:
Taxable Income Surcharge
Above Rs 5 million but below Rs 10 million 10%
Above Rs 10 million but below Rs 20 million 15%
Above Rs 20 million but below 50 million 25%
Indicative rates of income tax as applicable for incomes earned during financial year 2024-25
(1 April 2024 to 31st March 2025) for individuals who choose to remain under the old regime
as well as for LLPs and Companies are as follows:
Income Tax + Education Cess

Net Annual Income Range
Individual LLP Firm Company
below 60 years of age
Up to Rs. 250,000 NIL

31.2%
Rs. 250,000 to Rs. 500,000 5% of Income
of total income
26.0% of
minus Rs.
income in case
250,000
turnover during
Tax rebate of Rs.
2020-21 is less
12,500-
31.2% of than Rs. 4 billion
Rs. 500,000 to Rs. 1000,000 Rs. 13,000 + Income 15.6% of income
20.8% in case the
of total income company is a
minus Rs. new
500,000 manufacturing
company set up
after 1 October
Above Rs. 1000,000 Rs. 117,000 +
2019
31.2%
of total income

minus Rs. 22.88% for some
1,000,000 companies
Above Rs. 5 million Additional

Surcharge as
given above
Above Rs. 10 million to Rs. 100 million Additional

Surcharge of
Additional 7.28% of income
Additional
Surcharge of
Surcharge as
Above Rs. 100 million 12.48% of Additional
given above
income Surcharge of
12.48% of
income
For individuals who choose the old regime, deductions from income are available. The
deductions include standard deduction, deduction for investments in specified instruments and
schemes, leave travel concession, house rent allowance etc.
Till financial year 2019-20, dividend from a company to all shareholders was subject to
Dividend Distribution Tax but was tax free in the hands of the shareholder. From financial year
2020-21 (assessment year 2021-22) dividend distribution tax has been abolished and the
dividend will be taxed in the hands of the shareholder as regular income.
In contrast, the share of income received from an LLP firm is tax free in the hands of the
partner of the LLP. So, while it appears that the tax rate for LLP Firm is higher, the total taxation
may be lower in case of an LLP.
Income Tax prescribes that any person responsible for making payment to another person (in
specified transactions and subject to some limits) must deduct tax at source (TDS).
Income Tax in India is fairly complex with deductions for many expenses and categories of
taxpayers. There are specialists who advise on income tax. Most Indian entrepreneurs and
businessmen have a consultant (often a Chartered Accountant) to advise on income tax
matters and do related compliances.
Goods and Services Tax (GST)
GST is levied on all goods and services sold within India. There is no GST on exports. Rebate
/ setoff for GST paid on inputs is available. Exports are not subject to GST. Refund of GST
paid on inputs for exports is provided. All imports are subject to GST in addition to customs
duty. Most common rate of GST is 18%. Other rate slabs are 5%, 12% and 28%.
Generally, the seller of goods or services collects GST from the buyer. However, in case of
select services (for example, legal services) the buyer of the services has to pay directly to
the authorities. The arrangement is called “reverse charge”.

Compliance requirements for GST are not complex. There are, however, some challenges in
ensuring that input credit is availed properly for all goods and received. Moreover, frequent
changes keep creating difficulties for businesses.
Wealth Tax
Wealth Tax is levied on some assets (less liabilities) owned by an individual or company.
There is a long list of assets which are exempted from wealth tax. Most industrial and
commercial assets are exempted. Houses used for residential purpose are also exempted.
Assets up to a value of Rs. 3,000,000- (Rupees Three Million) are exempted. Rate of wealth
tax is 1% of value of net assets after deducting the value of exempted assets and liabilities.
State Taxes
India is a federal union comprising twenty-eight states and eight union territories. Each state
has different rates of taxes in respect of what falls within the power of the states.
Stamp Duty
Stamp Duty is payable on various types of documents – agreements, transfer deeds,

conveyance / mortgage of immovable property. Rates vary from state to state. The old system
was that a stamp vendor used to sell stamp papers of different value. The vendor who sold a
stamp paper put the names of contracting parties, type of document, date of purchase of
stamp paper along with his rubber stamp and date of purchase of stamp paper at the back of
the stamp paper. The document was printed / typed on the stamp paper. It was important to
take care that the date of execution of document was not prior to the date of purchase of stamp
paper as noted at its back. This system has been replaced with e-stamping in many states.
In most states it is now possible to get e-stamping done on documents. E-stamping eliminates
the need to purchase stamp papers. In case of e-stamping, the stamp vendor takes all the
details of the document required to be stamped and prints out a certificate indicating the value
of stamp duty paid along with the details of the document. The certificate should be stapled to
the document.
In case an agreement is executed in multiple copies, stamp duty should be paid on only one
copy. It is customary to mention in the body of the document the person who will retain the
original stamp certificate or stamp paper version of the document. Any signed copy (with
original signatures) of the document with photocopy of stamp certificate is deemed to be an
original and carries equal weight as the one with the original stamp certificate.

Professional Tax
Professional tax is imposed at the state level. However, not all the states impose this tax.
Please check whether professional tax is applicable in the state where you wish to operate.
Business owners, working individuals, merchants and people carrying out various occupations
come under the purview of this tax. As per Constitution of India, the maximum amount that
can be charged as Professional Tax is Rs. 2,500 per annum.
Local Taxes
Local Taxes are levied by either municipal corporations (in case of cities) or by village
panchayats (in case of villages). The freedom of a municipal corporation or village panchayat
is limited by the relevant Act passed by State Legislature.
Property Tax
Property tax is collected by municipal or village authorities based on the estimated rental value
that a property is expected to fetch. Rates of property tax vary greatly from city to city.
However, in general, the first step is to estimate the annual rental value. Most cities have
elaborate norms for estimation of annual rental value based on the locality, type of
construction, usage of property and the floor area of property. Property Tax is a percentage of
the estimated annual value and is around 10-20% of the annual rental value or the estimated
rental value. It is customary for the property owner (and not the tenant) to pay the property
tax.
Water Charges
Strictly speaking, this is not a tax but a charge based on actual consumption. However, in
most cities of India water charges are not collected based on water consumption since water
metering is not very common. In most cities households are provided a 12 mm pipe connection
and a fixed charge per household is levied. This is in the range of about Rs. 200 to Rs. 500
per month. Some cities have introduced metering of water and are charging on the basis of
actual consumption. Rates for commercial establishments and industries are much higher and
are mostly based on actual usage.

16. Labour laws
Labour laws in India can be a challenge for many foreigners who start a business in India for
the first time. The tricks to avoid much of labour trouble in India can be summed up as follows:
a) Do not employ anyone with a salary of less than Rs. 15,000- per month (EPF limit). If
you can keep all your employees above Rs. 21,000 per month (ESI limit), that is even
better.
b) Keep the number of employees on your rolls to a bare minimum. This can be done by
outsourcing all that is either not critical or not specific to your business.
c) If it is possible, keep the number of employees less than 20.
If you are able to ensure that you do not have any employees earning less than Rs. 15,000-
per month, the only (well, almost, the only) labour laws that will be applicable to you are as
follows:
 The Employees’ State Insurance Act, 1948 – (ESI Act) applicable when number of
employees is ten or more and only to employees earning up to Rs. 21,000 p.m.
(Rs. 25,000/- per month in the case of persons with disability)
 Payment of Gratuity Act, 1972 – applicable when number of employees is ten or

more
 The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 – (EPF
Act) applicable when number of employees is twenty or more
A quick glance at the three laws is as follows:
The Employees’ State Insurance Act, 1948
Employer is required to deduct 0.75% of employee’s salary and add 3.25% of the salary from
his side. Total contribution to be deposited is 4% of salary of all employees earning
Rs. 21,000- per month or less. Employees in receipt of a daily average wage up to Rs.176/-
are exempted from payment of contribution. Employers will however contribute their own share
in respect of these employees. Incidentally, the minimum wage payable to any employee in
most states is higher than the above-mentioned daily average wage. Employees covered by
the insurance receive medical benefits as well as all insurance benefits.

Payment of Gratuity Act, 1972
Under the Act, the employer is required to pay gratuity to an employee as and when he leaves
employment either on termination or resignation or superannuation or death of an employee
if the employee has worked for a continuous period of five years or more.
For every completed year of service or part thereof in excess of six months, gratuity is payable
at the rate of fifteen days' wages based on the rate of wages last drawn by the employee
concerned. Upper ceiling on gratuity amount is Rs. 2 million.
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
Employer is required to deduct 12% of the salary of employee, add equal amount of
contribution from its side and deposit the total with provident fund.
The employee can withdraw from provident fund either when he / she is out of job or at the
time of retirement or under some other emergencies.
Employee Pension Scheme (EPS) is a pension scheme under which part of the employer’s
contribution is diverted towards EPS.
In addition to the above, irrespective of the number of employees if your unit is not a factory it
will need to be registered with labour department under the relevant state’s Shops and
Establishment Act. Different states have different provisions under their Shops and
Establishment Acts. However, in general the Acts provide for working hours, holidays and
leaves of employees.
In case the nature of your business requires you to employ large number of workers, many of
whom are earning less than Rs. 15,000- per month, you should be prepared to deal with all
the labour related matters including unions. If this is the case, you should either partner with
an Indian associate who understands Indian workers and related laws or you should get a
professional manager who is an expert on such matters.

17. Business culture
India is a relationships-driven society. Everyone is connected to everyone else with whom one
does business. Dealing with strangers is avoided – reasons for this are not too far to seek.
With a judicial system that is painfully slow, expensive and unpredictable, one wants to avoid
going to courts. If one is dealing with someone on whom one can exert some pressure,
whether it is emotional or from relatives and friends, one is assured of some recourse if matters
turn sour.
Relationships are built upon mutual trust and respect. In general, Indians prefer to have long-
standing personal relationships prior to doing business. It may be a good idea to go through a
third-party introduction. This gives you immediate credibility.
Doing business in India involves spending a lot of time building relationships with all sort of
people whether in business or in government or in community or in politics. This is strange for
foreigners who come to India from Western Europe or USA. However, this does not surprise
anyone who has done business in most of Africa or South America or Asia.
It is not unusual for business associates to try to establish relationships that extend to families
and friends. This seems strange to western mindset where business and personal life are kept
separate. The dividing line in India is either non-existent or very thin. So, if you receive a
request from your Indian associate to go to a picnic together with families on the weekend, do
not be surprised. In the same way, your Indian associate may bring gifts for your family
members when on a business visit to your country.
Language of contracts in India is often flowery and extremely elaborate. Indian advocates and
solicitors sometimes draw up such elaborate and complex contract documents that virtually
no one bothers to read through the whole of it – till the matter lands up in a court. It is not
uncommon for parties to a contract to rely on the informal or email or verbal assurances that
they have among themselves while the formal contract is seen as no more than a necessary
evil that one would rather not touch. We, Anil Chawla Law Associates LLP, advise strongly
against this approach.
Indian entrepreneurs and senior managers often work for more than 10 hours a day and work
on weekends too. Calling up business associates on a Sunday or at 8 pm is not considered
something extraordinary.
Everyone in India has one or more mobile phones. Calling people on mobile at odd hours
(keeping in mind the time when the person receiving the call goes to sleep and wakes up) is
considered normal. Not picking up a call from someone known is considered rude. Answering
machine facility is almost unknown in the country. Typically, if one misses a call from someone
known, calling back as early as possible is considered almost mandatory.

India is a hierarchical society. Even in some large cities where due to western influence calling
each other by first name has become acceptable, the hierarchical mindset remains deep
rooted. As a general rule, calling people by first name is avoidable unless the person is
equivalent or lower to you in age and rank. Anyone who is older (or of higher rank) must be
addressed respectfully. This is a hierarchical culture, so greet the eldest or most senior person
first.
The usual form of greeting does not involve shaking hands even though
shaking hands is common. Men may shake hands with other men and
women may shake hands with other women; but handshakes between
men and women are not common. However, this is changing fast. A lot
of women do not mind shaking hands with men.
Indians consider it rude to say a clear 'no'. Indians will offer you the
response that they think you want to hear. Since they do not like to give
negative answers, Indians may give an affirmative answer but be
deliberately vague about any specific details. This will require you to
look for non-verbal cues, such as a reluctance to commit to an actual time for a meeting or a
less-than-enthusiastic response.
A problem that many foreigners face when dealing with Indian business houses over email
etc. is the tendency of Indians to fall silent. Often, when an Indian does not wish to pursue the
matter further, the tendency is to fall silent rather than close the matter with a clear ‘no’.
Indians enjoy eating together. All food on the table must be shared. The western habit of
individual potions being served and each one ordering one’s own food is a strict no-no. A
group orders food together. So, before ordering there is quite some discussion to ensure that
everyone’s tastes are taken care of and no food is wasted. Often people make compromises
only to ensure consensus in the group. For example, if everyone else in the group wants ice
cream for dessert, someone who wants coffee is likely to go with the group and have ice
cream. If everyone on the table is inclined to have Indian vegetarian food, it will be rude for
one individual to order chicken for oneself.
A note about vegetarianism – Majority of Indians eat meat at least occasionally. However,
among business owners you are most likely to meet strict vegetarians who will not even touch
eggs, fish or meat. Many Indians who otherwise eat meat, turn vegetarian on some day / days
of the week or on some days during the year. Most Hindus, who eat meat, will abstain from
beef and pork. Of course, Muslims will not even talk about pork. There are also other dietary
restrictions. For example, some Jains and handful of Hindus do not consume onion and garlic.
It is advisable to always ask your Indian associate or partner his / her food choices on the day
that you are eating together. It is most appreciated if you are willing to go with his / her food
choices.
Punctuality is the norm as far as business meetings are concerned. However, on social
occasions, where large numbers of people are invited, it is customary to be late. It is advisable

to ask others who may be invited to the same event whether it will be appropriate to be late.
As a general rule, if someone is waiting for you in particular, you must not be late. On the other
hand, if you are faceless part of a large crowd, it is fine to be late.
Clothing in almost all business situations is conservative though it is not formal. Women, in
particular, are advised to avoid dresses that expose legs or other such body parts.

18. Corruption
India is infamous for corruption. There is so much talk of corruption in India that anyone outside
India gets the impression that one can pay money to get anything and everything done in
India. Nothing could be farther from truth.
India has the most vocal opponents to corruption. India is a vibrant democracy with active
opposition parties and media. So, there is constant blowing up or exposure of scams and
corrupt practices. In reality, many other countries have more corruption than India but there it
is well covered and people exposing face the risk of life.
A fundamental rule that any foreign businessman coming to India must remember is that in
India, generally speaking, government officials accept bribes to do what is perfectly legal.
No government official will normally do anything that is not permissible under law. Corruption,
hence, is a sort of speed-money to get the wheels of government to move faster. It is like the
tip that one pays in a restaurant.
Giving bribes in India is an art. It is not advisable for foreigners to attempt to do it on their own
at least till they have understood the system well. There are consultants, chartered
accountants, company secretaries and other professionals who gladly do it for their clients. Of
course, they do not say that they are acting as bribe-routers. They promise to deliver results
while taking care of all incidental expenses.
Our advice to all foreigners wishing to do business in India is – Avoid dealing directly with
any government official. Always use the services of an experienced professional.
A few words of caution:
 Choose the consultant very carefully. It is best to go through references.
 Never deal with a professional who claims to be able to get for you something that is not
legal or proper. Remember that India has laws for transparency in governance. Sooner
or later, your illegal act will be discovered. At that time, the professional, who managed
it for you, will disappear and you will be left with mud on your face.
 Do not do anything which is illegal as per your understanding of Indian law or as per the
professional advice available to you.
 Be extremely meticulous about ensuring that the professionals employed by you file
returns, forms etc. to various departments / authorities before the prescribed due dates.

19. GIFT – International Financial Services Centre
Gujarat International Finance Tec-City, also called GIFT City, is a central business district
under construction in the Ahmedabad district in Gujarat, India. It is India's first operational
greenfield smart city and international financial services center, which has been promoted by
the Government of state of Gujarat. It is home to many multi-national banks, including HSBC,
JP Morgan, and Barclays. Furthermore, it includes fintech entities, two international stock
exchanges, as well as India's first international bullion exchange.
The city is located on the banks of the Sabarmati River and is around 12 km from Sardar
Vallabhbhai Patel International Airport. The city is designed so residents can walk to work,
and includes commercial, financial and residential complexes. The total area for the
development of GIFT is 359 hectares (886 acres) out of which the special economic zone
(SEZ) constitutes 106 hectares (261 acres). The non-SEZ area is known as the Domestic
Tariff area or the DTA.

GIFT city offers many facilities, tax breaks, subsidies and government support. However, the
city is not for everyone. You may consider setting up a business in GIFT city only if you are
one of the following businesses:
Even if you are setting up a business in one of the above areas, generally speaking, it makes
sense to set up in GIFT city if your business is not focused on catering to Indian consumers.
The cost of setting up and operating in GIFT city is likely to be substantially higher than working
from any other city in India. So, please do consider all factors carefully before you decide to
move into GIFT city.
For more details, please visit https://www.giftgujarat.in/

Helps you with
Strategic Advice
Global Business Structures
Wealth Management and Succession Planning
International Corporate Relationships
Resolving Disputes without Litigation
International Investment Arbitration
International Commercial Arbitration
Insolvency Assistance
We take an entrepreneur’s perspective. We think the way you do.
We help business grow.
Anil Chawla Law Associates LLP

MF-104, Ajay Tower, E5/1 (Commercial), Arera Colony, Bhopal – 462 016 (MP) INDIA
Website – www.indialegalhelp.com
E-mail – info@indialegalhelp.com
Cell: (+91/0) 94250 09280 (Anil Chawla)

Note: This Guide is Free. However, generally speaking, we do not provide free legal advice. Kindly
consult your advocate for assistance / advice on any specific matters.
We follow a transparent system for fees. Please look at our Indicative Rates
(http://www.indialegalhelp.com/files/indicativerates.pdf ) before contacting us.

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Guide

Wanting to Do Business in India

April 2024 Edition

Avenues for Foreign Entrepreneurs

FDI – Foreign Direct Investment

April 2024 © Anil Chawla Law Associates LLP

Description Page No.

1. For whom is this guide useful 1

2. Who can invest 2

3. Sectors / activities and Government policy 3

4. Available structures for testing the waters 8

5. Permitted structures for investment 13

6. Steps to get a new LLP firm incorporated in India 22

7. Steps to get a new company incorporated in India 24

8. PAN for foreign residents (Indian citizens) 27

9. Share capital structure 29

10. External commercial borrowing 30

11. Bank accounts of foreign residents in Indian rupees 37

12. Bank accounts in foreign currency 40

13. Technology transfer, brand licensing and royalty 43

14. Indian visa for directors and employees 44

15. Indian taxation system 58

16. Labour laws 64

17. Business culture 66

19. GIFT – International Financial Services Centre 70

April 2024 © Anil Chawla Law Associates LLP

1. For whom is this guide useful

April 2024 © Anil Chawla Law Associates LLP Page No. 1

April 2024 © Anil Chawla Law Associates LLP Page No. 2

Foreign citizens or companies can make investments in shares or debentures of an Indian

Competent authorities or concerned departments for granting approval are as follows:

April 2024 © Anil Chawla Law Associates LLP Page No. 3

April 2024 © Anil Chawla Law Associates LLP Page No. 4

April 2024 © Anil Chawla Law Associates LLP Page No. 5

 Mining and mineral separation of titanium bearing minerals & ores

April 2024 © Anil Chawla Law Associates LLP Page No. 6

April 2024 © Anil Chawla Law Associates LLP Page No. 7

A Liaison Office can undertake the following activities in India:

i Representing in India the parent company / group companies.

ii Promoting export / import from / to India.

iv Acting as a communication channel between the parent company and Indian

i Export / Import of goods.

ii Rendering professional or consultancy services.

iv Promoting technical or financial collaborations between Indian companies and parent

vi Rendering services in information technology and development of software in India.

April 2024 © Anil Chawla Law Associates LLP Page No. 8

viii Foreign airline / shipping company.

b A Branch Office is not allowed to carry out manufacturing or processing activities in

c such units function on a stand-alone basis.

Procedure for LO / BO Permission

A body corporate incorporated outside India (including a firm or other association of

April 2024 © Anil Chawla Law Associates LLP Page No. 9

For BO — not less than USD 100,000 or its equivalent

For LO — not less than USD 50,000 or its equivalent

 English version of the Certificate of Incorporation / Registration or Memorandum & Articles

April 2024 © Anil Chawla Law Associates LLP Page No. 10

i. the project is funded directly by inward remittance from abroad; or

ii. the project is funded by a bilateral or multilateral International Financing Agency; or

iii. the project has been cleared by an appropriate authority; or

(a) Applicants (whether individual or company) from Pakistan;