Starting a business in India: general information

Starting a business in India: general information

In order to buy a guesthouse in Rajasthan, I met the day before yesterday in Delhi a lawyer specializing in the creation of companies in India by foreigners. Here is some useful information he gave me.

First of all, you should know that a foreign individual is not allowed to buy real estate or land (= buy a house or land) in India. For that, it is necessary to create a company (with a real economic activity) in India, which, it, will buy the real estate or land. It is however no longer necessary to have an Indian partner to start a business in India, whereas this was the case until recently.

  1. It is therefore no longer necessary to have an Indian partner to start a business in India. It takes two directors and two directors for the company, who can be the same people. For the moment, the two directors may be domiciled abroad, but, according to a forthcoming change in law, at least one of them will soon have to reside in India.
  2. The procedure takes 2 to 3 months to start a business.
  3. The lawyer takes care of everything: paperwork, opening a bank account, checking the property. (See fees below)
  4. The documents are in English.
  5. The lawyer also takes care of the verification of the property (that it is “clean”), that is to say that he verifies that the owner is indeed the owner of the property and is entitled to sell; that there are no mortgages or commitment of the property to third parties that endanger the transaction. Because in India, in certain circumstances, distant relatives can, in certain cases, claim the property for recovery from justice if they believe that it belonged to the family and that it was despoiled in a way or of another.
  6. The transfer of capital for the creation of the company is done by bank transfer (Swift) on the account of the company that the lawyer will have created in the name of the beneficiary. There is no tax on the import of capital.
  7. You have to obtain an authorization from the Indian Central Bank to import capital, which is a specific procedure that few lawyers know, hence the need to go through a specialized lawyer.
  8. The minimum capital to start a business in India: 100,000 Rs. There is no tax on it.
  9. It is better to start with this amount, then increase it later if necessary.
  10. The purchase of the property (purchase of a house or land) is then done in capital increase.
  11. In the case of a property sale, only the seller pays a tax (approx. 20% of the transaction).
  12. To obtain an “employment visa”, ie a residence permit in India, you need an annual income of at least 25,000 US $! On this amount, a tax of 30% is collected by the State. The spouse and children may have a residence permit (but not a work permit).
  13. The lawyer can help to obtain a “business visa” during the procedure.
  14. In the event of resale of the property, there is a tax on the profit made (difference between purchase and sale) between 10 and 20%, depending on the duration of the business.
  15. In the event of a subsequent export of capital, there is a profit tax (import / export difference) of approx. 10 to 20%, depending on the duration of the business.

Procedure to create the company

Three steps (I will detail later) :

AT )

  1. Obtaining a DIN (director identification number)
  2. Obtaining an electronic signature (Electric filling – DSC) – to verify
  • Obtaining the PAN (company number?)

B)

  1. Verification of the name of the company (give 5-6 possible names), just to be sure that there is not yet a company with the same name in India.

VS)

  1. Registration of the company in the State where it will be established (or in Delhi with the lawyer)

Warning :

  1. The company must have a temporary address during the procedure, an address which can be with the lawyer.
  • Signatures can come from abroad if one of the administrators is not in India to sign the documents, but they must be legalized by a notary and any documents translated into English and certified as true. This is not necessary if the documents are signed in India before the lawyer.
  1. There is a check that the company created has a real economic activity. Too many Westerners have gone through this means just to obtain a residence permit in India, without having any activity thereafter.

Price of the procedure (lawyer fees):

In my case, the creation of the company is done in Delhi, while the company and the guesthouse will be in Rajasthan, which incurs additional costs.

  1. A fixed part: the creation of the company: 1750 $ approx.
  2. A part by the hour: actions outside the standard procedure for setting up a business (on-site property verification, registration in Rajasthan, etc.).
  • 750 $ deposit is required before the start of the procedure, to be paid into the lawyer’s account.

David Lockhart

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