Invest India : : Guiding Your Investment

As an Indian company: A foreign company can commence operations in India by incorporating a company under the Companies Act, 1956, either as a wholly-owned subsidiary or through the formation of a joint venture with an Indian partner.

Foreign equity in wholly-owned subsidiaries can be up to 100 per cent, subject to equity caps in respect of the area of activities under the foreign direct investment (FDI) policy. Details of the FDI policy, sectoral equity caps and procedures can be obtained from the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India ( http://www.dipp.nic.in ).

As a foreign company: Foreign companies can operate in India through the following:

Liaison office
Project office
Branch office

Such offices can undertake permitted activities after registering with the Registrar of Companies (ROC) within 30 days of setting up a place of business in India.

Liaison office: A liaison office acts as a channel of communication between the principal place of business and entities in India. It can promote export/import from/to India and also facilitate technical/financial collaboration between the parent company and companies in India. Liaison offices are not permitted to undertake any business activity in India and/or to earn any income in India. Approval for establishing a liaison office in India is granted by the Reserve Bank of India (RBI), which is initially granted for a period of one year and can be extended from time to time.

A liaison office can undertake the following business activities in India:

Represent the parent company/group companies in India
Promote export-import from/to India
Promote technical/financial collaborations between parent/group companies and companies in India
Act as a communication channel between parent company and Indian companies

Project office: Foreign companies planning to execute specific projects in India can set up a project office in India. The RBI 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:

The project is funded directly by inward remittance from abroad; or
The project is funded by a bilateral or multilateral international financing agency; or
The project has been cleared by an appropriate authority; or
The company or entity in India awarding the contract has been granted a term loan by a public financial institution or a bank in India for the project.

If the aforesaid criterion is not satisfied, the foreign entity requires prior approval from the RBI to set up a project office.

Branch office: Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up branch offices in India with the specific prior approval of the RBI. Branch offices are permitted to represent the parent/group companies and undertake the following activities in India:

Export/import of goods
Rendering professional or consultancy services
Carrying out research work in areas in which the parent company is engaged
Promoting technical or financial collaborations between Indian companies and parent or overseas group company
Representing the parent company in India and acting as buying/selling agent in India
Rendering services in information technology and development of software in India
Rendering technical support to the products supplied by parent/group companies

A branch office is not allowed to carry out retail trading/manufacturing and processing activities in India, either directly or indirectly.

What is the process for registration and incorporation as an Indian company?

For registration and incorporation, an application has to be filed with the Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to domestic Indian companies. Tax incentives, as applicable to Indian companies that are 100 per cent export-oriented units (EOUs), electronics hardware technology parks (EHTPs), software technologic parks (STPs) and special economic zones (SEZs), shall also be provided for FDI/NRI investments up to 100 per cent in these units.

For details, please visit the website of the Department of Company Affairs under the Ministry of Finance ( http://dca.nic.in ).

What clearances are required for FDI in India?

A foreign company can invest in India either through the automatic route or after obtaining the necessary clearances from the Foreign Investment Promotion Board (FIPB).

Automatic route: No prior approval is required for FDI under the automatic route. However, the foreign company needs to inform the RBI within 30 days of receipt of inward remittances in the bank account of the Indian company and in the case of issue of shares to non residents. The RBI has prescribed a new form, Form FC-GPR (instead of the earlier FC-RBI), for reporting issue of shares to foreign investors by an Indian company

( http://rbidocs.rbi.org.in/rdocs/Forms/PDFs/form-fc-gpr.pdf ).

FIPB: The board is the competent body to consider and approve FDI that does not fall under the automatic route. Constituted under the Department of Economic Affairs (DEA), Ministry of Finance, it comprises the following officers:

Secretary, Department of Economic Affairs — Chairman
Secretary, Department of Industrial Policy & Promotion — Member
Secretary, Department of Commerce — Member
Secretary, Ministry of External Affairs — Member

If the foreign investor has an existing venture or tie up in India, which dates to before January 12, 2005, through investment/technical collaboration/trademark agreement in the same field as its Indian partner/existing entity, then the prior approval of the FIPB, Ministry of Finance, is required. This restriction is not applicable to:

Issue of shares for investments to be made by venture capital funds registered with the Securities and Exchange Board of India (SEBI)
Investments by multinational financial institutions
Wherein the existing joint venture, investment by either of the parties is less than 3 per cent
Where the existing joint venture/collaboration is defunct or sick
If the investment is in an Indian company engaged in the information technology sector or in the mining sector

For details, please visit the FIPB website ( http://www.fipbindia.com/ ).

Can a non-resident Indian (NRI) partner with a foreign collaborator for his business in India?

Foreign companies can set up operations in India by forging strategic alliances with Indian partners through joint ventures. The issue of shares to the foreign collaborator is governed by the guidelines issued by RBI/SEBI. Cases involving an increase in the percentage of foreign equity, either by way of fresh issue of shares by the Indian company or by way of acquiring existing shares from an NRI in an Indian company, would not require an FIPB/RBI approval if the activities of the Indian company whose securities are being transferred fall under the automatic route. Cases not falling under the automatic route will require the prior approval of the FIPB/Secretariat for Industrial Assistance (SIA), as the case may be.

Can a foreigner set up a partnership/proprietorship concern in India?

No. Only NRIs/persons of Indian origin (PIOs) are allowed to set up partnership/ proprietorship concerns in India on a non-repatriation basis.

Can foreign insurance companies/banks set up liaison offices in India?

Foreign insurance companies can establish liaison offices in India only after obtaining an approval from the Insurance Regulatory and Development Authority (IRDA). Similarly, foreign banks can establish liaison offices in India only after obtaining an approval from the Department of Banking Operations and Development (DBOD), RBI.

In which sectors is FDI prohibited?

(a) Retail trading (except single brand product retailing)

(b) Atomic energy

(d) Gambling and betting, including casinos, etc.

(e) Business of chit fund

(f) Nidhi company

(g) Trading in transferable development rights (TDRs)

(h) Real estate business or construction of farmhouses

(i) Activities/sectors not opened to private sector investment

(j) Agriculture (excluding floriculture, horticulture, development of seeds, animal husbandry, pisciculture and cultivation of vegetables, mushrooms, etc., under controlled conditions and services related to agro and allied sectors) and plantations (other than tea plantations)

(k) Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes

How and who can form a co-operative society in India

A society can be formed with at least 10 members of age above 18 years. If object of society is creation of funds to be lent to its members, all the members must be residing in same town, village or group of villages or all members should be of same tribe, class, caste or occupation, unless Registrar otherwise directs. The provision of minimum 10 members or residing in same town/village etc. is not applicable if a registered society is member of another society.

The last word in name of society should be ‘Limited'. If the society is registered with limited liability. Registrar is empowered to decide whether a person is agriculturist or non-agriculturist or whether he is resident of same town/village or whether the members belong to same caste/tribe etc. and his decision will be final.

Can a foreigner set up a partnership/ proprietorship concern in India?

No. Only NRIs/PIOs are allowed to set up partnership/proprietorship concerns in India on non-repatriation basis.

Can Foreign Insurance Companies / Banks set up Liaison Office in India?

Foreign Insurance companies can establish Liaison Offices in India only after obtaining approval from the Insurance Regulatory and Development Authority (IRDA). Similarly, foreign banks can establish Liaison Offices in India only after obtaining approval from the Department of Banking Operations and Development (DBOD), Reserve Bank of India.

What is the Foreign Direct Investment (‘FDI') policy on Trading?

FDI upto 100 per cent is permitted in Wholesale/cash & carry trading and trading for exports is permitted under the automatic route. FDI upto 100 per cent is permitted in trading of items sourced from small scale sector or test marketing of such items for which a company has approval for manufacture, subject to FIPB approval.

FDI up to 51 per cent is permitted in retail trade of ‘Single Brand' products would be subject to FIPB approval.

How to do business with India – TAX & REGULATORY COMPLIANCES

What is permanent account number (PAN)?

A permanent account number (PAN) is a 10-digit alphanumeric number, issued in the form of a laminated card, by the Income Tax department, to any “person” who applies for it or to whom the department allots the number without an application.

PAN enables the department to link all transactions of the “person” with the department. These transactions include tax payments, TDS/TCS credits, returns of income/wealth/gift/FBT, specified transactions, correspondence, and so on. PAN, thus, acts as an identifier for the “person” with the tax department.

Why is it necessary to have PAN?

It is mandatory to quote PAN on return of income and on all correspondence with any income tax authority. From January 1, 2005, it has become mandatory to quote PAN on challans for all payments due to the Income Tax Department. It is also compulsory to quote PAN on all documents pertaining to financial transactions.

How does the Income Tax department ensure that PAN is quoted on transactions?

It is the statutory responsibility of a person receiving documents relating to economic or financial transactions notified by the Central Board of Direct Taxes (CBDT) to ensure that PAN has been duly quoted in the document.

Is it compulsory to quote PAN on return of income?

Yes, it is compulsory to quote PAN on return of income. A penalty of Rs. 10,000 is leviable in case of any default.

How do the authorities verify PAN?

A facility for verifying PAN is available on the website of the Income Tax department ( https://incometaxindiaefiling.gov.in/portal/knowpan.do ) .

Who must have a PAN?

(a) All existing assesses or taxpayers or persons who are required to furnish a return of income, even on behalf of others, must obtain PAN.

(b) Any person carrying on any business or profession whose total sales, turnover or gross receipts are, or, is likely to exceed Rs 500,000 in any previous year.

(d) The assessing officer may allot PAN to any person either on his own or on a specific request from such person.

Can a person obtain or use more than one PAN?

Obtaining or possessing more than one PAN is against the law, for which a penalty of Rs. 10,000 may be imposed.

Where can one apply for a PAN?

In order to improve PAN-related services, the Income Tax department has authorized UTI Investor Services Ltd (UTIISL) to set up and manage IT PAN service centers in all cities or towns where there is an Income Tax office, and National Securities Depository Limited (NSDL) to dispense PAN services from tax information networks (TIN) facilitation centers. For the convenience of PAN applicants in big cities, UTIISL has set up more than one IT PAN service center and, likewise, there several TIN facilitation centers too that have been established.

How can one apply for a PAN? Can an application for PAN be made on plain paper?

A PAN application should be made only on Form 49A. The form can be downloaded from the website of the Income Tax department ( http://incometaxindia.gov.in/ ) and photocopied on an A4 size 70 GSM paper. The PAN form can also be filled online by using the following link: http://law.incometaxindia.gov.in/DITTaxmann/IncomeTaxRules/pdf/Form49aE.PDF . Form 49A is to be duly filled and a printout should be taken. The form should be signed at two places in black ink only ( signatures should be WITHIN the boxes given in the beginning and at the end of the form, WITHOUT touching the boundaries ).

If the company has an office/representative in India, the representative could fill up the PAN Application manually and file it at any TIN facilitation centre or at IT PAN service centres.

The form is also available at IT PAN service centers and at TIN facilitation centers.

Which documents serve as proof of 'identity' in the case of individual applicants, including minors and Hindu Undivided Family (HUF) applicants?

Copy of school-leaving certificate or matriculation certificate or degree from a recognized educational institution, or depository account or credit card or bank account or water bill or ration card or property tax assessment order or passport or voter identity card or driving license or certificate of identity signed by a Member of Parliament (MP) or a Member of Legislative Assembly (MLA) or a Municipal Councilor or a gazetted officer
In case the PAN applicant is a minor, any of above documents of any of the parents or guardian of such minor shall serve as proof of identity
In case PAN application is made on behalf of a HUF, any of above documents in respect of karta of the HUF will serve as proof of identity

What is proof of address for individual applicants, including minors and HUF applicants?

Copy of electricity bill or telephone bill or depository account or credit card or bank account or ration card or employer certificate or passport or voter identity card or property tax assessment order or driving licence or rent receipt or certificate of address signed by an MP, an MLA, a municipal councilor, a gazetted officer
In case the PAN applicant is a minor, any of above documents of any of the parents or guardian of such minor shall serve as proof of address
In case PAN application is made on behalf of an HUF, any of above documents in respect of karta of the HUF will serve as proof of address

What documents serve as proof of identity and address for other applicants?

IT PAN service centres or TIN facilitation centres supply PAN application forms (Form 49A) and forms for ‘Request for new PAN card or/and changes in PAN data', assist the applicant in filling up the form, collect the filled form and issue an acknowledgement.
Copy of Certificate of Registration issued by the Registrar of Companies or Copy of Certificate of Registration issued by the Registrar of Firms or Copy of Partnership Deed or Copy of Trust deed or,
Copy of Certificate of Registration Number issued by Charity Commissioner or Copy of Agreement or,
Copy of Certificate of Registration Number issued by Charity Commissioner or Registrar of Co-operative Society or any other competent authority or any other document originating from any Central or state government department establishing identity and address of such person.

Is a photograph compulsory for making an application for PAN?

A photograph is compulsory only in case of individual applicants.

Who can apply on behalf of non-resident, minor, lunatic, idiot, and court of wards?

Section 160 of the Income Tax Act, 1961, provides that a non-resident, a minor, lunatic, idiot, and court of wards, and such other persons, may be represented through a representative assessee. In such cases, application for PAN will be made by the representative assessee.

Do you need to apply for a PAN when you move or transfer from one city to another?

Permanent Account Number, or PAN, as the name suggests, is a permanent number and does not change during the lifetime of PAN holder. Changing the address or city, though, may change the assessing officer. Such changes must, therefore, be intimated to nearest IT PAN service center or TIN facilitation center for required correction in PAN databases of the Income Tax department.

These requests will have to be made in a form for 'Request for New PAN Card or/and Changes in PAN Data'.

What is service tax?

Service tax is an indirect tax levied on certain services provided by certain categories of persons/firms/agencies.

Would services provided in India to foreign clients be liable for payment of service tax?

Yes, the service tax is payable on all taxable services rendered in India, whether to an Indian or foreign client.

Would services provided abroad be liable for payment of service tax?

No, services rendered abroad shall not attract service tax levy, as service tax extends only to services provided within India.

Is there a requirement to seek environmental clearances?

Yes, statutory clearances relating to air, water and environment pollution control for setting up an industrial project are required under the Environment Protection Act. Industries such as petrochemical complexes, petroleum refineries, cement, power plants, bulk drugs, fertilisers, dyer, paper, ports and harbors, mining, new industrial estates, new towns, airports, etc., require such clearances.

Are there any locational restrictions in setting up units in India?

Industrial undertakings are free to select the location of their projects. An industrial license is required if the proposed location is within 25km of standard urban area limits of cities that have a population of 1 million as per the 1991 census.

The location of industrial units is subject to applicable local zoning and land use regulations and environmental regulations.

Can foreign tourists open bank accounts in India during short visits?

Yes. Foreign tourists on short visits to India can open a Non-Resident (Ordinary) Rupee (NRO) account (current/savings) with any authorised dealer bank dealing in foreign exchange. Such accounts can be opened up to a maximum period of six months.

What documents are required for opening such accounts?

Passports and other valid identification proof are required for opening such accounts. Authorised dealer banks are also required to follow the ‘Know Your Customer' norms while opening of such accounts.

What credits can be made to such accounts?

Funds remitted from outside India through banking channels or those obtained by sale of foreign exchange brought by tourists to India can be credited to the NRO account.

What is direct investment outside India?

Direct investment outside India means investments, either under the automatic route or the approval route, by way of contribution to the capital or subscription to the Memorandum of Association of a foreign entity, signifying a long-term interest (setting up a Joint Venture [JV]or a Wholly-Owned Subsidiary [WOS]) in the overseas entity.

Who is eligible to make overseas investment?

Resident corporate entities and partnership firms registered under the Indian Partnership Act, 1932, are eligible to make investments abroad in joint ventures/wholly-owned subsidiaries. Resident individuals may also invest abroad.

Can an individual invest in an overseas entity?

Resident individuals are permitted to make overseas portfolio investments without any limit in listed overseas companies that have at least 10% share in an Indian company listed in a recognized stock exchange in India as on 1 st January of the year of investment.

Where are the guidelines pertaining to overseas investment available?

The guidelines have been notified by the Reserve Bank of India vide Notification No. FEMA 120/2004-RB dated July 7, 2004 , as amended from time to time, which can be accessed at the Reserve Bank's website fema.rbi.org.in . A master circular entitled ‘Direct Investment by Residents in JV/WOS Abroad', dated July 1, 2009, which is a compendium of all notifications/circulars incorporating the developments until that date, is also available at the website www.rbi.org.in .

Who is liable to file the Income Tax Return?

When the total income from all sources of income of any person exceeds the maximum amount which is not chargeable to income tax in any previous year ending on 31 st March, then that person is liable to file the Income Tax Return.

What is Assessment Year (AY)?

Assessment year is the period of 12 months succeeding the relevant previous year (i.e., the accounting year) ending on 31 st March. For example, AY 2010-2011 is for the period of 12 months starting from 1-4-2009 and ending with 31-3-2010.

What are the other taxes apart from corporate taxes?

Some of the main taxes apart from corporate taxes are as follows:

Customs/Import duty is levied on imported products. This tax is a tariff - type tax payable at the time of entry of products into India.
Excise duty is levied on manufacture of goods within India. This is also a tariff type tax and is payable on an ad valorem (i.e. a fixed percentage of the cost of production) basis.
Sales tax is levied on the sale of a product that is produced or imported and sold for the first time. Either the central or the state government levies sales tax.
Service tax is levied on specified services and is like excise duty except that excise duty is levied only on goods/products.

What is Director Identification Number (DIN)? It is an unique identification number allotted to an individual who is an existing director of a company or intends to be appointed as director of a company pursuant to Section 266A and 266B of the Companies Act, 1956, (as amended vide Act No 23 of 2006).

Who can file an application for allotment of DIN?

Any individual who is an existing director of a company or intends to be appointed as director of any company can file such allotment.

Who allots the DIN?

The DIN is allotted by the Central government through the office of the Regional Director (Northern Region), Ministry of Corporate Affairs.

What is a Digital Signature Certificate?

Digital Signature Certificates (DSC) are the digital equivalent (that is electronic format) of physical or paper certificates. Examples of physical certificates are drivers' licenses, passports or membership cards. Certificates serve as proof of identity of an individual for a certain purpose; for example, a driver's license identifies someone who can legally drive in a particular country. Likewise, a digital certificate can be presented electronically to prove your identity, to access information or services on the Internet or to sign certain documents digitally.

Why is Digital Signature Certificate (DSC) required?

Like physical documents are signed manually, electronic documents, for example e-forms, are required to be signed digitally using a DSC.

Who issues the Digital Signature Certificate?

A licensed certifying authority issues the DSC. Certifying authority means a person who has been granted a license to issue a DSC under Section 24 of the Indian IT-Act 2000. The list of licensed certifying authorities along with their contact information is available on the Ministry of Corporate Affairs portal at www.mca.gov.in .