Understanding the Indian Regulatory Landscape

The Indian business environment is strictly regulated. There are numerous laws and regulations to follow and compliance is strictly enforced. Based on different laws, these directives have been categorized under different headers and are applicable to all foreign entities that want to set up their business in India.

Here are some important regulations that businesses must follow. The following graphic and the table below will explain these regulatory requirements to make them easier to understand and implement.

Understanding the Indian Regulatory Landscape

# Governance Area/ Statute Description
1 Income Tax
Corporate tax rate ranges from 15%-40% depending on legal entity status and business operations.
Entity may also be subject to surcharge (charged on corporate tax) ranging from 2%-12% depending on legal entity status and total income of the year. In addition, health and education cess of 4% is applicable on corporate tax and surcharge liability of the year.
Corporate tax is applicable on net business income of the financial year. Net business income is the revenue as reduced by expenses allowable as deduction under the Income-tax Act 1961.
Transfer pricing regulations are applicable on cross-border transactions with related entities.
Entities are required to withhold and deposit taxes on salary and other specified payments made to resident as well as non-resident payees.
Benefits under Double Taxation Avoidance Agreements signed by India with various countries are available to tax residents of the other contracting State.
2 Equalization Levy Equalization Levy (EL) of 6% is chargeable on payments made by Indian residents to non-resident providers that do not have a tax presence in India for specified services including online advertisement and digital advertisement space.
From April 2020, the scope of EL has been expanded to cover almost all types of international online transactions. Now, a 2% EL is leviable on consideration received by foreign e-commerce operators (who do not have a tax presence in India) from e-commerce supply or services transactions conducted with Indian residents, as well as with non-residents in certain cases. EL is currently not applicable if sales of the e-commerce operator from such supplies or services is less than INR 20 million (approx.. USD 250,000) during the financial year (April 01 – March 31).
3 Goods & Services Tax
‘Value-added’ tax regime applicable on supply of goods and services. GST rates range from 0% to 28%. Services are generally liable to GST of 18% which the service provider charges to the service recipient and deposits with the Government. Certain services that qualify as ‘export’ are applicable to 0% GST.
GST paid on services availed or goods purchased, in the course of business, can be claimed as input credit and set off against the GST charged on output goods and services. Only the amount left after setting off the input credit needs to be paid to the Government on monthly basis.
GST law restricts input credit on certain services such as cabs, medical insurances, services for employee benefits etc.
The GST law provides for Reverse Charge Mechanism (RCM) concept. Under this, the service receiver needs to pay tax to the tax authorities and thereafter claim the same as input credit. RCM is applicable on certain specified services such as import of services, legal services, etc.
4 Foreign Exchange Management
Foreign exchange dealings are regulated under Foreign Exchange Management Act 1999 (FEMA). India’s apex bank – Reserve Bank of India (RBI) and the Ministry of Finance has the authority to control and administer compliance.
Presently, RBI has delegated a large part of its powers to Authorized Dealer Banks (AD Banks), banks through which the transactions are conducted.
FDI Policy outline sector specific investment and other conditions.
5 Corporate Laws
Companies in India are regulated through the Companies Act 2013 and related laws & regulations, which are administered by the Ministry of Corporate Affairs (MCA).
Other forms of business presence such as Limited Liability Partnership, Society, Trust etc. are governed by their own statute.
6 Immigration Laws India’s immigration laws require every person visiting India to get valid from India Missions. Foreign nationals working in India need to apply for employment visa and comply with registrations requirements with Foreigners Regional Registration Officer (FRRO).
7 Accounting Standards and Policies While preparing financial statements, companies in India are required to adopt Indian Accounting Standards issued by the Institute of Chartered Accountants of India.
8 Customs Duty Customs Duty is a tax imposed on imports of goods into India and is typically payable by the importer.
9 Intellectual Property
India is a party to the General Agreement on Tariffs and Trade (GATT) and Trade-Related Aspects of Intellectual Property
Rights (TRIPS) Agreement.
Indian statutes governing copyrights, trade marks, patents, geographical indication of goods and other related laws need to be complied with.
10 Anti-Trust Laws India has a strong anti-trust regulatory framework to prevent trade monopolies, protect consumers and promote healthy competition in the markets
11 Labour/ Employment Laws
Indian Employment Law is among the more complex systems in the world (albeit the government is attempting to address this via a number of Ease of Doing Business initiatives). India has labour laws that govern almost all the aspects of employment such as payment of wages, working conditions, accident compensation, contributions to retiral benefits etc. In addition, State Governments usually have a separate Labour Ministry, which seeks to ensure compliance with State labour laws (for example, State Shops and Establishments Act, Labour Welfare Fund Act, etc) through its Labour Department.
With an objective to reform the labour laws in India, the Government is in the process of merging existing 44 labour laws under 4 categories: wages, social security, industrial safety and welfare and industrial relations.
Given the above, the compliance landscape will change according to the provisions of new labour legislation (as and when it is notified).

Necessary Statutory Registrations

All companies functioning in India must secure the following registrations in order to comply with basic statutory requirements as prescribed by the government.

# Governance Area Registration Purpose
1 Income Tax Permanent Account Number Mandatory income tax registration
2 Income Tax Tax Deduction Account Number For deduction and deposit of taxes on payments
3 Indirect tax Goods & Services Tax registration
For charge and deposit of tax liability on sale of goods or services within India.
Applicable if annual turnover exceeds INR 2 million (from provision of services) or INR 4 million (from sale of goods)
4 Customs Import Export Code For import or export of goods or services
5 Excise Shops & Establishment registration for registered office and other any corporate office Regulation of working conditions, leaves etc.
6 Employment Laws State Profession Tax Payment of State profession tax liability
7 Employment Laws Taxable

There may be additional registration requirements based on factors like industry, business activity, and the state of operation. For example, manufacturing plants will also need to consider a variety of registrations covering factory licensing to environmental clearances.

Tax Compliance Calendar

To the uninitiated, the Indian tax structure can seem confusing. However, for the most part, it follows a pre-set schedule that clearly outlines the liabilities and the dates by which they must be paid.

Here is the Indian tax compliance calendar for your reference.

# Governance Area Registration Purpose
1 Income Tax ending on legal entity status and business operations.
2 Income Tax 2
3 Income Tax Need to be compulsory converted into equity.
4 Customs Dividend at a fixed rate
5 Excise Not applicable on dividend
6 Employment Laws Transferable subject to conditions of issue and Company law provisions
7 Employment Laws Taxable

Company Law and Indian Exchange Control Compliance Calendar

Indian law prescribes certain regulatory compliances for all businesses regardless of their industry, sector and provenance. Of course, different forms of businesses have different sets of compliances; some are in the form of documentation while others are in the form of meetings.

These regulatory compliances must take place as and when designated by the relevant authorities in order to avoid running into trouble.

# Governance Area Registration Purpose
1 Income Tax ending on legal entity status and business operations.
2 Income Tax 2
3 Income Tax Need to be compulsory converted into equity.
4 Customs Dividend at a fixed rate
5 Excise Not applicable on dividend
6 Employment Laws Transferable subject to conditions of issue and Company law provisions
7 Employment Laws Taxable

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