Doing Business in India

Do you want to expand your business into India or hire employees there? Here are some key things you need to know about an India expansion.

India Economy Overview

Currency

₹ Indian Rupee (INR)

Working hours

48 hours/week

Public/bank holidays

15 – 20 public holidays

Capital

New Delhi

Languages

Hindi & English

Population

1.4 billion

Minimum daily salary

INR 178 to INR 400 per day depending on state and industry

Tax year

April 1 – March 31

Date format

DD/MM/YYYY

Misclassification penalties

Misclassification of employees as independent contractors can lead to penalties, including fines and back payments for wages and benefits. Penalties vary depending on the severity and nature of the violation.

Fun fact

India is Home to Some of the World’s Oldest Continuously Inhabited Cities. This includes Varanasi (Benares or Kashi), Madurai, and Patna (formerly Pataliputra).

India is the world’s fifth-largest economy, with a GDP of approximately $3.5 trillion. The country has a population exceeding 1.4 billion, making it one of the most populous nations globally. Key industries driving India’s economy include information technology, manufacturing, agriculture, and services.

The IT sector is particularly prominent in larger cities like Bangalore and Hyderabad, making India a global leader in technology and significantly contributing to the country’s exports and employment rates. Manufacturing also plays a crucial role, especially in textiles, automobiles, and electronics, contributing substantially to industrial output.

Agriculture remains a vital part of India’s economy, employing nearly 50% of the workforce. The country’s labor force is known for being young and skilled, with a median age of around 28 years. Additionally, India’s rapidly growing middle class is enhancing the consumer market, driving demand for various goods and services.

This combination of a large, young labor pool and multiple growing industrial sectors makes India an attractive and often profitable destination for both business and investment.

Table of Contents show

Overview of India's Economy

India’s economy is one of the fastest-growing in the world. Over the years, India’s economic landscape has transformed from a predominantly agrarian society to a major global market player. After gaining independence, India adopted a mixed economy model with a focus on self-sufficiency and a dominant public sector.

In the 1990s, India liberalized its economy by reducing trade barriers, deregulating industries, and encouraging foreign investment. This shift resulted in rapid economic growth, establishing India as a global economic powerhouse.

Demographic Advantage	Challenges
Large and youthful labor force	Income inequality
Over 60% of the population under 35	Infrastructure deficits
Growing middle class drives consumer demand and economic expansion	Regulatory hurdles pose complexities for businesses

Taxes

Employer tax: 12% – 13%

Provident Fund (PF)

12%

Employee State Insurance (ESI)

4.75%

Employee tax: 0% – 30%

Employees’ Provident Fund

12%

Employee State Insurance (ESI)

1.75%

Gross income

Up to ₹2,50,000
₹2,50,001 to ₹5,00,000
₹5,00,001 to ₹10,00,000
Above ₹10,00,000

Progressive tax rate

Business Regulation in India

India’s business regulations can often be complex and usually involve numerous laws and compliance requirements that businesses must strictly adhere to. Here’s an overview of some of the key regulations that businesses should be aware of:

Business Compliance Requirements

To operate in India, businesses must register with the Ministry of Corporate Affairs (MCA). This involves obtaining a Director Identification Number (DIN) and Digital Signature Certificate (DSC) and filing for incorporation through the MCA portal. Additionally, businesses need to register for a Goods and Services Tax (GST) number and, depending on the nature of their operations, may require specific licenses and permits from local, state, and central authorities.

Income Tax on Companies

India imposes a corporate income tax on businesses, with the standard rate for domestic companies being 25% for those with an annual turnover of up to INR 400 crore and 30% for larger companies. Also, a surcharge and cess are applicable, which can slightly increase the effective tax rate. Companies must file annual tax returns and make advance tax payments every quarter. Transfer pricing regulations require companies to maintain detailed documentation and ensure that transactions with related parties are at arm’s length.

Employment Laws

India has comprehensive employment laws designed to protect workers’ rights. The Minimum Wages Act mandates minimum wage rates, which vary by state and type of employment. Employers must also ensure that all wages are paid on time. The Factories Act limits working hours to 48 per week, with a maximum of 9 hours per day, and requires overtime to be compensated at twice the regular wage. Employers are required to provide various benefits, including provident fund contributions, employee state insurance, and gratuity for long-term employees. Employees are entitled to paid leave, including casual leave, sick leave, and earned leave, which varies by state and industry. The Employees’ Provident Fund (EPF) and Employees’ State Insurance (ESI) plans ensure retirement savings and healthcare benefits for employees.

Central to Indian labor law is the contract between the employer and the employee, setting out minimum entitlements and whether there is a probation period.

REMOTE PEOPLE FURTHER READING

We break down employer obligations in further detail in our comprehensive India Employment Guide.

Benefits of Doing Business in India

There are many benefits to businesses that are looking to expand or invest in India. Here are some of the key benefits:

Large Market

India’s large population of over 1.4 billion people provides a huge consumer base. The growing middle class is continually driving up the demand for various products and services, creating new market opportunities.

Skilled Workforce

India has a large, educated, and skilled labor force. The country produces millions of graduates every year, especially in engineering, technology, and business fields, offering a rich talent pool for businesses to select from.

Cost Advantages

Operating costs in India are generally lower than in many other countries. Labor, raw materials, and operational expenses are much more affordable, providing cost savings for businesses.

Growing Economy

India’s economy is one of the fastest-growing in the world, with a strong GDP growth rate. This economic strength creates a favorable environment for businesses looking to expand or invest.

Government Incentives

The Indian government offers various incentives for businesses, including tax breaks, subsidies, and support for startups and foreign investments. Initiatives like “Make in India” and “Digital India” aim to boost business activities and promote new innovation.

Strategic Location

India’s geographic location provides easy access to other emerging markets in Asia, the Middle East, and Africa. This strategic position enhances trade opportunities and market reach.

Business Expansion Options in India

If you are considering expanding your business into India, several methods can help you establish a presence in the market. Here are some options to consider:

India Employer of Record (EOR)

An EOR in India hires employees on behalf of your company, taking on all legal responsibilities as the official employer. This method is great for testing the market or scaling operations quickly, as it reduces the complexities and costs of setting up a legal entity.

Learn more about EOR in India

Recruitment Agencies

Recruitment agencies in India help businesses expand by connecting them with skilled local talent across various industries.

Remote People provides recruitment solutions that simplify hiring and ensure compliance with Indian labor laws.

For businesses looking to grow in India, Remote People offers the expertise and resources needed to build a local workforce quickly and effectively, making it a practical solution for market expansion.

Learn more about Recruitment Agencies in India

India Professional Employer Organization (PEO)

Partnering with a professional employer organization (PEO) allows companies to employ local staff in India without the need to establish a legal entity. This approach is quicker and less expensive, making it ideal for businesses testing the India market or those with limited operations. PEOs handle administrative tasks and ensure that companies comply with India regulations, reducing the complexity and risk associated with hiring local employees.

Learn more about PEO in India

Subsidiary Incorporation

Setting up a subsidiary involves creating a separate legal entity in India. This method provides full control over operations and benefits from local tax incentives and legal protections. It also limits liability to the subsidiary’s assets.

Branch Registration

Registering a branch allows your existing company to operate in India without forming a new legal entity. This option is simpler and quicker to set up but does not provide the same level of legal separation between the parent company and its operations in India.

Joint Ventures and Partnerships

Collaborating with local businesses through joint ventures or partnerships can provide valuable market insights and share the risks associated with entering a new market.

Exploring Business Opportunities in India

India offers numerous exciting business opportunities across various sectors, including technology, manufacturing, agriculture, and services. Its very large and rapidly expanding consumer base, combined with a skilled workforce and supportive government policies, creates an attractive environment for both investment and expansion.

Business Opportunities	Reasons
E-commerce	Rising internet penetration, growing smartphone usage, and increasing consumer comfort with online shopping drive the e-commerce sector’s rapid growth.
Healthcare	India’s expanding healthcare needs, coupled with government initiatives to improve healthcare infrastructure, create opportunities in telemedicine, medical devices, and healthcare services.
Renewable Energy	India’s commitment to renewable energy sources and the increasing demand for electricity present opportunities in solar, wind, and hydropower projects.
Infrastructure	The government’s focus on infrastructure development, including roads, airports, and smart cities, opens up opportunities in construction, engineering, and urban planning.
Technology & IT	India’s strong IT ecosystem, skilled workforce, and growing digital adoption create opportunities in software development, IT services, and emerging technologies like artificial intelligence and blockchain.

Despite challenges like a complex regulatory framework and infrastructure issues, the potential for growth and profitability in India’s market is very good. By understanding the local landscape and adopting a strategic market entry strategy, businesses can effectively tap into India’s growing market and maximize their potential for success.