Why India — and Why Now
India is the world's most populous country and its fifth-largest economy, with a growing middle class, a deep English-speaking talent pool, and a government actively courting foreign investment. The Ease of Doing Business reforms of the past decade have substantially reduced the friction of market entry — corporate registration that once took months now takes days.
For foreign businesses, India offers scale, innovation capability, and long-term growth potential that few markets can match. However, successful entry requires more than opportunity recognition. It demands a clear understanding of India's regulatory landscape, business structures, tax obligations, labour laws, and operational realities.
India allows 100% FDI under the automatic route in most sectors. The corporate tax rate for new manufacturing companies is 15%. India has Double Taxation Avoidance Agreements (DTAAs) with over 90 countries. The RBI and FEMA framework govern all cross-border transactions.
Entry Structures — All Options Compared
Choosing the right entry structure is the most critical first decision. Each option has distinct implications for tax liability, regulatory compliance, repatriation of profits, and operational flexibility.
A representative office permitted to undertake liaison activities only — market research, promotional work, and communication between the parent and Indian parties. Cannot earn income in India.
Permitted to undertake specified business activities in India and earn revenue. Taxed as a foreign company — at a higher rate than Indian incorporated entities. Profits can be repatriated subject to tax.
Established to execute a specific project in India — typically infrastructure, construction, or large contracts. Automatically closes upon project completion.
An Indian private limited company incorporated under the Companies Act, 2013, with 100% foreign shareholding. Taxed as an Indian company. Most flexible structure for long-term operations.
A company incorporated with both foreign and Indian shareholders. Useful where local market knowledge, distribution networks, or regulatory approvals require an Indian partner.
A third-party entity legally employs staff in India on behalf of the foreign company. No incorporation required. Employees work for the foreign company but are on the EOR's payroll.
FDI Routes & Sector Restrictions
Automatic Route
Under the automatic route, foreign investment does not require prior approval from the RBI or Central Government. The investor simply makes the investment and files post-facto reporting with the RBI. Most sectors — including IT, manufacturing, services, trading, and hospitality — fall under the automatic route with 100% FDI permitted.
Approval Route
Certain sensitive sectors require prior government approval through the Foreign Investment Facilitation Portal (FIFP). These include defence (above 74%), multi-brand retail, broadcasting, print media, and satellite establishment. A few sectors — gambling, lottery, chit funds, and certain agriculture activities — are completely prohibited for FDI.
Sectoral Caps
| Sector | FDI Cap | Route |
|---|---|---|
| IT / Software Services | 100% | Automatic |
| Manufacturing | 100% | Automatic |
| E-commerce (B2B) | 100% | Automatic |
| Insurance | 74% | Automatic up to 49%, Approval above |
| Defence | 100% | Automatic up to 74%, Approval above |
| Multi-brand Retail | 51% | Approval |
| Print Media | 26% | Approval |
Setting Up a WOS — Step by Step
For most foreign companies, incorporating a Wholly Owned Subsidiary (Private Limited Company) is the recommended path. Here is the complete process:
Obtain Digital Signature Certificates (DSC)
Directors of the proposed company must obtain DSCs from a certified authority. These are used to sign all electronic filings with the Ministry of Corporate Affairs (MCA).
Apply for Director Identification Number (DIN)
Each director must obtain a DIN by filing Form DIR-3 with the MCA. Foreign nationals can obtain DINs using their passport as identity proof.
Name Reservation — SPICe+ Part A
File SPICe+ Part A to reserve the company name with the MCA. Two name options may be submitted. Names must comply with the Companies (Incorporation) Rules, 2014.
Incorporation Filing — SPICe+ Part B
File the consolidated SPICe+ Part B form covering incorporation, PAN, TAN, GST, EPFO, ESIC, and bank account opening simultaneously. Attach the Memorandum of Association (MoA) and Articles of Association (AoA).
Receive Certificate of Incorporation
The Registrar of Companies (RoC) issues the Certificate of Incorporation with the Company Identification Number (CIN). This typically takes 3–7 working days from complete filing.
Open Bank Account & Receive FDI
Open a current account in the company's name. Remit the initial paid-up capital from the foreign parent. File Form FC-GPR with the RBI within 30 days of share allotment to report the FDI.
Post-Incorporation Compliance
Register for GST (if turnover threshold applies), obtain shop and establishment registration, comply with local professional tax registration, and set up payroll and statutory compliance systems.
EOR — When It Makes Sense
An Employer of Record arrangement is ideal in the following situations:
- You want to test the Indian market before committing to full incorporation
- You need to hire 1–5 people quickly without waiting for incorporation (which takes 4–8 weeks)
- Your India presence is project-based or temporary
- You want to avoid the ongoing compliance burden of a registered entity
Under an EOR arrangement, the EOR provider is the legal employer — handling payroll, PF, ESI, TDS, gratuity, and all statutory obligations. The foreign company directs the work. A robust tripartite agreement between the foreign company, EOR, and employee is essential.
LexWin provides EOR services for foreign companies entering India. We handle all employment structuring, statutory compliance, and payroll — so you can focus on the business.
Key Ongoing Compliance Obligations
Corporate Compliance
- Annual filing of financial statements and annual return with the RoC
- Board meetings — minimum 4 per year for private limited companies
- Annual General Meeting (AGM) — within 6 months of financial year end
- Maintenance of statutory registers and minutes books
Tax Compliance
- Corporate income tax return filing by 31 October (or 30 November with transfer pricing)
- Quarterly advance tax payments
- Monthly TDS deduction and payment, quarterly returns
- GST returns — monthly or quarterly depending on turnover
- Transfer pricing documentation for inter-company transactions
FEMA / RBI Compliance
- FC-GPR filing within 30 days of FDI receipt
- Annual Performance Report (APR) for LO/BO/PO
- Form ODI for downstream investment
- External Commercial Borrowing (ECB) reporting if applicable
Labour Law Compliance
- PF and ESI registration and monthly contributions
- Professional tax registration and payment
- Shops and Establishments Act registration
- POSH (Prevention of Sexual Harassment) policy and Internal Complaints Committee
- Contract labour registration if applicable
Tax Treaties — DTAA Benefits
India has signed Double Taxation Avoidance Agreements (DTAAs) with over 90 countries. Key DTAAs relevant for foreign investors include those with the USA, UK, Germany, Singapore, Mauritius, Netherlands, UAE, and Japan. DTAAs typically provide relief on withholding tax on dividends, interest, and royalties, and determine which country has taxing rights on business profits.
For Indian subsidiaries of foreign companies, transfer pricing documentation is mandatory for all inter-company transactions. Transactions must be at arm's length and supported by a Transfer Pricing Study.
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