Advantages of company formation in India
Registering a company in India offers several advantages, some of the most prominent of which are listed below:
- Flexible taxation
India’s laws carefully outline tax rules for different types of companies and provide special tax benefits in certain cases.
- Rapidly growing economy
India, as one of the world’s largest nations, continually enhances its economic sectors, making them more appealing for investments with each passing year.
- Established trade connections
India maintains robust trade connections with numerous nations globally, facilitating the seamless access of all Indian-registered companies and entrepreneurs operating within its borders to the global market.
Legal forms of business organization in India
Company registration in India, in accordance with the Companies Act of 2013, occurs in several organizational and legal forms.
Any of the types of companies mentioned above can be:
- A Company Limited by Shares
Participants in this type of company are liable for the company’s obligations only to the extent of their shareholding. This form is most common for small and medium-sized businesses.
- A Company Limited by Guarantee
The capital of this company is not divided into shares. The liability of the participants is limited by the guarantee they provide, not by the number of shares.
- An Unlimited Company
The liability of the participants is not limited by their share or guarantee amount. This form of organizational-legal structure is the least popular in India.
Company registration procedure in India
Every company in India must be registered with the Registrar of Companies, which falls under the jurisdiction of the Ministry of Corporate Affairs (MCA). Registering a company in India requires the following documents and information:
- 4-6 proposed names for the future company in order of preference;
- the structure of the future company;
- the type of activities the future company will engage in;
- a scanned copy of an ID document for each participant;
- a scanned copy of a document confirming the residential address of each participant, not older than 3 months and translated into English;
- an additional ID document with an English translation (ID card, driver’s license, etc.) for each participant;
- additional information about each founder as required by Indian law (father’s name, profession, education, phone, email, etc.).
The entire company registration process, being performed by our team, includes the following stages:
- Preparation of all necessary documents and document verification;
- Name approval and reservation, which typically takes about 2 days;
- After the name is approved and reserved, we prepare the documents for signing, notarization, apostille, and send the original documents to India for each founder. Please consider the time required for notarial actions, apostille, and delivery service speed in each founder’s specific country;
- Submission of forms and documents to the Registrar of Companies in India after receiving the notarized original documents signed by all founders;
- The company registration process itself, which typically takes 7-10 working days;
- Obtaining Director Identification Numbers (DIN) and Digital Signature Certificates (DSC) for directors;
- Issuance of the Certificate of Incorporation and other corporate documents;
- Assignment of company numbers for taxation and other purposes (PAN – Permanent Account Number; TAN – Tax Deduction and Collection Account Number; GSTIN – Goods & Service Tax Identification Number, and others as needed);
- Corporate seal creation (if necessary);
- Opening a corporate bank account for the company and depositing the minimum authorized capital of INR 100,000.
On average, it usually takes around 2 to 6 weeks to finish the procedures mentioned above. Within 180 days after your registration, the director is required to sign Form INC-20A to officially confirm the start of business activities.
Tips to keep in mind when conducting business in India
The legal framework in India has some unique features that individuals considering to start and run a business in the country should take into account.
- Under the Companies Act of 2013, if a company is registered in India after the latest version of the Act and has a share capital, it cannot start any business activities or borrow funds until the director submits Form INC-20A to the Registrar of Companies within 180 days of the company’s registration. Furthermore, the confirmation of the company’s registered office address in India must be provided within 30 days of registration. If this information isn’t submitted to the Registrar within 180 days of registration and the Registrar has reasonable grounds to believe that the company isn’t conducting any business or operations, it may initiate the process of removing the company’s name from the register.
- In 2017, India eliminated the INR 100,000 minimum paid-up capital requirement for the most common company type, which is a private limited company. Now, you only need to pay a nominal share capital of 1 Indian rupee to fulfill the compliance requirements.
- Companies registered in India after October 1, 2019, and investing in Indian manufacturing sectors may qualify for a preferential tax regime. The corporate tax rate for such companies is 15%.
- A mandatory requirement for company registration in India is obtaining a Digital Signature Certificate (DSC) and a Director Identification Number (DIN) for each director. This step plays a critical role in the company registration process, and the timeframes depend on the completeness and accuracy of the provided information. If additional information is requested, the timelines for obtaining the DSC and DIN can be significantly extended, which is essential to consider when collecting the necessary documentation.
Taxation in India
The Republic of India is a federation, which means that taxation matters are divided among the Central Government, state governments, and municipal and local authorities.
The Central Government establishes the corporate income tax. Corporate income tax is payable by all entities registered and/or conducting business in India. To determine whether a company falls under the Indian tax regime, the following factors should be considered:
- Is the company incorporated in India?
- Is India the place of effective management of the company (i.e., where key management and commercial decisions are made)?
- Is the company conducting business in India?
If the answer to any of these questions is “yes,” the company will be liable to pay corporate income tax.
All companies liable to pay corporate income tax in India are divided into 3 groups:
- Ordinarily Residents.
- Residents but Not Ordinarily Residents (RNOR) – get more info from our advisers.
Each group has its own tax rules.
For typically resident companies, worldwide income is taxed, i.e., income earned both in India and outside India.
For RNOR companies, income earned in India and income earned outside India but managed from India is taxed.
For non-resident companies, only income earned in India is taxed.
The corporate tax rate for resident companies ranges from 25% to 30% depending on the amount of income. For foreign companies, it is 40%. Some companies may qualify for preferential tax treatment (e.g., companies investing in manufacturing in India may be taxed at a rate of 15%).
The basic dividend distribution tax rate in India is currently 20.36%.
The capital gains tax rate varies from 10% to 20%.
India also imposes the so-called “Minimum Alternate Tax (MAT)” with a basic rate of 18.5%.
The GST rate consists of a general rate (up to 5%) and a residual rate (12-15%), which is set by the state and may vary.
Preparation and submission of reports in India
Chapter 9 of the Companies Act mandates that every Indian company must maintain financial records at their registered office. These records, including books and other relevant documents, should reflect the company’s true financial status. Additionally, financial statements must be prepared annually, offering an accurate view of the company’s affairs, including any branch offices. These statements should also explain the transactions conducted at both the registered office and its branches.
All accounting records must be kept at the registered office, unless the Board of Directors chooses to keep them at another place. Then the Registrar must be informed of the new address within 7 days of the Board’s decision.
Financial Statement is the primary document that reflects the current financial position and solvency of the company.
The financial statement of every company must include:
- Balance Sheet
- Profit and Loss Statement
- Cash Flow Statement
- Notes and comments on the financial statement
In case a company has one or more subsidiary companies, in addition to the financial statement it must also prepare a consolidated financial statement of the company and all its subsidiary companies in the same form and manner as that of the parent company, as per applicable accounting standards. All financial data is filed with the Ministry of Corporate Affairs of India.
The financial year for companies in India typically runs from April 1st to March 31st of the following year, unless specified otherwise in the company’s Articles of Association.
The deadline for filing financial statements is 6 months from the end of the financial year.
For anyone delving into India’s corporate and tax laws, establishing a business in this nation might seem more intricate and demanding compared to other places. The registration process does involve navigating various formalities and time-consuming procedures.
Opening a company in India isn’t the simplest endeavor, but there’s a crucial point to grasp. India is the ideal destination for those seeking to elevate their business. To affirm this, you won’t require much time. Given India’s high level of competition and numerous intricacies, it’s best suited for the most resolute and ambitious entrepreneurs who have confidence in their abilities and expertise.