Subsidiary Company Registration in India- 6 Factors to be considered

 In recent years, India has emerged as one of the best destinations for setting up businesses and making foreign direct investments. Many foreign companies are now moving a significant portion of their business operations and Research and Development Centers to India. With its Ease of Doing Business Initiative, Foreign Direct Investment Policies, Startup culture, and other government plans, it has become more viable and easier for foreign companies and foreign investors to set up or incorporate a company in India. Let’s elaborate on how India is becoming one of the most preferred countries in the world for doing business.

1. Why Choose India for Company Registration?

Some of the reasons why more and more foreign companies opt for subsidiary company registration in India and bringing foreign direct investments are as under:

• India provides an advantage owing to its democratic setup, vast consumer market base, and English-speaking professional manpower.
• The ease of doing business in India initiative by the Government has reduced the subsequent amount of rules and regulations for starting and operating a business in India and the time associated with it. Hence, providing the foreign investors multiple numbers of benefits.
• With its large population, India provides vast labor and human resource to foreign companies and that too at cheaper prices.
• Availability of resources in the country made it much easier for foreign companies to invest here.
• The subsidiary company provides an advantage in terms of lower tax rates as well as the fact that the Indian subsidiary can use the brand name of the parent company. Further, venture capitalists, as well as private equity investors, can make investments in Indian subsidiaries as shares of Indian subsidiary companies are freely transferrable.

All these factors contribute to the fact that more and more foreign companies are setting up business in India.

 There are multiple ways in which foreign companies can set up business in India and operate.

• In form of subsidiary company registration in India ( Private limited company registration or Public Limited Company registration).
• In the form of Liaison Office, Project Office or Branch Office.
• In the form of Joint Ventures ( Private limited company registration or Public Limited Company Registration).
• In the form of Limited Liability Partnership (LLP) registration in India.

All the aforesaid entities have their own advantages and disadvantages and the selection of a particular entity depends upon the long-term vision of the foreign company as well as its business operations in the home country.

2. Location for Subsidiary Company Registration in India 

Choosing the right location for the commencement of business operations in India is very important. Such decision depends upon multiple factors as mentioned below:

• For instance, in case the foreign company wants to set up a business in India in the field of Information Technology and Software Development, it may opt for Bangalore in Karnataka state. Many software companies have established its subsidiary company in this city because of its highly skilled human resource, business-friendly culture, and its telecommunication infrastructure.
• In case, the foreign company wants to venture into life science and health care activities in India, Hyderabad has emerged as a favorable place to open a subsidiary company for related business operations and companies.
• Further, many foreign companies have also considered establishing their company operations in cities like Pune in Maharashtra, Chennai in Tamil Nadu, Gurugram in Haryana state, Noida and Greater Noida in Uttar Pradesh and Ahmedabad in Gujarat, and many more due to its lower cost efficiency, less mobile labor force and less competition for employees.
• Another key factor in deciding the location of the subsidiary company is the location or city of residence, where the potential local managing director is living in India.

3. Amount of Capital with Which Indian Subsidiary shall be registered 

Although there is no minimum share capital prescribed under the law, however, it is advisable to register an Indian subsidiary with sufficient share capital.

The reasons for the same is that post-registration of Indian subsidiary, share subscription money deposited by the parent company in the Indian bank account will be considered as FDI and RBI compliance need to be done for intimating such receipt of FDI by filing of form ARF, FCGPR, etc with RBI.

In case, Indian subsidiary has less capital, it has to issue shares again to the parent company for bringing share subscription money which will again involve RBI compliance and involve cost of professionals. Private Limited Company Registration

Therefore, in order to avoid time and cost of compliance, it is advisable to have sufficient share capital in the Indian company. Indian subsidiary must estimate their initial working capital and capital investment need in India for 4 to 6 months and with that amount of share capital, the Indian subsidiary company shall be registered. Normally, USD 20,000 is ideal to start.

4. Number of Directors and Shareholders 

As per Indian regulations, minimum of 2 directors are required for subsidiary company registration in India and at least 1 director shall be an Indian citizen and Indian Resident. However, it is advisable to have at least 2 Resident Indian directors. This will facilitate the holding of board meetings, passing Board resolutions etc between Indian Directors, and no need to send documents for the signature of foreign directors again and again. 

Also, all documents which come from the foreign director or foreign company need to be apostilled and notarized in a foreign country which will increase time and cost. Also, in India at least 4 board meetings are required to be held every year. In case, there are only 2 directors, the foreign director has to visit India for attending board meeting again and again whereas if there are 2 Indian Directors, they can hold and attend a board meeting and each time foreign director don’t have to visit India. Therefore, there should be at least 2 Indian Resident Directors. There can be any no. of foreign Directors.

5. Prior Approval of RBI/FIFP in some cases 

Although foreign direct investment in India are allowed under automatic route for most of the sectors and no need to take any prior approval from RBI or FIFP, however, there are some sectors where FDI is permissible under the government approval route. For investment in those sectors, prior approval of RBI/FIFP would be required. Also, there are some prohibited sectors where investments are not permissible.

Also, in case FDI is coming to India from land-locked countries like China, Bangladesh, Nepal, Myanmar, Bhutan, Pakistan, Hong Kong, Afghanistan, prior approval of RBI/FIFP needs to be taken.

6. Hire a Professional Service Provider for Company formation in India 

Company formation in India is a comprehensive exercise and involves a lot of documentation and expertise of a professional chartered accountant or lawyer is required for smooth completion of the entire incorporation process as well as post incorporation process like:

1. Completing the required administrative requirements.
2. Completing the legal requirements of subsidiary company registration in India such as:
• Application for name availability and approval.
• Tax registration procedures.
• Labor registration process.
• Preparation of Memorandum of Associations (MOA) and Articles of Association (AOA).
3. RBI Compliance for reporting of FDI received from the parent company.
4. Obtaining approval from RBI/FIFP.
5. Payroll outsourcing services.
6. Human resource support and services.
7. Tax and Regulatory Filing.
8. Accounting/ Bookkeeping.
9. Audit/Assurance service.

We at EzyBiz India provide complete handholding to foreign companies desirous of registration of a subsidiary company in India. We assist them in all pre-incorporation as well as post-incorporation compliance as mentioned above.

 

NRI Tax Return Filing - Why ITR should be filed before due date?

In India, every individual including Non Resident Indians and non-audit assessee are required to prepare and file their annual Income Tax return on or before due date i.e 31^st July for income earned during previous financial year. However, for FY 2020-21, owing to COVID pandemic due date for Income Tax return filing has been extended to 31^st December 2021.

It is very important for both NRI as well as Indian Residents to complete ITR filing on or before due date otherwise unnecessary fines and penalties are levied which may be avoided.

In this write up, we will understand the consequences of late filing of NRI Tax Return under the Income Tax Act, 1961(“the Act”).

1)      Losses cannot be carried forward 

In case of late filing of NRI Tax Return, losses like business loss and capital loss cannot be carried forward to next year for set off against future year profits. Therefore, this is a serious consequence of not filing ITR within due date as losses will be lapsed.

2)      Interest u/s 234 A

Late filing of NRI tax return will lead to interest @ 1% u/s 234A of the Act from due date of Tax Return filing till date of actual tax return filing.

3)      Penalty u/s 234F

Delay in NRI Tax Return filing will also attract penalty of Rs 1000 to Rs 10,000. Further, non filing of income Tax return may also lead to prosecution in some cases.

4)      Delay in getting refund

Any delay in Tax filing in India will result in late processing of ITR by tax department due to which refunds are also credited late in the assesses bank account. Accordingly, it is advisable to file Income Tax return well in advance before due date so that refunds are credited in the bank account within time.

5)      No Sufficient time for filing tax return

As per amendment in tax laws, now Income Tax return cannot be filed after end of relevant assessment even after paying late fees. Previously, the assessee used to file tax return late after paying late fees but now this option is not available. Therefore, in case the assessee missed the due date, He would have very less time for filing ITR.

6)      Reminders and Notices from tax authorities

Late filing of Income Tax Return would lead to reminder notices from tax authorities. Further, due to Annual Information Report, nowadays tax authorities are aware of all the major income earned and expenses incurred by the assessee. Suppose assessee has earned any income and not filed its tax return, it will result in issuance of Income tax notice by compliance cell as well as commencement of Income Tax Faceless Assessment against the assessee.

7)      Prosecution

Intentional non filing of ITR may also lead to prosecution in some cases by the tax authorities.

8)      Black Money Act

As per Income tax Act as well as Black Money Law, any Resident having foreign income or foreign assests need to disclose the same in his ITR. Failure to do so will lead to harsh penalties as well as prosecution.

Thus, it may be inferred from above, that firstly, it is very important to file Income Tax Return and also such tax return shall be filed on or before due dates in order to avoid interest, penalty, prosecution and loss of refund and carry forward of losses.

Post incorporation ROC compliances of Private Limited Company in India

Every year, thousands of Private limited company registration takes place in India. Further, these are registered both as normal private limited company as well as in the form of wholly owned subsidiary of foreign parent company.

In this write up, we would understand various taxation, regulatory and other compliance which needs to be completed post company formation in India. 

ROC Compliance:-

1.      Appointment of first auditors of the Private Limited company 

First auditors of the company shall be appointed within 30 days of private limited company registration in India. This is not applicable in case of Government Company. The first auditor will hold office till end of first annual general meeting.

 

2.      Holding of First Board meeting of the Private Limited company

Every private limited company has to hold first board meeting of its directors within 30 days of company formation in India. Further, atleast 4 board meetings shall be held every year and gap between two board meetings shall not be more than 120 days.

3.      Applying for Certificate of Commencement of Business 

Within 180 days of private limited company registration, every company shall apply for certificate of commencement of business by filing necessary forms with ROC. This is an acknowledgement of the fact that all the subscribers have contributed towards their share application money.

4.      Disclosure of interest of the Director 

Every director shall disclose in the first board meeting, his interest in any company or firm or body corporate or association of individuals as prescribed under companies Act. This disclosure needs to be made every year in the first board meeting or as and when there is change in disclosure. Form MBP-1 needs to be filed with ROC for disclosing interest of such directors.

5.      Holding of Annual General Meeting of the Company 

Post company formation in India, it is mandatory to hold Annual General Meeting every year within end of 6 months from close of financial year. Further, the gap between two AGM shall not be more than 15 months. Also, the first AGM shall be held within 9 months from close of the financial year. The agenda of AGM is normally discussion and adoption of financial statements, appointment or reappointment of statutory auditors, declaration of remuneration and dividend etc.

6.      Filing of annual return in form AOC-4 before ROC 

Within 30 days of end of AGM, every company is required to file annual ROC return in form AOC-4 along with copies of balance sheet, statement of profit and loss account, notice of AGM, MGT-9 and Director’s report.

7.      Filing of annual return in form MGT-7 before ROC 

Within 60 days of end of AGM, every company is required to file annual ROC return in form MGT-7. In case of companies having Turnover of Rs 50 crore or more or in case of companies having paid up capital of Rs 10 crore or more, form MGT-7 need to be certified by company secretary in practice in form no. MGT-8.

8.      Filing of  form DPT-3 before ROC 

Every company having outstanding amount or loan as on 31^st March has to file form DPT-3 mentioning details of such outstanding amount. This form needs to be filed even if amount outstanding is falling under definition of deposit or not. Due date of filing is 30^th June.

9.      Filing of  form MSME (Half yearly) before ROC 

Form MSME needs to be filed by every company which has outstanding dues payable to MSME beyond 45 days. This form need to be filed half yearly basis. For first 6 months, due date is 31^st October and for last 6 months, due date is 30^th April.

10.  Director KYC by filing form DIR-3KYC 

Every director of the company, who has obtained DIN before 31^st March 2020, needs to do director KYC every year by filing form DIR-3KYC. Failure to do so may lead to deactivation of DIN as well as penalty of Rs 5000 for each DIN.

11.   Statutory registers and records 

Every company is required to maintain statutory registers prescribed under companies act along with minutes of board meetings, minutes of AGM at the registered office of the company. 

12.  Share certificates 

Every company shall issue share certificates to its shareholder within 60 days of company formation in India. Further, whenever additional shares are issued and allotted, share certificates need to be issued within 60 days of such allotment.

13.  Subsidiary Company needs to report share subscription money

In case of subsidiary company registration in India, share subscription money received in Indian bank account from foreign shareholders in the form of FDI needs to be reported to RBI by filing form FCGPR etc.