There are a number of ways to start a business in India, ranging from a joint venture to a liaison office. Whatever route you choose, it is important to have an understanding of the subsequent compliance issues, as these may vary depending on the type of legal structure you decide to incorporate. Below we outline the main compliance regulations which companies will encounter when operating in India.
Formation and Registration
To form a company in India, you must meet the following requirements:
- The company must be registered with the relevant Registrar of Companies in the area you are setting it up;
- The company must be organized with reference to the relevant provisions of The Companies Act 1956;
- The necessary registration forms need to be filed with the Ministry of Corporate Affairs; and
- Directors need to be appointed. For this, the proper director identification number forms need to be completed.
Corporate Tax Returns
- Companies must file annual corporate tax returns with the Income Tax Department.
- Companies that maintain international transactions as well as domestic transactions with related parties must also file an annual transfer pricing audit.
Withholding Tax Returns
- Companies that make payments to entities outside of India for certain types of services (royalties, technical work, etc) are required to withhold the requisite taxes and also file a corresponding withholding tax form on the relevant payments.
- Companies are also required to deduct a special type of withholding tax called the Tax Deducted at Source on payments made to entities in India.
- Companies are required to file a withholding tax return every quarter.
- Withholding tax deductions for foreign payments must be certified by a Chartered Accountant.
GST for Manufacturers
- Companies that are involved in the production and manufacturing of goods must comply with the GOODS AND SERVICE TAX Act. This requires companies to pay duties at a specific rate on the manufactured goods that are removed from their premises.
Service Tax/GST for Service Providers
- Service providing companies are required to file annual tax returns and make monthly payments towards service tax/GST on the value of services that they provide (not charged on services rendered outside of India).
- A customs duty is also levied on all imports. This duty is to be paid when the relevant items are brought over for clearance at Indian Customs.
- Companies are required to pay value-added tax and file returns.
- Companies are required to register and pay a profession tax for the trade or profession they are working on in a particular state. This tax is levied on a company and their employees. The company pays the tax on behalf of their employees, which is then deducted from the employee