How to start a business in India: taxes and conditions

Registering a company in India offers good growth prospects and opportunities for legal tax optimisation. The conditions created in the jurisdiction are conducive to attracting foreign capital, developing start-ups, small and medium-sized businesses, launching complex investment projects and implementing legal plans for asset protection and diversification.

The country is showing good economic growth, the authorities support the corporate sector, and the developed banking sector gives companies access to modern financial services. Business practices in India differ from European norms and traditions, but foreign businesspeople are not disadvantaged. There are no signs of xenophobia in the country, and the developed labour market eliminates any problems associated with hiring employees, even those with high qualifications.

India’s business profile:

• official languages — Hindi, English;
• form of government — federal parliamentary republic;
• location — South Asia;
• Time zone: GMT UTC+ 5:30;
• currency — Indian rupee (₹, INR), USD/INR exchange rate — 1:85.8559;
• main economic sectors — agriculture, industrial production, pharmaceuticals, jewellery, offshore programming, outsourcing;
• GDP —$ 119 trillion, GDP per capita —$ 81.8 thousand.

Advantages of registering a company in India

To start a new business, you can choose Caribbean offshore jurisdictions. Alternatives include onshore jurisdictions in Western Europe and Asian midshore jurisdictions (Singapore, Hong Kong, Vietnam). Each option has its advantages and disadvantages, but it is also possible to conduct effective commercial operations in other jurisdictions. For example, you could start a business in India. This is not a compromise, but a practical, promising and potentially profitable solution, especially if you are looking for an option with good overall characteristics.

The main business advantages of India are:

• a large and potentially profitable domestic market;
• An experienced and skilled workforce eliminates problems associated with recruitment, and wage expectations are lower than in neighbouring countries;
• the economy is showing consistently positive growth dynamics;
• Special economic zones in India offer particularly favourable conditions for doing business;
• trends towards the digitisation of all business processes;
• The favourable geographical location (in the centre of Asia) simplifies access to promising markets in the East and West;
• After registering a company in India, you can take advantage of tax breaks and privileges;
• state support for business;
• Investing in India does not involve significant risks — the business environment is very favourable;
• simplified administrative procedures;
• Developed financial infrastructure;
• double taxation in India will not be an obstacle to doing business, as the country has concluded numerous double taxation agreements.

At first glance, the country’s corporate legislation seems complicated, but this is not the case. You can set up a company in India and focus on its development without being distracted by administrative and legal issues. The requirements governing the activities of legal entities are favourable to foreign investors and business people. Most of the difficulties they encounter can be explained by insufficient preparation and ignorance of local specifics.

Taxation of individuals

The number of financial obligations depends on the payer’s status and place of permanent residence. The Indian tax system is relatively complex, but logical and transparent for analysis. Information on rates and calculation features is available from official sources, and the attitude towards foreigners is friendly.

Personal tax statuses in India:

• tax resident, ordinary resident (ROR, resident and ordinarily resident);
• tax resident, permanently or long-term resident abroad (resident but not ordinarily resident);
• non-resident for tax purposes (non-resident).

Conditions for granting tax resident status (criterion — length of stay in India during a specific tax year):

• 182+ days;
• 60+ days in a year+ residence for 365+ days during the previous 4 years.

If none of these conditions are met, the individual is considered a non-tax resident.

Rules for calculating tax liabilities:

• all ROR income (received in India and abroad) must be included in the tax base;
• persons with RNOR status pay taxes on income:
  • received or transferred to India;
  • received from business activities controlled from India;
• Non-residents (NRs) must pay tax on income received or arising in India.

Taxes in India for foreigners and citizens are calculated based on two systems: the basic system and the alternative system (APTR, Alternate Personal Tax Regime). Taxpayers can choose their own tax calculation scheme, but only if they have no income from business (entrepreneurial activity) in the current financial year. In this case, the alternative APTR regime must be applied. Taxpayers must use it permanently and can only return to the classic option once.

Old (classic) tax regime, personal income tax rates for the 2025/2026 tax years:

There are two basic tax-free minimums, which depend on the taxpayer’s age:

• 60-80 years old — ₹300,000;
• over 80 years old — ₹500,000

APTR tax regime, established personal income tax rates (effective from 1 April 2025):

The APTR scheme does not entitle the taxpayer to claim a number of allowances and deductions, offsets and/or loss carry-forwards (the list is not exhaustive):

• travel allowances;
• housing allowance;
• income not included in aggregate income;
• exemption from free meals provided by vouchers issued by the employer;
• professional tax deduction;
• deduction for housing loans;
• limited deduction for rental expenses;
• all deductions specified in the Income Tax Act in Chapter Via.

Additional tax on wealthy individuals (added to the basic personal income tax, not replacing it), qualifying condition — income of ₹5 million or more:

Income derived from long-term capital gains is taxed at a fixed rate of 15%.

Additional information on personal taxes in India:

• health and education tax — 4%;
• social security contributions — 12% (employers pay separately, at the same rate), 8.33% goes to a personal pension fund;
• tax residents can receive a tax deduction, the amount of which is determined by the lesser of:
  • calculated income tax or ₹12,500 (for the old tax regime);
  • assessed income tax or ₹60,000 (for the APTR scheme), if the total income is less than ₹1.2 million);
• Payments for treatment of COVID-19 or its consequences, as well as payments to the family of an employee who died from the consequences of coronavirus, are exempt from taxation.
• Income from entrepreneurial activities is subject to taxation at a rate of 18.5% (plus a surcharge for healthcare and education).
• if an individual receives income in convertible currency and is located in an international financial services centre, the personal income tax rate is 9% (there are special cases);
• Some Indian states levy a professional tax.
• There are no wealth or inheritance taxes.
• The property tax rate is set individually by each state in India.
• The capital gains tax rate on the transfer of capital assets is 12.5%, with a tax-free minimum of ₹125,000 (from 23 July 2024), and varies for other transactions.
• Securities Transaction Tax (STT) — the rate depends on the type of financial instrument;
• tax on share buybacks — 20% (plus 12% and social security contributions) on the difference between the sale and purchase prices.

Corporate taxation

Business incentives in India are one of the key factors contributing to the jurisdiction’s popularity among businesspeople and investors. The tax collection system is designed to stimulate and support business. Corporate tax in India and other levies are calculated based on corporate resident status. The rules for determining the tax base also depend on this status. Residents must include all income in the tax base, while non-residents must include only that part of their income that was received (accrued) in India.

Corporate tax rates in India (basic and effective) applicable for 2025/2026:

Additional information on corporate income tax in India:

• the effective tax rate includes an additional levy for healthcare and education;
• there are reduced tax rates of 22% and 15% (for already registered and newly established companies), but several mandatory conditions must be met in order to qualify for them.

Minimum alternative tax

Business incentives in India compensate for the difficulties of adapting to the country’s tax system. Corporate legislation provides for numerous incentives and deductions for businesses, which significantly reduce the fiscal burden. To maintain sufficient budget revenues, the concept of minimum alternate tax (MAT) was introduced.

This is a calculated indicator, with a base rate of 15%. Its purpose is to ensure that companies in India calculate their tax liabilities twice. Once in the usual manner according to the current rates ( ), and once based on a rate of 15%. The actual amount payable is determined by the higher of the two values. A tax credit can be claimed if the MAT corporate tax rate exceeds that obtained using the standard calculation method. If the opposite is true, the company can apply for a tax credit.

MAT rates (basic and effective) applicable for 2025/2026:

Additional information on corporate taxation in India:

• VAT in India. The standard rate is 18% (applied to most goods), with alternative rates of 5%, 12% and 28%. Some goods and services are completely exempt from value added tax. The threshold for mandatory VAT registration is a turnover of ₹2 million, for special category states — ₹1 million, for persons working only in India — ₹4 million. Some taxpayers are required to register for VAT. Companies with a turnover not exceeding ₹15 million may choose the composite rate calculation method. Input tax credit is available. Corporate law provides for mechanisms for input service distribution (ISD) and reverse charge (RCM). There is no VAT on export supplies. VAT invoices are issued only in electronic form (for B2B transactions with a turnover of more than₹ 50 million). An electronic invoice is required to move goods with a total value exceeding ₹50,000.
• All goods imported into India are subject to customs duties on an ad valorem basis (as a percentage of their value rather than a fixed amount). The standard range of rates is from 0% to 25% (taking into account changes in the budget for 2025/2026). Additional import duties:
  • social security (10% of BCD, Basic Customs Duty);
  • IGST (Integrated Goods and Services Tax);
  • compensatory levy;
  • medical levy — 5%;
  • AIDC (Agriculture Infrastructure and Development Cess), only on certain imported goods.
• Property tax. The rate depends on the city and, possibly, on prevailing market prices for real estate.
• Stamp duty. Usually paid by the buyer or one of the parties to the exchange. Rates are set individually in each state.
• Tax on profits from cryptocurrency transfers. The standard rate is 15% of the payment, but the finance law passed in 2025 may change the status quo.
• Share buybacks. The rate is 20% (+ 12%+ 4% social tax) of the difference between the purchase price and the issue price of the security.
• Tax on securities transactions. Standard STT (Securities Transaction Tax) rates range from 0.001% to 0.125%, depending on the type of security.
• Partnerships and joint ventures. Taxable as separate legal entities. Rates — 31.2% or 34.944% (criterion — income level of₹ 10 million), for alternative minimum tax — 18.5%.
• Withholding tax. Withholding tax rates — 20%, 20% and 10% (for dividends, interest and royalties).

Forms of business

Legal requirements in India do not restrict the freedom to choose the format of a company. Each has advantages and characteristics that directly affect a number of key factors. These include the availability of various business tools, sources of additional financing, confidentiality, expansion opportunities, requirements for authorised capital in India when registering legal entities, and other parameters for each commercial project.

Available organisational and legal forms of business in India:

• Sole proprietorship. A sole proprietorship is legally inseparable from its owner, so the owner bears full and unlimited liability for the business’s obligations. Taxation is carried out at the level of personal income (through personal income tax). A sole proprietorship can be registered very quickly, and doing business is simplified, but the legal risks are quite high.
• Partnership Firm. The main difference in this format is that the business is run by several (at least two) organisers. Financial obligations and profits are distributed among them and depend on each person’s share in the project. Decisions affecting the business are made on the basis of consensus. Taxation is personal only.
• Limited Liability Partnership (LLP). The main advantage is the flexibility of a traditional partnership combined with limited liability for participants (in the amount of their personal contribution). Taxation only at the level of the individual. Partners (participants) are not liable for each other’s actions. Compliance with corporate requirements (e.g., filing documents with the Companies Registry) is mandatory. A good and highly flexible option for small businesses and professionals who want to avoid complex corporate formalities.
• Private limited company (Pvt Ltd, Private Limited Company). A legal form of business with legal entity status, its assets are separate and do not overlap with the property of its participants. The company can continue its activities regardless of any changes in management (principle of continuous succession). There is a legal possibility of attracting third-party capital (external investment). The transfer of shares is limited. Corporate rules are stricter, annual reports must be submitted, and financial activities must be audited. Pvt Ltd is the best choice for launching a start-up in India, as this format combines limited liability and sufficient operational flexibility.
• Public Limited Company. This format allows a legal entity to raise additional capital by issuing shares and listing them on a stock exchange. Such companies are highly scalable and flexible, and their business can be highly diversified. They are most often used to launch large projects that require significant external financing. The activities of Public Limited Companies are subject to strict control by the corporate regulator, and independent auditing and disclosure of financial statements are mandatory.
• One Person Company (OPC). This option became available relatively recently, in 2013, when registering a company in India. The main difference is the ability to conduct business personally in the form of a legal entity with limited liability . Another advantage of OPC is simpler administrative requirements (for example, there is no requirement to hold a general meeting of shareholders).
• Joint venture (JV). A partnership between two or more participants, most often registered for the implementation of a specific large-scale project, with virtually any organisational and legal form. A joint venture may be registered for a specific term, with liability determined by the type of participants (limited or unlimited). Profits are distributed based on participation in the business, not on investment in it. Management decisions are made by direct voting (one participant, one vote).

Features of registering a company in India

When starting a new business, foreigners must take into account the influence of bureaucracy and specific administrative requirements. Therefore, before opening a company in India, you need to make sure that you have fulfilled all the registration requirements.

Minimum requirements based on the example of a private limited liability company:

• at least 2 shareholders (but no more than 200), individuals or legal entities, resident status is irrelevant;
• no fewer than 2 directors, natural persons only, any citizenship, may also be shareholders, 1 director must be a resident of India;
• company name in India approved by the Registrar of Companies (ROC), it is better to prepare 2-3 alternative options;
• registered office (legal address), which may be rented;
• There are no minimum share capital requirements, but it is desirable that there be enough for the company to operate smoothly.

Procedure for registering a company in India, general steps:

• Obtaining a Digital Signature Certificate (DSC).
• submit an application for a Director Identification Number (DIN);
• approval of the company name;
• prepare the Memorandum of Association (MoA) and Articles of Association (AoA);
• submit an application for company registration;
• paying government fees and charges;
• obtaining a certificate of registration and corporate identification number (CIN);
• obtaining a permanent account number (PAN);
• obtaining a tax deduction and collection account number (TAN);
• opening a corporate bank account;
• registering as a goods and services tax (GST) payer.

Conclusion, conclusions

How easy is it to start a business in India? If you prepare for the procedure and take into account all the requirements of corporate law, there should be no problems. The features and intricacies of registering a company in India are detailed in the documentation, which can be found on the official ROC website. There you will also find reference materials to help foreigners understand the complex issues of starting and running a business.

The advantages of registering a company in India are not only due to geographical factors (the country is located at the intersection of major trade routes connecting Asia, the Middle East and Europe). There are no significant restrictions on the types of business, and commercial projects in a wide variety of areas — cross-border trade, manufacturing, services, tourism — can be successful and profitable.

Registering an IT company in India offers particular prospects. The country’s hi-tech sector is developing rapidly, attracting foreign investment and creating additional jobs. Fintech in India is also on the rise, the government’s attitude towards blockchain technologies (including cryptocurrencies) is favourable, and digital infrastructure and electronic communication tools are widely developed.

Company audits are mandatory in India, and all recommendations of international financial regulators are implemented in the country. Therefore, businesses will not encounter problems related to insufficient reputation or restrictions explained by claims from the FATF or OECD. Thanks to this, the answer to the question of how to open an account in an Indian bank will be simple. Compliance with KYC/AML requirements is mandatory, but this approach has become the norm for developed countries in recent years.

The country offers incentives for new businesses, and the Indian tax system, which at first glance seems complex and confusing, will become simpler and easier to understand as the business begins to develop. The country’s economy is showing good growth rates, so the domestic market is gradually becoming more promising. This creates special opportunities for trading and manufacturing companies focused on the national consumer.