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The Ultimate Guide To
Employment in India

India Facts

Population size: 1,326,801,576
Currency: Indian rupee (INR), ₹
Capital city: New Delhi
Languages spoken: Hindi, Bengali
Ease of Doing Business: 130

Employing in India: What You Need to Know

Indian employment law is heavily bureaucratic, with numerous statutory requirements with regards to contracts, termination procedures as well as employee pensions and holidays. The main distinction with regards to employee rights lies with whether the employee is considered a "workman" or otherwise under Indian employment law. As the following only aim to act as a guide in the broadest sense, it is still recommended that professional legal advice be sought when employing in India. For further reading, please refer to the Indian Ministry of Labour's website here.

Key Factors to Consider When Employing in India

Indian legislation views workers as two distinct categories: workmen and non-workmen. In India, most of the legislation in place primarily applies to workmen.

Under the Industrial Disputes Act (ID) Act, one of the main labour legislations in the country, a workman is defined as any person employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment are express or implied. An employee working in a managerial or administrative capacity, or those employed in a supervisory capacity earning more than INR10,000 per month, are excluded from the scope of this definition.

The model standing orders under the Industrial Employment (Standing Orders) Act 1946 also classify workmen as permanent workmen, probationers, badli workmen and temporary workmen based on the nature of their employment.

The definition of "workman" under the ID Act includes temporary workers. Temporary or part time workers are thus entitled to the same benefits as full­-time workers and subject to the provisions of the ID Act in relation to termination provisions. However, where a temporary worker is employed for a genuine specific task for a limited time period, the usual provisions concerning termination for full-­time workers will not apply to that temporary worker.

Indian law also recognises agency workers - workers employed through third party contractors. Their employment is governed by the Contract Labour (Regulation and Abolition) Act 1970.

A worker's entitlement to statutory employment rights depends on the category of employee and multiple other factors, including nature of the work undertaken, remuneration, location of employee and type of industry. As the ID Act seeks to protect workmen, an employee who does not qualify as a workman will not receive any protection or benefit under the ID Act.

Employee Entitlements

Information Explanation
Working on Sundays ?

No work on Sunday can be performed without prior agreement, and no employee can work for more than 10 days without a rest day of 24 hours.

If an employer requires work on Sundays or Public Holidays, those days of must be given back to the employee within the following 2 months.

Time Off Work ?

Other Leaves – As per bombay shops and establishments act 21 Paid Leave others dependent on the company policy.

Medical Leave ?

This is dependent on the company’s policy and Employee State Insurance

Employment Termination

Information Explanation
Resignation / End of Service Payment ?

The following is required:

  • Copy of approved resignation letter/clearance form
  • Forms and Returns / The De-registration will include Provident Fund Formalities
    and salary certificate.
Termination of Employment ?

The following information is required by law:
• Copy of approved resignation letter/clearance form
• Forms and Returns / The De-registration will include Provident Fund Formalities and salary certificate.

GEO Solutions or DIY Employment in India?

GEO Solutions or DIY Employment

Companies entering India must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities. A GEO or India Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a Indian entity established that can run payroll.

A DIY approach will typically take 6-9 months until there is a properly incorporated WFOE ready to run payroll and cost up to 6 figures if registered capital is required. Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.

Outsourcing Employment Through a GEO Employer of Record Service

Using Shield GEO Employer of Record Services in India

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in India. For companies which intend to employ their staff directly through their incorporated Indian entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in India.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into India.

The Shield GEO solution is an attractive alternative where

– the company is looking to employ staff quickly

– the company doesn’t have an appropriately incorporated entity in India

– the company wants to work within a defined budget

– the company wants to limit its initial commitment in India

– the company needs help with tax, employment, immigration and payroll compliance in India

Payroll

Payroll India
Management Fee for Employer of Record Services / Monthly Payroll Costs

Please contact us for a quote

Notes

Shield GEO pays the employee on a monthly basis, typically on the last working day of the month although we can adapt to your preferred schedule. Income tax and social security (where applicable) are deducted at source and paid to the local tax authorities.

Currency ?

Indian rupee (INR), ₹

 
Grossed income Tax Rate (%)
0- INR 250,000 0
INR 250,001 - 500,000 10
INR 500,001 - 1,000,000 20
More than INR 1,000,001 30

*A 10% surcharge on total tax payable applies to individuals with total taxable income exceeding INR10 million.

**An education cess of 3% is also levied on taxes payable

Tax Returns Supplied

Yes

Corporate Tax Requirements

Companies are required to submit their tax returns by 31 March of the year following the tax year.

Companies must make four provisional advance payments of tax on 15 June (10%), 15 September (45%), 15 December (75%) and 15 March (1005).

Employers Social Security and statutory contributions

Employers have to contribute 12% of the employees’ monthly salary towards the Provident Fund Scheme and 4.75% to the national insurance scheme. For more details, please refer to the section on <a href=”http://shieldgeo.com/countrieswecover/employment-in-india/ ‎”>Employment</a>.

Employees Social Security and statutory contributions

Employees have to contribute 12% of their monthly salary towards the Provident Fund Scheme and 1.75% to the national insurance scheme. For more details, please refer to the section on Employment.

Payroll and Tax in India

Foreign companies operating in India may find it challenging to deal with the complexities of the country's tax system. The primary concerns for a foreign company that needs to comply with tax laws in India are: Individual income tax (IIT) for employees in India, social security costs, VAT, withholding tax, business tax and permanent establishment concerns.

Information Explanation
Remote Payroll ?

A remote payroll in India is where a foreign company, i.e. a non-resident company, payrolls a resident employee in India. This applies to both local and foreign employees. One option for a non-resident company to payroll its employees (local and foreign) in India is to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.

Local Payroll Administration ?

In some cases, a company will register their business in India under one of the forms available but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll ?

Larger companies with a commitment to India may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete the incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage an Indian payroll and can fulfil all tax, withholding tax and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Indian employment laws.

Fully Outsourced Payroll & Employment ?

Companies can outsource the employment and payroll of their staff in India to a GEO, like Shield GEO. This is possible for both foreign workers and Cypriot nationals. This is the easiest, fastest and safest way to payroll staff in India.

Shield GEO manages all aspects of payroll for workers in India, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

Jump to...

Setting up payroll in India

Information Explanation
Employee Information Required ?

Following information is required:
• Permanent Account Number of the employee
• Proof of investments
• Whether he/she resides in rented premises
• Details of dependents
• Form 12B
• Certification of the previous employer
• Deceleration for tax benefits
• Written employment contract
• Work permit (if applicable)

Social Security Registration ?

Provident Fund Number and the Employee State Insurance Number, if applicable and as per act, must also be applied for.

Tax Figures

Information Explanation
Corporate Income Tax ?

The current corporate income tax rate is 30% for resident companies and 40% for non-resident companies (such as a branch) plus a surcharge, bringing the effective tax rate up to 41.2%.

Income Tax Rate ?
Grossed income Tax Rate (%)
0- INR 250,000 0
INR 250,001 - 500,000 10
INR 500,001 - 1,000,000 20
More than INR 1,000,001 30

*A 10% surcharge on total tax payable applies to individuals with total taxable income exceeding INR10 million.

**An education cess of 3% is also levied on taxes payable

Payroll Tax ?

No

Sales Tax ?

VAT is imposed on the supply of most moveable goods and specified intangible goods in India, as well as on the supply of taxable goods and services in India. Taxable persons charge VAT on their taxable supplies (output tax) and are charged with VAT on goods  which they receive (input tax).

The registration threshold for VAT purposes is INR 500,000 in most states.

The current standard rate of VAT imposed on taxable goods and services is 12.5-15%, depending on the state with reduced rates of 1% and 5% in most states.

Withholding Tax ?

India imposes withholding tax (WHT) on certain classes of income earned by non-residents:-

  • Dividends: No WHT applies. However, a a dividend distribution tax of 15% may apply.
  • Royalties: 25%
  • Interest: 10% (residents), ranges from 5-40% for non-residents.
  • Technical service fee: 25%
  • Payments to non-resident contractor companies: 40% plus surcharge and cess
  • Purchase of immoveable property: 1% plus surcharge and cess

A reduced rate may be available under an applicable Double Tax Treaty.

Other Tax ?
  • Net wealth tax: Payable at a rate of 1% if the taxable value of net wealth exceeds INR3 million. Assets subject to tax include residential houses, cars, yachts, boats, aircraft, urban land, jewelry, bullion, precious metals, cash in excess of INR50,000, any amount not recorded in the books of account and commercial property not used as business, office or factory premises.
  • Transactions above INR 50,000: Any sum of money in excess of INR50,000 received by an individual without consideration may be taxable subject to certain exemptions.
  • Real estate taxes
  • Transfer taxes: Levied on the purchase of any security such as a share, derivative or unit of an equity oriented fund. Ranges from 0.025% to 0.25%.
  • Central sales tax of 2% on interstate movement of goods
  • Service tax of 14% on all services
  • Central excise duty on the production or manufacture of goods in India. Generally taxed at 12.56%
  • R&D cess of 5% on the import of certain types of “technology”
Time to prepare and Pay Taxes ?

241 hours

Time required to start a Business ?

26 days

Payments

Information Explanation
Payment Mode ?

Via employee’s bank account.

Frequency of Salary Payment ?

Generally salaries are processed once a month to Employee’s Bank Account. Some company will pay 1st of every month.

As per Payment of Wages Act:

Less than 1000 Employees: Every month before 7th.
More than 1000 Employees: Every month before 10th.

Invoice / Payslips required ?

Payslip is required.

Minimum Wage ?

Varies according to state and sector of industry. For the agriculture sector, there’s a separate minimum wage that’s set by the state governments.

Immigration and Work Permits in India

India offers a variety of visas for foreign nationals wishing to enter country. Indian employment visas are available for foreign firms wishing to employ highly-skilled professionals, while ordinary clerical / secretarial workers are usually not granted such visas. Employment visas are generally valid for one year, and are renewable for a maximum of five years.

Use your own company?

Foreign nationals wishing to work in India have to obtain an employment visa first.

Employment visas are granted to the following individuals:

  • Skilled or qualified professionals
  • Foreign nationals visiting India for employment in companies in India or in foreign companies executing projects in India

Generally, employment visas are not issued for ordinary secretarial/clerical jobs if there are a large number of locally qualified staff.

In addition, the foreign national must earn a salary that exceeds USD25,000 per year. However, the salary threshold of USD25,000 (this limit includes all cash payments and perquisites that are taxed in India) does not apply to certain individuals—ethnic cooks, language teachers (other than English teachers), translators and staff—working for an embassy or high commission in India.

Step 1: Apply for an employment visa in the applicant’s country of origin

Visas may only be issued by an Indian embassy or consulate. The employment visa must be issued from the foreign national’s country of origin, or from the foreign national’s country of domicile provided the applicant’s period of permanent residence in that particular country is more than two years.

The applicant is not permitted to change employer for the entire duration of the employment visa. However, the MHA has clarified that this excludes change of employers from a registered holding company to its subsidiary or vice versa, or between subsidiaries of a registered holding company.

The applicant must complete the relevant application form (which can be obtained here ) and submit the following documents:

  • Passport with a minimum of 6 months validity
  • Passport size photographs
  • Photocopy of passport
  • Copy of online filled form
  • Appointment letter
  • Contract letter
  • Resume of applicant
  • Organization registration
  • Tax liability letter
  • Project details
  • Sponsor letter from organization in India
  • Justification letter from employer

When applying for an employment visa, the intended legal entity and the location of work in India must be clearly specified because the mandatory registration at the Foreigners Regional Registration Office (FRRO) is based on the place of work as endorsed on the visa.

Agency: Indian Consulate/Embassy

Cost: Between US$15 and US$1,000, depending on the length of the visa

Time: Varies

Duration: The employment visa is generally valid for one year, irrespective of the length of the employment contract. This can be renewed upon application to the MHA/Foreigners Regional Registration Office (FRRO) at a later date up to a maximum of five years. However, certain exemptions apply. For example a foreign technician may get a visa for period of five years while a highly skilled IT person may get up to three.

More information on visas can be found here.

 Step 2: Obtain a residence permit

All foreign nationals must register with the police authorities at the local registration office [FRO/FRRO] within 14 days of their date of arrival if their visas are valid for longer than six months or if the visa stamp specifically requires this registration. A foreign national holding a visa with a duration of six months or less who wishes to stay in India beyond the period of validity must register within two weeks after 180 days from the time of arrival in India.

A Person of Indian Origin (PIO) card holder whose continuous stay in India exceeds 180 days is required to register within 30 days after 180 days from the time of arrival in India.

The foreign national will be required to present his or her original passport and visa for verification during registration with the authorities.

Registration is generally valid for the visa’s duration or for one year, whichever is less, and may be extended on application.

Upon registration, the foreign national will be provided with a a registration booklet containing his or her latest photograph, details of residence and certain other information. His or her passport will also be “endorsed” as proof that registration has been done. The foreign national must notify the registration authorities regarding any permanent change in his or her address, any proposed absences from the registered address for a continuous period of eight weeks or more or any stays for a period of more than eight weeks in a district other than the district of his or her registered address.

Use the Shield GEO Employer of Record Solution ?

Once you get in touch with us, one of our consultants will take all the work off your hands, coordinate with our local partners to get all the required permits organised, provide the processing time, costs, document-checklist and keep you informed through the process. Contact us to know more.

Types of visas in India

Category Description of Visa
Employment Visa (E)

a. Foreign nationals coming to India as consultant on contract for whom the Indian Company pays fixed remuneration (this may not be in the form of a monthly salary).

b. Foreign artists engaged to conduct regular performances for the duration of the employment contract given by Hotels, Clubs or other organizations.

c. Foreign nationals who are coming to India to take up employment as coaches of national/state level teams or reputed sports clubs.

d. Foreign sportsmen who are given a contract for a specified period by Indian Clubs/Organizations.

e. Self-employed foreign nationals coming to India for providing Engineering, Medical, Accounting, Legal or such other highly skilled services in their capacity as independent consultants provided the provision of such services is permitted under law.

f. Foreign language teachers/interpreters.

g. Foreign specialist chefs.

h. Foreign nationals deputed for providing technical support/services transfer of know-how/services for which the Indian company pays fee/royalty to the foreign company.

i. Senior management personnel and/or specialists employed by foreign firms who are relocated to India to work on specific project/management assignments.

Duration: Generally for one year, renewable up to a maximum of five years. Exemptions may apply for certain classes of workers (e.g. technicians, highly-skilled IT workers)

Cost: Ranges from US$15 and US$1,000, depending on the length of the visa

Business Visa (B)

Applicants must satisfy the following criteria to be granted a business visa:

1. The applicant should be a person of assured financial standing and has expertise in the field of the intended business.
2. The applicant is not visiting India for the business of money lending or petty trading or for a full time employment in India including payment of salary in India.
3. The applicant will have to comply with all other requirements like payment of tax liabilities etc.

The granting of a Business Visa is subject to any instructions issued by the Government of India on the basis of reciprocity with other foreign countries from time to time.

A business visa may be issued to a foreign national visiting India for the purpose of carrying out the following activities:

• Establishing a business venture
• Exploring the possibility of an industrial or business venture in India
• Purchase and sale of industrial, commercial or consumer products
• Attending technical meetings or discussions
• Attending board meetings and general meetings
• Recruitment of manpower
• Functioning as partners or directors in a business
• Consultation or participation with respect to exhibitions, trade fairs or business fairs
• Meeting with suppliers or potential suppliers to evaluate or monitor quality, negotiate supplies, place orders and provide specifications for goods procured from India
• Monitoring progress on ongoing projects
• Meeting with Indian customers on ongoing projects
• Meeting to provide high-level technical guidance on ongoing projects
• Activity before and after a sale that does not amount to the execution of a contract
• In-house training at the regional hubs of a foreign company
• Foreign students sponsored by the AIESEC who are serving as interns on project-based work in companies and industries
• Serving as a tour conductor or travel agent

Duration: A maximum of 5 years. A multiple entry visa valid up-to 10 years may be available to foreign nationals who have set up or intend to set up a joint venture in India.

More information can be found at: http://boi.gov.in/content/business-visa-b

Family members

Entry visas are issued to accompanying family members of individuals visiting India on business or for employment.

However, spouses or dependents of working expatriates must obtain work permits in their own right to be employed in India.

Family members intending to reside with a working expatriate are also required to register with the local authorities.

Conference visa

Conference visas may be granted to foreign nationals intending to visit India with the sole objective of attending a conference, seminar or workshop (event).

Project Visa

Project visas have recently been introduced for foreign nationals employed in the power and steel sector, although the number of visas that may be granted per project is subject to a quota.

Project visas would be only issued to skilled/highly skilled foreign nationals. However, project visas may be granted to two chefs and two interpreters per project.

Granting of these visas are project specific and would be restricted to the location of the project. A foreign national coming on a project visa is not permitted to take up employment in the same Indian company for a period of two years from the date of commissioning of the project. However, the foreign national may be granted a non-extendable business visa to attend any emergent maintenance/commissioning issues in the Indian company.

The visas would be renewable subject to MHA approval.

Setting up a company in India

When setting up a company you may want to consider these factors:

  1. Business Factors

    As India has stringent bureaucratic requirements, (for example, there are FDI regulations for a number of sectors) it is exceedingly important that you check whether prior approval is needed from the Reserve Bank of India or other authorities before setting up a business presence,

    You may want to consider the following when making your decision :-

    • The industry and type of business that will be conducted
    • Nationality of the headquarters / individuals (s)
    • Presence of existing trade agreements or relationships
  2. Location

    Location will be another factor. Separate cities and regions may have different rules, costs and availability. It is always recommended to seek advice from relevant professionals, such as business or legal advisors, accountants and others depending on your needs.

  3. Regional language

    Regional language may be an influence. In India, each state resembles a separate country, often with its own language, cultural practices and preferences. Although Hindi is the national language, India has 21 other different official languages such as Bengali, Telugu, Marathi and Gujarati meaning some terminology may be different in various regions. Nonetheless, English is used widely in most official political and commercial communication.

There are three types of business forms available to foreign companies in India. Each of these business forms has distinct advantages and disadvantages, as well as differing scope of business activities, registration requirements and minimum capital requirements. In most cases it will depend on the degree of commitment a company has to India and the planned business activity.

When setting up a company in India, you have the following options:-

  • Corporation
  • Project / Branch Office
  • Liaison (Representative) Office

This article provides a general guideline for foreign businesses on entering India for business purposes. In particular, it looks at common pathways to establishing a business presence in India, generally through a corporation, branch office or liaison office. In addition, various economic, tax and regulatory factors are provided throughout as a source of useful information to assist those who will enter the Indian economy. The guide also looks at some immigration requirements such as obtaining appropriate visa status.

Data is based on the time of writing, September 2015 or closest available dates.

Limited Liability Corporation

Incorporation of a company in India is often a lengthy, difficult and costly process due to the numerous bureaucratic requirements companies are required to comply with.

There are four types of corporations that can be set up, subject to foreign direct investment (FDI) guidelines although the two most commonly used are:

  • Private limited company
  • Public limited company

The most commonly selected option is the private limited company, however the choice largely depends on the expected activity level in India.

1.Private limited company (Pvt Ltd)

Private limited companies are usually chosen for small and middle-sized companies. Private companies are a more popular form as they are less cumbersome to incorporate and are subject to less stringent reporting requirements. Usually, foreign corporations set up their subsidiary companies as private companies.

Investment Capital Requirements

The minimum paid-up capital is INR0.1m (approximately $1620), with a minimum of two subscribers. Rights to transfer its shares are restricted and the maximum number of members it can have is limited to 50. In addition, the public is prohibited from subscribing for any shares / debentures in the company and any invitation or acceptance of deposits from parties other than its members, directors or relatives is prohibited.

Management 

A private company is required to have a minimum of two directors, up to a maximum of 15.

Every private company that is a subsidiary of a listed company that has paid up capital exceeding INR 50m ($810,000) is is also required to appoint a whole time / managing director.

It is worth noting that every person elected as a director is required to obtain a Directors Identification Number (DIN).

Accounting / auditing requirements

Preparation of financial statements is mandatory for each company, and the balance sheet and profit and loss account of the company have to be filed with the Registrar of Companies within six months from the end of the financial year.

All companies are required to undergo a statutory audit within six months from the end of the financial year. Auditors of a company are appointed/re-appointed in the AGM of a company. The company in a general meeting may remove auditors before the expiry of their term in office. Auditors are required to make a report to the members of the company in respect of the accounts (balance sheet, profit and loss account) examined by them at the end of each financial year.

2. Public limited company

A public company is defined under Indian law as a company which is not a private company.  A private company which is a subsidiary of a pubic company is also considered to be a public company. Public companies which are listed are also subject to Securities and Exchange Board of India (SEBI) regulations.

Investment Capital Requirements

The a minimum paid-up capital to incorporate a public limited company is INR 0.5m (approximately $8,100)and there must be at least seven subscribers.

There are no limits to the number of members.

Management 

Public companies are required to have a minimum of 3 directors, up to a maximum of 15.

All public companies are required to appoint a whole time / managing director. An approval from the Central Government (Department of Company Affairs) is required if the remuneration proposed to be paid to the board of directors is more than what is prescribed in Schedule XIII of the Act.

Accounting / auditing requirements

In addition to a yearly audit, listed public companies have to undergo a limited review within 45 days from the end of the quarter. They are also required to file their financial statements within two months from the end of the financial year.

Listed companies are also subject to a secretarial audit to be undertaken by a company secretary or qualified chartered accountant for purposes of reconciling total issued and listed capital with depositories and total admitted capital.

The accounting  / auditing requirements for an unlisted public company are the same as for a private company.

Incorporation process

Broadly, incorporation can be divided into the following steps:

Step 1: Obtaining a Director Identification Number (DIN) online

1) Download and complete e-Form DIN-3. This form has to be submitted along with a photograph of the applicant and a scanned copy of supporting documents.

These include an Affidavit containing the applicant’s name, middle name and date of birth. In addition, proof of address (not older than 2 months from the date of filing of form DIN-3) and proof of identify (a copy of the applicant’s Income Tax Permanent Account Number (PAN) Card and passport) must be filed. The Affidavit has to be executed on non-judicial stamp paper and must be duly notarized.

2) The e-Form must be digitally signed by a practicing professional (i.e. Chartered Accountant/ Company Secretary/Cost and Works Accountant) or the Company Secretary in full time employment of the company as verification of the details provided.

3) After certification, the applicant submits the completed application to the MCA website and obtains a DIN-3 number.

Agency: Ministry of Corporate Affairs (MCA)

Time: 1 day

Cost: INR 100

Step 2: Obtaining a Digital Signature Certificate (DSC) online

Under the Indian Government’s new MCA21 e-Governance program, all documents filed under the program must be filed using a valid DSC.

A Class-II Digital Signature Certificate can be obtained for either 1 or 2 years, and can be renewed for another 1 or 2 years.

Once the Digital Signature Certificate is obtained, the authorized personnel (directors/manager/secretary) are required to register the same with MCA for statutory e-filing. This process is to be done online with MCA after the DIN has been obtained.

Agency: Any of the eight agencies approved by the Controller of Certification Agencies.

Time: 1 day

Cost: Varies by agency, however it ranges from INR 400 to INR 2650. The cost will vary in accordance with the duration of the Digital Signature Certificate.

Step 3: Reserve a company name online with the Registrar of Companies

The MCA has a prescribed set of guidelines regarding name availability, which all chosen company names are required to adhere to.

1. Check the availability of the proposed name through the MCA21 portal. Alternatively, engage a professional (practicing chartered accountant, company secretary or cost accountant) to perform the check on the MCA 21 portal and provide a search report which can then be attached to the application. Up to six names may be nominated.

2. Complete eForm 1A with all the relevant details and declarations. If a professional has been engaged to check availability of name, have the professional certify and digitally sign the eForm 1A.

3. Upload the eForm 1A to the MCA 21 portal and pay the application fee of INR 1000 electronically (net banking or credit card).

4. If the e-Form 1A has been certified by a professional (as described, above), the proposed name shall be approved by the Registrar of Companies on a priority basis via the Straight Through Process (“STP”), provided the name is not similar to any existing trademark, any of the words proposed in the company’s name does not exactly match any existing company’s name and the name does not consist of a single word (other than private limited).

5. If successful, the chosen name will be reserved for the applicant to use for 60 days from the date of approval. If the proposed company is not incorporated during this 60 day period, the approval will lapse and the name will be available to other applicants.

Agency: ROC, MCA

Time: 2-3 days

Cost: INR 1,000

Step 4: Prepare the Memorandum and Articles of Association 

Ensure that the company’s Memorandum and Articles of Association are in accordance with the Companies’ Act 2013 and India’s FDI laws, where necessary.

Step 5: Filing of incorporation application online

e-forms 1, 18 and 32 must be electronically filed on the MCA’s website. In addition, scanned copies of the signed Memorandum and Articles of Association, must be attached to e-Form 1. Proof of location Registered Office in the Form of Lease Deed must be attached to e-Form 18. The 3 forms as well as the memorandum and articles of association must be certified by a practicing professional for accuracy of the information/declarations.

The applicant must also pay the prescribed filing fees and stamp duties online when filing the application.

The certificate of incorporation is immediately issued by the Registrar of Companies, signed digitally and sent via email to the Company.

Agency: ROC, MCA

Time: 5 days

Cost:

Fee schedule for a small company of paid-up share capital between INR 500,000 and INR 1,000,000:
– Filing of the Memorandum of Association: INR 2,000
– Filing fee for filing the Articles of association: INR 400

– Filing fee for Form INC-7: INR 400
– Filing fee for Form INC-22: INR 400
– Filing fee for Form DIR-12: INR 400

Stamp duty for Articles of Association: IINR 2,000 (INR 1,000 on every INR 5 Lakhs of authorized capital or part thereof subject to a maximum of 50 Lakhs of Stamp Duty)

– Stamp duty for Memorandum of Association: INR 200

Step 6: Request and obtain a Certificate to Commence Operations 

Under the Companies Act 2013, a Private Company cannot commence its business or make any borrowings unless it files a statement that the subscription money and minimum paid-up capital has been brought in. (Section 11) with the Registrar of Companies.

As such, companies are required to file eForm INC-21: Declaration Prior to the Commencement of Business or Exercising Borrowing Powers with the ROC prior to commencing operations.

Agency: ROC

Time: 5 days

Cost: INR 400 for a company with capital between INR 500,000-2,499,999

Step 7: Make a company seal

Under the Companies Act, 1956, all companies are required to have a common seal. Under Section 22 of the Companies Act, 2013, only a person authorized by the company, in writing under common seal, is empowered to execute deeds on behalf of the company.

Time: 1 day

Cost:

INR 350-500

Step 8: Obtain a Permanent Account Number (PAN) from an authorized franchise or agent appointed by National Securities Depository Services Limited (NSDL) or Unit Trust of India (UTI)

Under Indian tax law, each person must quote his or her permanent account number (PAN) for tax payment purposes and the tax deduction and collection account number (TAN) for depositing tax deducted at source. The PAN is a 10-digit alphanumeric number issued on a laminated card by an assessing officer of the Income Tax Department.

The applicant is required to complete Form 49A (statutory form for applying for PAN), pay the application fee of INR 93 (plus applicable taxes currently at 12.36%) either online or otherwise and submit the application form together with his or her proof of identity, proof of address and 2 recent photographs to the authorised agent/designated service centres for verification.

Agency: Private agencies authorised by UTI or NSDL, as outsourced by the Income Tax Department (Federal)

Time: 7 days

Cost: INR 93

Step 9: Register with Employees’ Provident Fund Organisation

The Employees Provident Funds & Miscellaneous Provisions Act, 1952 applies to an establishment, employing 20 or more persons and engaged in any of the 183 Industries and Classes of business establishments, throughout India excluding the State of Jammu and Kashmir. Provident Fund registration is optional if the number of employees is under 20.

As of April 2012, all employers are required to register online with the EPFO online portal in order to generate challans for making any remittances (www.epfindia.gov.in). Filing of Electronic Challan cum Return (ECR) and deposit of contributions are also done online through the same website.

Agency: Employees Provident Fund Organisation

Time: 12 days

Cost: No charge

Step 10: VAT registration

VAT registration is done online.

Agency: Department of Sales Tax

Time: 10 days

Cost: INR 500 (Registration Fee) + INR 25 (Stamp Duty) for compulsory VAT registration)

Step 11: Registration for medical insurance 

The employer is required to register for medical insurance as mandated under Employees’ State Insurance (General) Act by submitting Form 01 to the relevant authorities. It takes 3 days to a week for the Employer Code Number to be issued. The “intimation letter” containing the Code Number is sent by post to the employer.

Employee medical registration is also submitted after the employer’s registration is complete. The ESI Act is applicable to all establishments having 20 or more employees.

Agency: Employees’ State Insurance Corporation (Federal)

Time: 9 days

Cost: No charge

Step 12: Various other registration (only if company is set up in Mumbai)

The company will also be required to comply with various other registrations only if it is set up in Mumbai :

a. Obtain a tax account number for income taxes deducted at source from the Assessing Office in the Mumbai Income Tax Department

Time: 7 days

Cost: INR 55

b. Register with Office of Inspector, Mumbai Shops and Establishment Act

Time: 2 days

Cost: INR 1,200 (registration fee) + 3 times registration fee for Trade Refuse Charges (INR 3,600)

c. Register for profession tax with the Commissioner of Profession Tax, Department of Sales Tax

Time: 2 days

Cost: No charge

Branch Office

Foreign corporations operating in India can operate as a branch office without the need to incorporate. However, it is generally advisable to incorporate rather than set up a branch office in India, given the numerous drawbacks associated with having a branch office. Having said that, foreign enterprises wanting to set up a branch in India for lower levels of activity are allowed to do so.

A foreign company can establish a branch office in India provided it has obtained prior approval from the Reserve Bank of India (RBI), namely if it is engaged in a sector where 100 percent FDI is permitted under the automatic route under the FDI Policy. Other cases and those of NGOs, Not-for-Profit Organisations, Government Bodies and Departments are considered by the RBI in consultation with the Indian government.

The application needs to be filed with the RBI through an Authorised Dealer Banker. Approval is location specific and subject to guidelines issued in this regard. There are eligibility criteria and procedural guidelines for establishment of a branch office by foreign entities in India.

Generally, a branch office is engages in the same activity as its parent. However, a branch may not engage in retail trading, manufacturing, or processing activities except in Special Economic Zones (which may require prior permission). A branch office is permitted to undertake the following activities:

  • Import/export goods
  • Render professional or consultancy services
  • Carry out research work engaged in by the parent company
  • Represent the parent company as it’s buying/selling agent in India
  • Promote technical / financial collaboration between the group of companies
  • Provide IT services and develop software
  • Render technical support for group companies

On setting up a branch office, a report on its activities must be submitted within five working days of the branch office becoming functional to the Director General of Police (DGP) of the state concerned in which the branch office is established.

Annually, the branch office is required to submit an Annual Activity Certificate to the DGP of the State and with an Authorised Dealer (Banker).

The following items have to be reported:

  • List of personnel employed, including foreigners in the India office;
  • List of foreigners other than employees who visited India offices in connection with the activities of the company;
  • Whether all foreign nationals employed at the branch office are on E visas. If not, indicate details of such foreign nationals;
  • Whether the foreign nationals on E visas have reported to the mandatory authorities i.e. a Police Station etc. If not, the name of such nationals/ nationality, along with the relevant details and reasons for not complying with the requirement;
  • Projects/contracts/collaborations worked upon or initiated during the year;
  • List of equipment imported for business activities in India.

For further reading, please refer here.

Project Office

If a foreign company is engaged by an Indian company to execute a project in India, it may set up a project office without obtaining prior approval from Reserve Bank of India subject to prescribed reporting compliances. As applicable in case of a branch office, a project office is treated as an extension of foreign company and is taxed at the rate applicable to foreign companies.

A project office is subject to the same reporting requirements as a branch office.

Additionally, a project office is required to submit a certificate from a chartered accountant detailing the status of the project and certifying that the accounts of the project office have been audited. This report has to be sent to the state DGP along with the Annual Activity Certificate.

 

Liaison Office

This is the easiest and least expensive type of foreign investment structure to set up and has no registered capital requirements. The defining characteristic of an liaison office / representative office is its limited business scope.  A LO is generally forbidden from engaging in any profit-seeking activities, and can only legally engage in purely marketing or informational activities relating to commercial, financial and economic matters but does not actually conduct any actual business.

LOs may be set up in India provided the foreign company obtains prior approval from the RBI.

A LO is permitted to engage in the following activities:

  • Representing parent/group companies in India
  • Promoting import/export in India
  • Promoting technical/financial collaborations on parent company/group’s behalf
  • Coordinating communications between parent/group companies and Indian companies

A LO is subject to the same reporting requirements as a branch office.

Joint ventures

Foreign companies can also set up joint ventures with Indian or foreign companies in India. There are no separate laws for joint ventures in India and laws governing domestics companies apply equally to joint ventures. Joint ventures may be set up as partnerships or incorporated as a local subsidiary.

Outsourcing Employment Through a GEO Employer of Record Service

Whether to incorporate in India, and what sort of entity to setup are just two of the many choices companies must make when expanding into a new market.

If the company intends to have staff in India they must also decide whether they will administer that employment internally or use a Global Employment Organisation to handle payroll and employment responsibilities. A GEO Employer of Record solution is an attractive alternative where

  • the company is looking to setup an office quickly
  • the company wants to work within a defined budget
  • the company wants to limit its initial commitment in India
  • the company needs help with tax, employment, immigration and payroll compliance in India

The complexity of employment regulations in India makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, for example the drafting of local contracts for workers.

Shield GEO provides a comprehensive service in India allowing companies to deploy their staff quickly with reasonable, clearly stated costs and timeframes. The company contracts directly with Shield to employ and payroll their staff on their behalf in India.

Shield GEO then becomes the Employer of Record. Shield GEO assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into India. Read more about outsourced employment through Shield GEO.

  • India Employer of Record Overview

India Employer of Record Overview

  • India Employer of Record Overview

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