How do you set up a business in India? Payroll, HR and entering the Indian market

Last checked and updated on 26 October 2022

India may still be a developing country, but under no circumstances should this mean the nation is considered unsuitable for overseas business.

One-sixth of the global population resides in this country, meaning that you’ll have no shortage of local talent to pull from and potential customers to trade with, and the authorities work tirelessly to make India a welcoming environment for business.

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Does India welcome overseas businesses?

India has endured a reputation as a challenging country to do business in thanks to the large amounts of bureaucracy involved, but the national authorities are working hard to change this perspective. 

Some of the red tape involved is being cut down, and foreign investment is increasingly welcome. Throw in a constantly-growing economy and you have the makings of a great country to expand your economic interests into.

What industries are most popular in India?

The most popular – and lucrative – industries in India include:

  • Automobile manufacture and maintenance
  • Catering
  • Chemicals and petrochemicals
  • Construction
  • Consumer goods construction and export
  • Financial services
  • Pharmaceuticals
  • Real estate
  • Software and IT
  • Textile and apparel construction and export

These industries regularly prove hugely profitable for Indian nationals and overseas businesses alike.

Is it easy to set up a business in India?

Of all the words that could be used when setting up a business, “easy” is not one that comes to mind. It can take months to get an Indian business up and running, though, as discussed, the process is being streamlined. To set up your company in India, follow these steps.

How to set up a business in India

  1. Choose a company name

    And ensure that it is available for your business

  2. Decide upon a business structure for your company

    See the section on Indian business entity types elsewhere in this article

  3. Identify a trading location in India

    And nominate at least one local director for your business

  4. Apply for a Director Identification Number (DIN)

    You can do this online

  5. Apply for a Digital Signature Certificate

    You can also do this online

  6. Register your business

    With the Ministry of Corporate Affairs and obtain an Incorporation Certificate

  7. Create an official Company Seal

    To identify your business communications

  8. Apply for a Permanent Account Number (PAN) and a Tax Account Number (TAN)

    You get these from the Indian Income Tax Department

  9. Open a local bank account

    You will not be able to do this until you have a DIN, PAN and TAN

  10. Contact your local state or municipal inspector

    And apply for a trading certificate

  11. Register to pay Goods and Services Tax (GST)

    You can do this online

  12. Apply for a Profession Tax Certificate

    This is available from the State Profession Tax Office

  13. Register to pay contributions to the Employees’ Provident Fund (EPF)

    If your business will employ 20 people or more

Once these hoops have been leapt through, you are finally ready to start trading in India.

Can I run a business in India while living overseas?

Yes, but you will need to partner up with a local partner. All businesses in India must have at least two directors, and at least one of them needs to be an Indian national. Team up with somebody that you can trust who understands the local market and is capable of making decisions in your stead if applicable.

Cultural considerations when running a business in India

When looking to trade with Indian business partners, ensure you understand some of the cultural nuances to avoid inadvertently causing offence. Business etiquette to be aware of includes:

  • Steps are being taken to improve female representation in the business world, but India is still a man’s world in many respects. Despite this, women in the workplace must always be treated with respect and equality
  • Indian partners will have no interest in conducting business during national or local festivals. Study the calendar and plan your appointments accordingly
  • India is a hospitable country and you will likely be offered refreshments during any business meeting. It is considered impolite to decline or refuse any offer of food or drinks
  • Dress and behave formally in business meetings. Address people by their title rather than forename, always offer a handshake, and keep a steady supply of business cards on your person
  • When making a business proposal to Indian partners, do not skimp on data and facts. Indian partners will want to have all the facts before making a decision
  • Be prepared for your potential partners to drive a hard bargain – the art of the deal is a vital part of Indian culture – but never demonstrate anger or aggression during negotiations
  • Hierarchy matters in Indian business, so direct your pitch to the most senior person in any boardroom

What business structures are supported in India?

These are the most popular structures if you wish to set up a business in India:

Type of Indian business entityWhat is it?
Private Limited CompanyThe equivalent of a Limited Liability Company in the UK. Your business affairs will be kept separate from your personal finances, and a company can be started with just two directors. Director salary cannot exceed 11% of annual profits.
Public Limited CompanyThe Indian equivalent of a PLC, a Public Limited Company opens the opportunity to purchase shares to the general public. Shareholders can take unlimited dividends, but more administration and record-keeping are involved 
Branch OfficeYou will be welcome to open a branch of an existing business with international brand recognition, subject to approval from the Reserve Bank of India. You’ll pay less tax and enjoy more freedom if you open a subsidiary business, so think carefully about this approach.
Liaison OfficeIf you choose to open a liaison office for your overseas business, you will not be permitted to trade or turn a profit in the country. You can only use a Liaison Office for research and marketing.
Types of business structure in India

Taxation in India

If you want to do business in India, you must understand the taxation rules and regulations that will impact your bottom line. 

What is the corporate tax rate in India? 

If your business is considered an Indian national concern, you will pay a corporate income tax rate of 32% on all turnover up to ₹400,000,000 (around £4,000,000) and 42% if you exceed this threshold.

If you are running a foreign business in India, such as a branch of an international company, you will pay 40% in corporate tax by default – rising to 50% if your business involves trading with the Indian government. An additional 2% will be levied on profits between ₹10,000,000 and ₹99,999,999, rising to 5% on profits of ₹100,000,000 or higher.

This is why it is preferable for most businesses to open an Indian subsidiary company. While this involves a lot of initial red tape, it will save you money on corporate taxation in the longer term. With taxes being so high in India, every potential to save money helps.

Thankfully, India shares a double taxation treaty with the UK, so you will not be taxed twice for your business profits.

What are the employee income tax brackets in India?

All employees in India that earn above a certain threshold need to pay income tax. These tax contributions break down as follows:

Annual salaryIncome tax rate
₹249,999 or lower0%
₹250,000 – ₹499,9995%
₹500,000 – ₹749,99910%
₹750,999 – ₹999,99915%
₹100,000 – ₹124,99920%
₹125,000 – ₹149,99925%
₹150,000 or higher30%
Income tax bands in India

It is the responsibility of the employer to withhold income tax from an Indian employee’s wages upon running a monthly payroll

You will also need to withhold 12% of an employee’s salary and pay it into the Employee Provident Fund if you hire 20 people or more.

How are taxes paid in India?

The Indian tax year runs from the 1st of April to the 31st of March. Tax returns and payments are due to the Ministry of Finance by the 31st of July. So, the 2022–23 tax year began on 01/04/22 and ends on 31/03/23, with all paperwork due no later than 31/07/23.

Payroll and hiring employees in India

Hiring the right talent can make or break a company. Ensure your Indian business interests are staffed by the best possible talent.

Does India welcome overseas talent?

India tends to lean more on the local workplace than imported talent. Many highly-skilled employees of Indian origin move overseas to find work, so you may struggle to find the very best employees for your business in the local labour force, depending on your line of business.

Who needs a visa or work permit to work in India?

Anybody that does not hold an Indian passport will need to work permit or visa to work in the country. These will typically be offered to people employed by an Indian company, anybody that brings specialist skills to a foreign company with a presence in India, or senior staff members (such as directors) employed by overseas businesses with an Indian interest.

What employee benefits are compulsory in India?

Employees of an Indian business are entitled to the following mandatory benefits by law.

  • 15 days of personal holiday and no less than 3 public holidays
  • No less than 10 days of paid sick pay
  • 26 weeks of protected maternity leave
  • Insurance policies to protect against death or disability suffered in the workplace (especially in factory jobs)
  • Medical insurance
  • 8.3% of an employee’s salary paid into the Employee Pension Scheme (EPS)
  • 10–12% of an employee’s salary paid into the Employee Provident Fund (EPF) if you employ 20 people or more, to be matched by the employee

Employment law considerations in India

The minimum wage in India varies by region, but it is widely considered much lower than in most Asian nations. The average minimum wage in India is ₹178 per day for an unskilled worker. The tasks required and the territory you are based in will potentially lead to higher minimum salaries.

The Ministry of Labour and Employment protects the rights of Indian employees. By law, Indian employees cannot work more than 48 hours per week without additional compensation. This is usually broken down into six 8-hour days.

Cultural considerations when hiring employees in India

If you wish to run a business in India that relies upon the local labour force, ensure you understand some of the nuances you will encounter. These include:

  • Family is very important in India, and staff members take their personal commitments very seriously. Do not refuse holiday requests without good reason, especially if they are related to weddings and other family-centric celebrations, and be prepared to accommodate last-minute requests for time off or flexibility
  • Indian employees are typically reluctant to say no, even if they are not comfortable with a task you are asking of them. Pay attention to body language and work to encourage employees to achieve their full potential
  • Indian employees value friendships, so encourage team bonding and make an effort to attend any social event your employees invite you to
  • Hold your temper and avoid demonstrating aggression toward your employees. This will be seen as a sign of disrespect and lead to team members losing trust in you 

FAQs about setting up a business in India

Still have questions or are seeking a swift answer to a basic query? Here are some of the most frequently asked questions about establishing a business in India.

What are the entry options for foreign companies wanting to set up in India?

If you don’t want to open a branch or liaison office in India (not recommended as this will lead to trading restrictions), you can open a Limited Liability Company or Private Limited Company.

How long does it take to set up an Indian entity?                              

There is a lot of bureaucracy involved in setting up a business in India, so it could be five or six months before you are ready to start trading. The authorities are working on cutting down on this red tape, but you’ll need patience.

What is a DIN, PAN & TAN and why are these required for foreign directors?

Indian business affairs are covered by several governing bodies, which means you’ll need to register for multiple documents. These include a Director Identification Number, or DIN, to hold the position of director with a company; a Permanent Account Number, or PAN, to operate a local bank account; and a Tax Account Number, or TAN, to withhold income tax from employee wages.

What is the minimum share capital required to establish an entity in India?

You’ll need at least ₹100,000 in capital to open a Private Limited Company in India. That’s a little over £1,000. A Public Limited Company carries a minimum share capital of ₹500,000.

Do you need to set up a local bank account in India?

Yes, you will need a local business bank account to trade in India.

Is there a residence requirement for directors of Indian entities?

All businesses in India need at least two directors, and one of these needs to be an Indian national.

What is the standard working week in India?

The working week in India runs longer than in the UK. Most employees work a 48-hour week over six days. The most popular working pattern is 10am to 6pm from Monday through Saturday.

What are common supplementary employee benefits in India?

Flexibility in working hours, especially the option to work from home, is a big perk in India, as employees work hard and value family time. Subsidised travel, vocational training, and wellness programs surrounding physical and mental health can encourage top-tier talent to join your business.

In India, can employment contracts be terminated at will by the employer?

“At will” termination is very rarely recognised in India. Notice periods are determined by contract, but you will usually need to offer a severance package when parting company with an employee.

What is the standard annual leave entitlement in India?

Employees in India should be permitted a minimum of 15 personal holiday days plus any national or local public holidays.

Can you establish a branch of your company in India?

If the Reserve Bank of India approves a request to do so, you can open an Indian branch of an overseas business. However, opening a subsidiary company will result in lower tax repayments and fewer trading restrictions.

What is a provident fund and when does it become mandatory?

If your business employs 20 or more people, you must pay 10–12% of each employee’s salary into the Employee Provident Fund. The employee will also have 10–12% of their salary withheld and paid into this fund. The EPF is an insurance policy for Indian nationals to be drawn on during retirement or periods of long-term unemployment. The EPF is separate from the mandatory Employee Pension Scheme (EPS), which applies to businesses of all sizes. Employers pay 8.3% of a salary (capped at ₹12,500 per month) into the EPS.

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Important – The information provided in our articles is intended to be for general purpose use only, and not advice for you or your business. We strive to publish accurate information, but encourage you to fact-check and seek expert guidance. You should always speak to a qualified professional to get tailored advice about how to operate your business under your specific requirements and circumstances.