Compliance Requirements for Companies in India

There are a number of ways to start a business in India, ranging from a joint venture to a liaison office. Whatever route you choose, it is important to have an understanding of the subsequent compliance issues, as these may vary depending on the type of legal structure you decide to incorporate. Below we outline the main compliance regulations which companies will encounter when operating in India.
 
Formation and Registration
 
To form a company in India, you must meet the following requirements:

• The company must be registered with the relevant Registrar of Companies in the area you are setting it up;
• The company must be organized with reference to the relevant provisions of The Companies Act 1956;
• The necessary registration forms need to be filed with the Ministry of Corporate Affairs; and
• Directors need to be appointed. For this, the proper director identification number forms need to be completed.

Tax Compliance
 
Corporate Tax Returns

• Companies must file annual corporate tax returns with the Income Tax Department.
• Companies that maintain international transactions as well as domestic transactions with related parties must also file an annual transfer pricing audit.

Withholding Tax Returns

• Companies that make payments to entities outside of India for certain types of services (royalties, technical work, etc) are required to withhold the requisite taxes and also file a corresponding withholding tax form on the relevant payments.
• Companies are also required to deduct a special type of withholding tax called the Tax Deducted at Source on payments made to entities in India.
• Companies are required to file a withholding tax return every quarter.
• Withholding tax deductions for foreign payments must be certified by a Chartered Accountant.

Excise Duty for Manufacturers

• Companies that are involved in the production and manufacturing of goods must comply with the Central Excise Act. This requires companies to pay duties at a specific rate on the manufactured goods that are removed from their premises.

Service Tax for Service Providers

• Service providing companies are required to file biannual tax returns and make monthly payments towards service tax on the value of services that they provide (not charged on services rendered outside of India).

Other Taxes
 

• A customs duty is also levied on all imports. This duty is to be paid when the relevant items are brought over for clearance at Indian Customs.
• Companies are required to pay value-added tax and file returns.
• Companies are required to register and pay a profession tax for the trade or profession they are working on in a particular state. This tax is levied on a company and their employees. The company pays the tax on behalf of their employees, which is then deducted from the employee’s salary.

RBI Compliance

• The Reserve Bank of India (RBI) recently introduced something called the Annual Return of Foreign Assets and Liabilities to account for profits that companies make in connection to foreign direct investment. It is similar to a tax return, and it is to be filed annually.
• All liaison offices and/or project offices are required to report their activities to the RBI as necessary.

Other Requirements

• When first established a private company requires a minimum of two shareholders or members (with a maximum cap of 50 members). This number is increased to seven when starting a public company.
• There is a minimum of two directors necessary for a private company, and three for a public company.
• There is a minimum requirement for companies to hold a board meeting every quarter. If a director does not attend at least two meetings a year, than they may no longer serve as director.
• Each company must hold one annual general meeting (AGM) per year, during which they will review the company’s financial information. An independent auditor must be present at the meeting.
• Foreign managers or management staff must be properly authorized by the board.
• An independent auditor should be appointed to work for a duration of least one year (from that year’s AGM to the next year’s AGM). They will be in charge of the financial statements of the company and will provide their opinion on the financial statements in the form of an audit report.
• Proper meeting minutes must be kept for all board meetings or the AGM. The minutes are to be signed by the chairman of the board, and must be made available for inspection by board members.

This article was first published on India Briefing
 
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
 
For further details or to contact the firm, please email info@dezshira.com or visit www.dezshira.com.