There are various forms of business structures existing in India viz. Sole proprietorship, Partnership Firm, Limited Liability Partnership, Cooperative Society, Private Limited Company, Public Limited Company etc. On the basis of nature of business, the companies can be further categorized as Non Profit Organizations, Foreign Companies, Government Companies, Non-banking finance companies, Nidhi Companies etc.

Different legislations govern different forms of business organisation however the main legislation governing the most widely used ‘company’ form of business structures in India is the Companies Act, 1956. But the Act is replaced by the Companies Act 2013, which was passed by the The Lok Sabha on 18th December, 2012 and by the Rajya Sabha on 8^th August 2013. It received Presidential assent on 29^th August 2013 and has been notified in the Official Gazette on 30th August, 2013.

The provisions of The Companies Act, 2013 are enforced in phases. While 98 sections are enforced by notification issued on September 12, 2013 and the remaining sections are implemented vide notification released on March 26, 2014.The Companies Act 2013 is applicable from financial year 2014 – 2015.

Various other new forms of Business structures and in some cases revamped business structures will come into force in India via the Companies Act 2013 viz One Person Company (section 2(62) of the Act), Small Company ((section 2(85)), Companies with charitable objects etc. (section 8), Dormant Company (section 455), Companies incorporated outside India (Chapter XXII), Government Companies (Chapter XXIII), Nidhi Companies (Chapter XXVI).

The choice of form of business will depend on the activity for which the business is being set up and various other ancillary factors. The features and formation procedures of the important forms of business organization for setting up business in India are as follows:

Sole Proprietorship 

A sole proprietorship is a single person operation form of business organisation. There is no difference between the owner and the company. It is the easiest to set up and the liability of the owner is unlimited. The profits are entirely the sole proprietors’ however, since his liability is unlimited, his personal assets can be realised to make good the losses of the business. The greatest advantage of such an organization is that it requires minimum legal documentation. There is no separate law on sole proprietorships and it functions as per the normal law of contracts and business.

Partnership

Partnership form of business formation is governed by the Partnership Act, 1932. Two or more persons can start a partnership and the maximum number of permissible partners in a firm is hundred. Prior approval from the Reserve Bank of India (RBI) is required if foreign nationals want to become partners in an Indian partnership.

There is no stipulation as to the minimum capital to be subscribed for a partnership. A Partnership deed in writing clearly specifying the name of the partnership firm, the names of the partners, the capital to be contributed by each partner, the profit or loss sharing ratio between partners, the business of the partnership, the duties, rights, powers and obligations of each partner and other relevant details needs to be executed. Registration of partnership deeds is not compulsory however registration ensures certain legal rights to the firm and its partners. The liability of partners in Indian partnerships is joint and several for the debts of the partnership firm.

Limited Liability Partnership

The Limited Liability Partnership (LLP), a comparatively new form of business organization in India, which came into being by way of Limited Liability Partnership Act, 2008.
An LLP is a form of business organization combines the advantageous features of both company and partnership into a new business model. LLP is viewed as an alternative business vehicle in which the liability of its partners is limited to the extent of their capital contribution or as agreed as per the Limited Liability Partnership Agreement. The primary intention of LLP is that its external structure should mirror that of the limited company but in terms of conduct of internal affairs it would be similar to traditional partnership.

A LLP is a body corporate, with a distinct legal entity separate from that of its partners. It has perpetual succession and a common seal. It is liable to the third parties independent of the other partners. Any change in its partners, will not affect the existence, rights or liabilities of the LLP. LLP can make contracts, hold assets, sue or be sued in its own name and can hold property or become insolvent.

A Minimum of 2 partners are required to form a LLP and no there is no upper limit as to number of partners. Also, a minimum of two individuals are required as Designated Partners in LLP, of whom at least one shall be resident in India. Unlike corporate shareholders, the partners of a LLP have the right to manage the business directly. One partner is not responsible or liable for another partner’s misconduct or negligence. Liability of the partners is limited to their agreed contribution in the LLP or as specified in the LLP Agreement. However, the partner’s liability in case of fraud is unlimited. The mutual rights and duties of the partners of LLP and the mutual rights and duties of LLP and its partners shall be governed by LLP agreement between the partners or between LLP and its partners. In the absence of such agreement relationship of Partners and LLP would be governed as per Schedule 1 of Limited Liability Partnership Act, 2008.

As per the consolidated Foreign Direct Investment (FDI) Policy (Effective from 5th April, 2013) issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, FDI is permitted in LLPs subject to certain conditions.

Company

The most widely used form of business organisation in India is a “company” which is a voluntary association of person formed for the purpose of doing some business. The governing legislation for companies is the Companies Act 2013, under which the companies can be registered with its liability as limited (personal liability of the members being limited to the amount unpaid on their shares) or unlimited (personal liability of members is unlimited by a pre-decided nominated amount) and are incorporated as public or private companies. Company can also be registered as a Guarantee Company. A Company established for a charitable purpose can also be formed under the provisions of section 8 of the Companies Act 2013.

A Private Limited Company means a company which by its articles of association

1. Restricts the right of members to transfer its shares;
2. Limits the number of its members to fifty ( excluding the past and present employees of the company) and

• Prohibits an invitation to the public to subscribe to any shares in or the debentures of the company.

In such a company the liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager of such a Company can at times be unlimited. A minimum of two shareholders and two directors are required to form a private limited company. The minimum paid up capital at the time of incorporation of a private limited company has to be Indian Rupees 1,00,000. There is no upper limit on the authorized capital and the paid up capital. It can be increased any time, by payment of additional stamp duty and registration fee. 

Public Limited Company means a company which is not a private limited company. It does not carry the word ‘private’ in its name and also do not have the restrictions as carried out in the private limited companies. Public limited companies are generally large companies with eligibility to raise capital from the public at large . The minimum paid up capital for a public company is Rs. 500,000 and a minimum of seven shareholders and three directors are required to form a public limited company.

One Person Company

India’s revamped legislation ‘The Companies Act 2013’ gave birth to the One Person Company (OPC) - a refurbished form of Sole Proprietorship. One Person Company is a company which can be started with only one person as a member. It is a separate legal entity from its members and gives limited liability protection to its shareholders. OPC may be formed for any lawful purpose with one member and shall have a minimum of 1 director and can have a maximum of 15 directors. However, OPC will be converted into a Private Limited Company if it crosses an annual turnover of Rs.2 crores and will also have to file audited financial statements with the Ministry of Corporate Affairs at the end of each Financial Year. Every OPC must also nominate a Director in the Memorandum or Articles who will become the owner of the OPC in case the promoter Director is disabled.

Entry Options for Foreign Companies

1. FDI in an Indian Company

Indian companies can issue capital against FDI.

2. FDI in Partnership Firm/Proprietary Concern

• A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest in the capital of a firm or a proprietary concern in India on non-repatriation basis provided;
• Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintained with Authorized Dealers/Authorized banks.
• The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business or print media sector.
• Amount invested shall not be eligible for repatriation outside India.
• Investments with repatriation option: NRIs/PIO may seek prior permission of Reserve Bank for investment in sole proprietorship concerns/partnership firms with repatriation option. The application will be decided in consultation with the Government of India.
• Investment by non-residents other than NRIs/PIO: A person resident outside India other than NRIs/PIO may make an application and seek prior approval of Reserve Bank for making investment in the capital of a firm or a proprietorship concern or any association of persons in India. The application will be decided in consultation with the Government of India.
• Restrictions: An NRI or PIO is not allowed to invest in a firm or proprietorship concern engaged in any agricultural/plantation activity or real estate business or print media.

3. FDI in Venture Capital Fund (VCF)

 FVCIs are allowed to invest in Indian Venture Capital Undertakings (IVCUs)/Venture Capital Funds (VCFs)/other companies, as stated in paragraph 3.1.6 of this Circular. If a domestic VCF is set up as a trust, a person resident outside India (non-resident entity/individual including an NRI) can invest in such domestic VCF subject to approval of the FIPB. However, if a domestic VCF is set-up as an incorporated company under the Companies Act, as applicable, then a person resident outside India (non-resident entity/individual including an NRI) can invest in such domestic VCF under the automatic route of FDI Scheme, subject to the pricing guidelines, reporting requirements, mode of payment, minimum capitalization norms, etc.

4. FDI in Trusts

FDI in Trusts other than VCF is not permitted.

5. FDI in Limited Liability Partnerships (LLPs)

FDI in LLPs is permitted, subject to the following conditions:

• FDI will be allowed, through the Government approval route, only in LLPs operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions (such as 'Non Banking Finance Companies' or 'Development of Townships, Housing, Built-up infrastructure and Construction-development projects' etc.).
• LLPs with FDI will not be allowed to operate in agricultural/plantation activity, print media or real estate business.
• An Indian company, having FDI, will be permitted to make downstream investment in an LLP only if both-the company, as well as the LLP- are operating in sectors where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions.
• LLPs with FDI will not be eligible to make any downstream investments.
• Foreign Capital participation in LLPs will be allowed only by way of cash consideration, received by inward remittance, through normal banking channels or by debit to NRE/FCNR account of the person concerned, maintained with an authorized dealer/authorized bank.
• Investment in LLPs by Foreign Portfolio Investors (FPIs) and Foreign Venture Capital Investors (FVCIs) will not be permitted. LLPs will also not be permitted to avail External Commercial Borrowings (ECBs).
• In case the LLP with FDI has a body corporate that is a designated partner or nominates an individual to act as a designated partner in accordance with the provisions of Section 7 of the LLP Act, 2008, such a body corporate should only be a company registered in India under the Companies Act, as applicable and not any other body, such as an LLP or a trust.
• For such LLPs, the designated partner "resident in India", as defined under the 'Explanation' to Section 7(1) of the LLP Act, 2008, would also have to satisfy the definition of "person resident in India", as prescribed under Section 2(v)(i) of the Foreign Exchange Management Act, 1999.
• The designated partners will be responsible for compliance with all the above conditions and also liable for all penalties imposed on the LLP for their contravention, if any.
• Conversion of a company with FDI, into an LLP, will be allowed only if the above stipulations (except clause 3.2.5(e) which would be optional in case of a company) are met and with the prior approval of FIPB/Government.

6. FDI in other Entities

FDI in resident entities other than those mentioned above is not permitted.

Different statutes have prescribed various statements to be disclosed periodically by companies. With regard to companies, financial reporting in India covers Balance Sheet, Profit and Loss Account (Income Statement), Statement of Cash Flows, Directors’ Report and Auditor’s Report.

A Company is under legal obligation to keep proper books of accounts and prepare final accounts every year in the prescribed manner. The Company must conform to the legal requirements for preparation of final accounts as laid down in the Companies Act, 2013. The Balance Sheet and Profit and Loss Account of the Company should give a true and fair view of the state of affairs of the company and should be made in the prescribed form as set out in Schedule III to the Companies Act 2013.

Preparation and presentation of financial statements are governed by the Companies Act 2013 and the Accounting Standards laid down by the apex regulator of accounting and auditing practices in India viz. The Institute of Chartered Accountants of India (ICAI). The companies need to disclose the significant accounting policies adopted in the preparation and presentation of its financial statements.

In a move towards convergence with International Financial Reporting Standards (IFRS), the ICAI commenced the process of developing a complete set of Accounting Standards that are ‘converged with’ IFRSs – to be known as Indian Accounting Standards or Ind ASs. The Ministry of Corporate Affairs has notified convergence of 35 Indian Accounting Standards with International Financial Reporting Standards (now called Ind AS) on 25^th February 2011.

The Companies Act 2013 has detailed provisions regarding Audit and Auditors. The Act provides compulsory Statutory Audit of Companies, appointment of Auditor and Disqualifications for appointment, Cost Audit, Government Audit, Special Audit etc.

The various types of company audits in India are – Statutory Audit, Internal Audit (in the form of efficiency, proprietary or compliance audit), Branch Audit, Joint Audit, Special Audit and Comptroller an Auditor General (CAG) Audit.

A Company, whether Indian or foreign, is liable to taxes in India if it is resident in India. A corporation is resident if it is incorporated in India or wholly managed and controlled in India. Residents are taxed on all their income whether earned in India or outside India. Foreign income derived by a resident company is subject to corporation tax in the same way as Indian income. A branch of a foreign corporation is taxed as a foreign corporation.

There are various direct and indirect taxes and duties applicable to a company which will vary from situation to situation, like – Income Tax, Minimum Alternate Tax, Dividend Distribution tax, Securities Transaction Tax, Wealth Tax, Customs duty, Central Excise, Service Tax, Value Added Tax (VAT) etc. These taxes and duties chargeable to Indian Companies are governed by various legislations like - Income-tax Act 1961, Annual Finance Acts; Finance Act, 1994; Customs Act 1962; Central Excise Act 1944; State VAT and Central Sales Tax laws etc.

Income Tax

Corporate Taxation is governed by the Income Tax Act 1961. The Income Tax rate is 30% for domestic companies and 40% for foreign companies and branches of foreign companies, however, It is proposed to reduce the rate of corporate tax for domestic companies from 30% to 29% in respect of companies having Turnover/ Gross Receipts upto INR 5 crores from assessment year 2017-2018.

Surcharge

Surcharge at 12% (increased from 10% to 12% in Budget 2016-2017) is payable on additional taxes levied on distribution of profits by domestic companies / mutual funds / securitization trusts and on buybacks.

All the above mentioned Increased surcharges will be in force for only one year.

In India, the tax year is the fiscal year i.e from 1^st April to 31^st March and Companies are required to submit a final return of tax by 30 September of the assessment year, stating income, expenses, taxes paid and taxes due for the preceding tax year. Other than that, Advance Tax has to be paid by the companies during the year on 15 June (15% of total tax payable), 15 September (45% of total tax payable), 15 December (75% of total tax payable) and 15 March (100% of total tax payable).

Minimum Alternate Tax (MAT)
A MAT is levied @ 18.5% on the adjusted book profit on those companies whose income tax payable on the taxable income computed according to the normal provisions of the Income tax Act 1961, is less than 18.5% of the book profits.

The MAT credit may be carried forward for offset against income tax payable in the following 10 years.

In case of MAT also, Surcharge as applicable as per the status of the company whether Domestic or Foreign as the case may be and Education cess (2%) and Secondary and Higher Education cess (1%) will be applicable.

Securities Transaction Tax (STT)

STT will be levied on the value of taxable securities transactions as under:

Customs Duty

The Customs Act, of 1962 is the basic Statute, which empowers the Government to lay down duties to be levied on goods imported into or exported from India. The categories of items and the rates of duties that are to be levied have been incorporated in two schedules to the Customs Tariff Act, 1975.

The first Schedule to the said Act specifies the various categories of import items, in accordance with the ‘Harmonized System of Nomenclature’ - an international scheme of classification of internationally traded goods. Different rates of duties are prescribed by the legislature on different commodities/group of commodities mentioned in the first Schedule. The duties are levied both on specific and ad-valorem basis, while there are few cases where at times specific-cum-ad valorem duties are also collected on imported items.

The Second Schedule to the Customs Tariff Act, 1975 incorporates items subject to exports duties and rates thereof.

Central Excise Duty

Excise duty is a tax on manufacture or production of goods. Excise duty on alcohol, alcoholic preparations, narcotic substances and certain hazardous substances is collected by the State Government and is called "State Excise" duty. The Excise duty on rest of goods is called "Central Excise" duty and is collected in terms of Section 3 of the Central Excise Act, 1944. Excise duty is a duty levied on excisable goods manufactured in India at the rates prescribed in the Central Excise Tariff Act 1985 which is aligned with the Harmonised System of Nomenclature.
Sales Tax is different from Excise Duty as it is a tax on the act of sale while Excise Duty is a tax on the act of manufacture or production of goods.

There has been no change in the general Excise Duty rate, which is at present 12%. Changes have been made in the effective rates of Central Excise and the Central Excise Act 1944.

Service Tax

Service Tax is the tax payable on services provided. Although it is a tax which is payable by the provider of service, however, it can be collected from the recipient of service. The Central Board of Excise & Customs (CBEC), Department of Revenue, Ministry of Finance, deals with the task of formulation of policy concerning levy and collection of Service Tax. The basic rate of Service Tax is at present 14.5% (including swach bharat cess of 0.5%). The Budget 2016 has introduced a new cess which would be levied @ 0.5% on the value of all taxable services which will be implemented from 1^st June 2016.

Service Tax came into effect in 1994 through the Finance Act 1994, and was payable on a specified list of services. However, from 2012, Budget 2012 (which received assent of President on 28.05.2012) has made service tax applicable on all services except those in the Negative List, thus introducing the ‘New Service Tax Regime based on Negative List’. Vide Notification No. 19/2012-ST dated 05.06.2012, the Central Government has announced 01.07.2012 as the date of Introduction of the new regime.

Under the new section 66B of the Finance Act 1994, service tax at the applicable rate (currently it is 14%) shall be levied on all services provided or agreed to be provided in a taxable territory, other than services specified in the negative list.

Thus, as regards chargeability to service tax, the following three parameters are important for a service to be taxable as a service:

• Service should be provided or agreed to be provided by a person to another. To determine when the liability to pay the service tax on a taxable service arises, i.e the point of taxation of service is determined in terms of the Point of Taxation Rules, 2011
• Service should be provided in the taxable territory. Detailed rules called the Place of Provision of Services Rules, 2012 have been made in this regard.
• Service should not be specified in the Negative list. The negative list of services is contained in section 66D of the Act. In all, there are seventeen heads of services that have been specified in the negative list.

Service tax does not have to be paid by the service provider for all taxable services provided in the taxable territory. Service tax on taxable services will not have to be paid in the following cases:

1. Services by Government or a local authority excluding the following services to the extent they are not covered elsewhere—
   1. Services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government;
   2. services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;

• 1 transport of goods or passengers; or

1. support services, other than services covered under clauses (i) to (iii) above, provided to business entities; (b) services by the Reserve Bank of India;

2. Services by a foreign diplomatic mission located in India;
3. Services relating to agriculture by way of—
   1. Agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or 2 [***)testing;
   2. Supply of farm labour;

• Processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market;

1. Renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;
2. Loading, unloading, packing, storage or warehousing of agricultural produce;
3. Agricultural extension services;

• Services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce;

4. Trading of goods;
5. Any process amounting to manufacture or production of goods;
6. Selling of space for advertisements in print media;
7. Service by way of access to a road or a bridge on payment of toll charges;
8. Betting, gambling or lottery;
9. Admission to entertainment events or access to amusement facilities;
10. Transmission or distribution of electricity by an electricity transmission or distribution utility;
11. Services by way of—
    1. Pre-school education and education up to higher secondary school or equivalent;
    2. Education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;

• Education as a part of an approved vocational education course;

12. Services by way of renting of residential dwelling for use as residence;
13. Services by way of—
    1. Extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount;
    2. Inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers;
14. Service of transportation of passengers, with or without accompanied belongings, by—
    1. a stage carriage;
    2. 3 railways in a class other than— (A) first class; or (B) an air-conditioned coach;

• metro, monorail or tramway;

1. inland waterways;
2. public transport, other than predominantly for tourism purpose, in a vessel of less than fifteen tonne net; and
3. metered cabs, or auto rickshaws;

15. Services by way of transportation of goods—
    1. By road except the services of— (A) a goods transportation agency; or (B) a courier agency;
    2. By an aircraft or a vessel from a place outside India to the first customs station of landing in India; or

• By inland waterways;

16. Funeral, burial, crematorium or mortuary services including transportation of the deceased

Value Added Tax (VAT)/ Central Sales Tax (CST)

VAT is a multi-point destination based system of taxation, on the final consumption of goods or services, with tax being levied on value addition at each stage of transaction in the production/ distribution chain. The term 'value addition' implies the increase in value of goods and services at each stage of production or transfer of goods and services. Currently, all the states in India have replaced their erstwhile sales tax regime with VAT.

VAT is applicable on intra-state sales. Interstate sales continue to be liable to Central Sales Tax (CST), which is imposed by the Central Government and administered by state governments.

The standard VAT rate is 12.5%, with reduced rates of 5% and 1% in most states.  Registration is compulsory for businesses exceeding a certain annual turnover (INR 10,00,000 in most states), although certain state VAT laws also specify monetary limits of sales and/or purchases.

Stamp Duty

Stamp duty is a form of tax that is levied on documents. It is levied on instruments recording certain transactions, at rates depending on the nature of instrument and whether the instrument is to be stamped under the Indian Stamp Act, 1899 or under a State stamp law. Stamp duty rates for an instrument vary from state to state.

Proposed Goods and Services Tax

India is expected to implement a goods and services tax and a bill to amend the India’s constitution to facilitate introduction of the same is pending before the Parliament. The Goods and Services Tax Bill or GST Bill, officially known as The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, proposes a national Value added Tax to be implemented in India[1] from June 2016. As India is a federal republic GST would be implemented concurrently by the central government and by state governments. Though no bold steps have been taken towards the introduction of GST in Union Budget 2016, a closer look at Budget proposal reveals that a multitude of small steps have been taken towards aligning the current tax regime to the GST tax regime. Now, the current budget seeks to impose Krishi Kalyan Cess @0.5%, thereby further enhancing the effective service tax rate to 15%, which is inching closer to the estimated GST rate.

Another step towards GST has been widening the service tax base by way of pruning service tax exemptions. Service tax exemptions afforded earlier in respect of services provided by senior advocates to advocates or partnership firms of advocates and by a person represented on an an arbitral tribunal to an arbitral tribunal have now been withdrawn.

Foreign Direct Investment (FDI) is permitted in India in certain specific sectors. The details of the entry route applicable and the maximum permissible foreign investment /sectoral cap in an Indian Company are determined by the sector in which it is operating.

Foreign Investment in India can broadly be divided into the following:

1. Foreign Direct Investment (FDI) - by persons resident outside India – through the automatic route or government route of approval.
2. Foreign Portfolio Investment - by Non resident Indians (NRIs) and Foreign Institutional Investors (FIIs)
3. Investments in Government Securities, Non-convertible Debentures etc. – by NRIs, FIIs, Persons of Indian Origin (PIO) etc.
4. Foreign Venture Capital Investments (SEBI registered)

As per the Consolidated FDI Policy (effective from April 5^th, 2013), “FDI” is defined to mean “investment by non-resident entity/person resident outside India in the capital of an Indian company under Schedule 1 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000”.

FDI can be made into the following entities subject to specified conditions:

• In an Indian Company
• In Partnership Firm / Proprietary Concern
• In Limited Liability Partnerships (LLPs):
• In Venture Capital Funds (VCF)
• In Trusts: FDI in Trusts other than VCF is not permitted.

FDI in resident entities other than those mentioned above is not permitted.

Regulatory Framework for Foreign Direct Investment in India

The regulatory framework governing Foreign Direct Investment (FDI) in India, consists of Acts, Regulations, Press Notes, Press Releases, Clarifications, etc.

The policy with respect to Foreign Direct Investment (FDI) in India is regulated by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, in the Government of India. The Circular on Consolidated FDI Policy, issued by DIPP, which is updated every year, makes provisions in respect of FDI, foreign technical collaborations, royalty payments, joint ventures abroad etc.

The DIPP makes policy pronouncements on FDI through Press Notes/ Press Releases.

 These press notes/press releases are notified by the Reserve Bank of India (RBI) as amendments to the Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No.FEMA 20/2000-RB dated May 3, 2000). These notifications take effect from the date of issue of Press Notes/ Press Releases, unless specified otherwise therein. In case of any conflict, the relevant FEMA Notification will prevail. Also the RBI issues a Master circular every year in July on “Foreign Investments in India” compiling the regulatory framework and instructions issued by the Reserve Bank on the subject which automatically stands withdrawn and replaced by a new master circular in the next year.

The procedural instructions regarding FDI are issued by the RBI vide A.P. Dir. (series) Circulars. [RBI authorizes ‘Authorised Persons’ to deal with matters related to foreign exchange, FDI etc as per directions issued by RBI in this regard. These directions are issued through these A.P (Dir) circulars where A.P stands for ‘Authorised Person’ and DIR stands for ‘Directions’.]

An Indian company may receive FDI under the two routes as given under:

1. Automatic Route - FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time.
2. Government Route - FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance. Application can be made in Form FC-IL, which can be downloaded from http://www.dipp.gov.in. Plain paper applications carrying all relevant details are also accepted. No fee is payable.

The Indian company having received FDI either under the Automatic route or the Government route is required to comply with provisions of the FDI policy including reporting the FDI to the Reserve Bank.

Prohibited Sectors of FDI

FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors:

1. Atomic Energy
2. Lottery Business

• Gambling and Betting

1. Business of Chit Fund
2. Nidhi Company
3. Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and Plantations activities (other than Tea Plantations) (Notification No. FEMA 94/2003-RB dated June 18, 2003).

• Housing and Real Estate business (except development of townships, construction of residen­tial/commercial premises, roads or bridges to the extent specified inNotification No. FEMA 136/2005-RB dated July 19, 2005).
• Trading in Transferable Development Rights (TDRs).

1. Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.

It is clarified that partnership firms /proprietorship concerns having investments as per Foreign Exchange Management Act 1999 (FEMA) regulations are not allowed to engage in print media sector.

An application for a license or permission for the establishment of a new industrial undertaking or any substantial expansion of [or the production or manufacture of any new article in] an industrial undertaking has to be made to the Government.

The Industries (Development and Regulation) Act 1951 is the main legislation which provides the legal framework for industrial development and for establishment of industries in India. Industrial licence is granted by the Secretarial of Industrial Assistance (SIA) in the Department of Industrial Policy and Promotion, on the recommendation of the Licensing Committee. For this purpose, application in the prescribed form, accompanied by the requisite fee needs to be submitted to SIA.

At present Industrial Licensing for manufacturing is required in case of :-

• Industries under compulsory licensing
• Manufacture of items by Large or medium industries of items reserved for exclusive manufacture in small scale industrial units
• Project location attracts locational restrictions

Following industries require compulsory industrial licence under the provisions of I(D&R) Act, 1951.

1. Distillation and brewing of alcoholic drinks.
2. Cigars and cigarettes of tobacco and manufactured tobacco substitutes;

• Electronic Aerospace and defence equipment: all types;

1. Industrial explosives, including detonating fuses, safety fuses, gun powder, nitrocellulose and matches;
2. Hazardous chemicals;

• Hydrocyanic acid and its derivatives
• Phosgene and its derivatives
• Isocyanates and di-isocyanates of hydrocarbon, not elsewhere specified (example: Methyl Isocyanate).

Industries exempted from the provisions of Industrial Licence are required to file Industrial Entrepreneur’s Memorandum (IEM).

Additionally, an entrepreneur has to obtain several product specific clearances depending upon the nature of his unit and products manufactured. Environment & Pollution Related Clearances will have to be obtained under the environmental laws like The Environment (Protection) Act, 1986, The Biological Diversity Act, 2002, Water (Prevention and Control of Pollution) Act, 1974, Air (Prevention and Control of Pollution) Act, 1981, Forest Conservation Act 1980 etc. The method of granting consent under water and air pollution to SSI units has been simplified. Except for 17 critically polluting sectors, in all other cases SSI units will merely have to file an application and obtain an acknowledgement which will serve the purpose of consent.

Units undertaking to export their entire production of goods and services (except permissible sales in Domestic Tariff Area), may be set up under the Export Oriented Unit (EOU) scheme, Electronic Hardware Technology Parks (EHTP), Software Technology Parks (STP) or Bio-Technology Parks (BTP) Scheme for manufacture of goods, including repair, re-making, reconditioning, re-engineering and rendering of services. Trading units are not covered under these schemes. These units are entitled to certain privileges and exemptions.

Similarly a unit can be set up as Special Economic Zone (SEZ). SEZ is a region that has economic laws that are more liberal than the country’s typical economic laws and where all the units therein have specific privileges. SEZs are specific enclaves and are exempt from most restrictive laws regarding taxes, quotas, FDI-bans, labour laws etc to make them globally competitive. Through setting up a SEZ in any state, the state can earn increased export earnings, benefit from increased employment opportunities etc. To enable this, foreign investors are offered incentives such as tax exemptions, duty free imports, exemptions from import quotas, capital mobility to remit profits, export allowances and subsidised interest rates within the SEZ.

Foreign technology collaboration agreement for acquisition of foreign technology requires approval of Government of India.  It normally includes technical know-how, design and training, engineering services and lump sum or royalty payments.

India provides protection to Intellectual Property Rights in accordance with its obligations under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) of the World Trade Organisation (WTO). India has well-established administrative mechanism for enforcement of Intellectual Property Rights. Cases of infringement of IPRs are tried in the judicial courts. Also, Intellectual Property Appellate Board (IPAB) has been constituted  by a Gazette notification of the Central Government in the Ministry of Commerce and Industry on 15th September 2003 to  hear appeals against the decisions of the Registrar under the Trade Marks Act, 1999  and the Geographical Indications of Goods (Registration and Protection) Act, 1999. IPAB has its headquarters at Chennai and shall have sittings at Chennai, Mumbai, Delhi, Kolkata and Ahmedabad

The governing legislation depends on the IP which needs to be protected. Intellectual Property Rights (IPRs) includes the following independent IP rights, which can be collectively used for protecting different aspects of an inventive work for protection viz. Patents, Trade Marks, Geographical Indication of Goods, Registered Industrial Designs, Copyrights, Integrated Circuit layout design, Plant Variety and Farmers Rights Protection, Biological Diversity and Trade Secrets/Undisclosed Information.

The Department of Industrial Policy & Promotion is concerned with legislations relating to Patents, Trade Marks, Designs and Geographical Indications. These are administered through the Office of the Controller General of Patents, Designs and Trade Marks (CGPDTM).

The following is the regulatory and administrative framework governing IPRs in India:

1970. Patents - The Patents Act, 1970. Patent Offices at Kolkata (HQ), Mumbai, Chennai and Delhi.
1971. Designs - The Designs Act, 2000. Patent Offices at Kolkata (HQ), Mumbai, Chennai and Delhi.

• Trademarks - The Trade Marks Act, 1999. Trade Marks Registry at Mumbai (HQ) Chennai, Delhi, Kolkata and Ahmedabad.

1999. Geographical Indications - The Geographical Indications of Goods (Registration & Protection) Act, 1999. Geographical Indications Registry at Chennai.
2000. Copyrights - Copyright Act, 1957. Department of Higher Education.
2001. Integrated Circuits Layout-Design - Semi-conductor Integrated Circuits Layout-Design Act, 2000. Department of Information Technology.

• Plant Varieties - Protection of Plant Varieties and Farmers’ Rights Act, 2001. Department of Agriculture and Cooperation.

In India, labour law also referred to as “Labour and Industrial Law” is a comprehensive field. There is not one but numerous legislations governing different aspects of labour and employment in India.

Labour laws in India are enacted by Central Government and State Government depending on the competency for enactment provided in the Constitution of India and are enforced likewise. Moreover, both Central and State Governments have formulated Rules to facilitate implementation of these laws.

Additionally, there are social security legislations for the workers in the Organized Sector and a large number of welfare funds for certain specified segments of workers etc. Social Security Schemes of Employees’ Provident Fund Organization (EPFO) and Employees’ State Insurance Corporation (ESIC) are also available for the workers.

The ESIC has taken up new initiatives to improve the quality of service delivery. These include coverage of new geographical areas, implementation of an IT rollout plan and medical education projects. As part of the effort towards the automation of work processes to achieve efficiency and improve service delivery, all offices of EPFO have been computerized, with facility for electronic submission of statutory EPF returns with effect from 2012-13. The members can now get their PF balances, track claims, payment status online as well as receive SMS s on their mobile phones after registering on  www.epfindia.gov.in

Some important labour laws and the area they relate to are as follows:

• The Employees’ Compensation Act, 1923 - provides for the payment of compensation by specific employers to their workmen who are injured by accident. The compensation under the Act has been enhanced from Rs.80,000/- to Rs.1,20,000/- in case of death, from Rs.90,000/-to Rs.1,40,000/- in case of disablement and from Rs.2,500/- to Rs.5,000/- towards funeral expenses.
• The Employees’ State Insurance Act, 1948 - requires mandatory insurance for workers that provide certain benefits to employees in case of sickness, maternity and employment injury and in certain related circumstances.
• The Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 - ensures terminal benefits to employees like provident fund, superannuation pension, and family pension in case of death during service.  Separate laws exist for similar benefits for the workers in the coal mines and tea plantations.
• The Maternity Benefit Act, 1961 - provides for the payment of maternity benefits to women by their employers
• The Payment of Gratuity Act, 1972 - establishes a retirement benefit like provident fund or pension. The ceiling on gratuity has been enhanced from Rs.3.5 lakh to Rs.10 lakh.
• The Industrial Disputes Act 1947 – provides for the investigation and settlement of industrial disputes by mediation, conciliation, adjudication and arbitration.
• The Industrial Employment (Standing Orders) Act, 1946 – provides for employers in industrial establishments to define their conditions of employment and make them known to their workmen.
• The Trade Unions Act, 1926 - recognizes the right of workers to organize themselves into trade unions.
• The Indian Factories Act, 1948 - provides for the health, safety and welfare of workers.
• The Equal Remuneration Act, 1976 - provides for equal pay for men and women workers for the same or similar work. 
• The Child Labor (Prohibition and Regulation) Act, 1986 - prohibits the engagement of children below the age of 15 years in certain employments and regulates the conditions of work of children in other employments.
• The Payment of Wages Act, 1936 - regulates the timely payment of wages without any unauthorized deductions by the employers.
• The Minimum Wages Act, 1948 - establishes minimum rates of wages in respect of certain prescribed industries involving hard labor
• The Payment of Bonus Act, 1965 - establishes an obligatory annual payment to the workers by an employer to provide an incentive for extra efforts.

The Reserve Bank of India (RBI), Ministry of Finance, Government of India and Securities and Exchange Board of India (SEBI) are the three major institutions which regulate the various aspects of capital market and money market in India.

The RBI is the governing authority for foreign exchange matters. SEBI, established on April 12, 1992, functions as the nodal agency to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

There are 22 stock exchanges in India and the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the most premier stock exchanges. The BSE is Asia’s first stock exchange and the world’s largest stock exchange in terms of number of listed companies with more than 6000 companies.

Main legislations having a bearing on the Capital market are - The Securities Contracts (Regulation) Act, 1956, The Securities & Exchange Board of India Act, 1992, The Depositories Act, 1996, The Foreign Exchange Management Act, 1999

Recovery of Debts due to Banks and Financial Institutions Act, 1993, Banking Regulation Act 1949 and The Companies Act, 1956.

The introduction of the Takeover Code, Corporate Social Responsibility and Corporate Governance Norms, Sustainability reporting by corporates and the major developments in the capital markets over the last few years has made the markets attractive to foreign institutional investors.

Policy actions initiated by SEBI such as allowing Qualified Foreign Investors (QFIs) to invest in the primary and secondary markets, electronic Initial Public Offers (e-IPOs), mandating companies to attain the minimum public shareholding of 25% by June 2013 and the disinvestment programme by the Government is expected to reinvigorate the Indian primary market activities.

The Banking system in India is well developed and the public sector banks are the back bone of the Indian financial system The Reserve Bank of India is the central bank of the country and is the empowered regulatory and supervisory authority of banks' activities in India and their branches abroad. Additionally there are a number of financial institutions in India which are regulated by RBI and SEBI.

Both the Central Government and State Government are empowered to legislate on matters of real estate for the subjects specified in the Constitution of India. There are a number of legislations both central and at the state level on various aspects of immovable property, transfer and sale of such etc.

Key Central legislations pertaining to real estate and the areas they cover are:

• Transfer of Property Act, 1882 - transfer of immovable property
• Registration Act, 1908 - registration of instruments relating to the transfer of an interest in immovable property
• Indian Stamp Act 1899 - amount of duty to be paid on prescribed instruments
• Indian Contract Act, 1872 - contractual rights and obligations of the parties
• Income Tax Act 1961 – taxation aspect of real estate
• Personal Laws & Succession Laws
• State Laws on rights in or over land, land tenures, transfer and alienation of agricultural land etc. The State laws in India are very specific and vary from State to State.

Foreign investment in real estate is regulated by the Department of Industrial Policy and Promotion (“DIPP”), the Reserve Bank of India (“RBI”) and the Foreign Investment Promotion Board (“FIPB”) under the provisions of the Consolidated Foreign Direct Investment Policy, the most recent one being applicable from April 5th, 2013.

As per the consolidated FDI Policy 2013, FDI is allowed under the 100% automatic route in townships, housing, built-up infrastructure and construction-development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure) subject to satisfaction of certain conditions for the same.

However a bill is in parliament regarding real estate i.e. Real Estate (Regulation and Development) Bill, 2013.The Bill regulates transactions between buyers and promoters of residential real estate projects.  It establishes state level regulatory authorities called Real Estate Regulatory Authorities (RERAs)

Residential real estate projects, with some exceptions, need to be registered with RERAs.  Promoters cannot book or offer these projects for sale without registering them.  Real estate agents dealing in these projects also need to register with RERAs.

On registration, the promoter must upload details of the project on the website of the RERA.  These include the site and layout plan, and schedule for completion of the real estate project.

70% of the amount collected from buyers for a project must be maintained in a separate bank account and must only be used for construction of that project.  The state government can alter this amount to less than 70%.

The Bill establishes state level tribunals called Real Estate Appellate Tribunals.  Decisions of RERAs can be appealed in these tribunals.

Visa is not a matter of right and it is the prerogative of the competent authority whether issue visa to any foreigner. While a large majority of foreigners are covered under general visa rules, however certain specific visa rules and procedures apply to certain categories of nationals. ‘Visa’ is a service and a fee is charged for grant of visa in accordance with the scale laid down by the Government of India. Visa Fees, once charged, are not refundable.

Entry, stay and exit of foreigners into India is governed by the Passport (Entry into India) Act 1920, Passport (Entry into India) Rules, 1950, Foreigners Act 1946 and the Registration of Foreigners Rules, 1992.

In India, the concerned Ministry for these issues is the Ministry of Home Affairs (MHA), Government of India (http://mha.nic.in). Outside India, the visa regime is implemented by Indian missions & posts and in India by Foreigners Regional Registration Offices (FRROs), home departments & district administrators in the states and immigration posts.

All foreigners entering India must have a passport or any other internationally recognized travel document and visa.

Nepalese or Bhutanese nationals entering by land must have some Photo Identity Papers as proof of their nationality. But in case of entry by air directly from Nepal/Bhutan or from a country other than China, they must have a passport. No visa is required. However, they must have visa if they are traveling from China

The visa applicant should ordinarily be within the jurisdiction of the mission/post or else it is necessary to make a reference to the Indian mission/post in the country to which the applicant belongs. Additional fee is chargeable for making reference to the concerned mission/post.

Gratis visa is granted to diplomats and officials , UN officials traveling on duty or those traveling to India on invitation of Government of India as its guest. Those granted scholarship under Cultural Exchange Programmes are also granted gratis visa.

The following types of India visa are issued to foreign nationals in accordance with the purpose of their visit.

A multipurpose life-long visa known as ‘Universal Visa’, may be granted by Indian Missions and Posts abroad or the Ministry of Home Affairs to the Foreigners holding Overseas Citizens of India (OCI) card. The holder of universal visa can study, do business or take up employment in India and is exempt from the requirement of registration with Foreigners Regional Registration Offices (FRRO)/Police authorities for any length of stay in India.

Visa can be extended and issues relating to extension of visa , while in India, is dealt by, FRRO, Ministry of Home Affairs.

In view of the existing bilateral agreements/arrangements, all types of visas are issued gratis to the nationals of Afghanistan, Argentina(Tourist visa only), Bangladesh, Democratic People's Republic of Korea, Jamaica, Maldives, Mauritius, Mongolia, South Africa and Uruguay.

Diplomatic, official/service and ordinary passport holders of certain countries are exempt under bilateral agreements from visa requirement.

Since 2006, a number of Indian Missions/Posts abroad have outsourced visa services. A few of the missions/posts have outsourced passport and consular services also.

Visas issued to foreigners are not valid for certain specified areas. Special permits viz. Restricted or Protected Area Permits are required to visit them. These permits are issued by Indian Missions/Posts abroad and MHA/State Governments in India. All Tibetan settlements are Restricted Areas.

Online Visa Application

All foreign nationals entering India are required to possess a valid international travel document in the form of a national passport with a valid visa obtained from an Indian Mission or Post abroad. The duly signed physical copy of the application form completed in all respect and submitted successfully, is to be submitted at the concerned Indian Visa Application Center or directly to Indian Mission/Post, on the scheduled date of interview along with the requisite supporting documents. The instructions for filling the form and scheduling the appointment can be seen at Instructions for Online Visa Application. Important technical information for filling online Indian visa application can be referred at Technical Instructions.

Registration of Foreigners

All foreigners (including foreigners of Indian origin) visiting India on long term (more than 180 days) Student Visa, Medical Visa, Research Visa and Employment Visa are required to get themselves registered with the Foreigners Regional Registration Officer (FRRO)/ Foreigners Registration Officer (FRO) concerned having jurisdiction over the place where the foreigner intends to stay, within 14 days of arrival.

Pakistan nationals are required to register within 24 hours of their arrival. Pakistan nationals are permitted to enter into and exit from India only through designated check posts.

Only single entry Tourist and Business visas valid up to 3 months are granted to Chinese nationals. The visa may be extended up to 3 months by FRROs/Ministry of Home Affairs. All other types of visas fall in prior clearance category.

All Afghan nationals are required to register with the FRRO/FRO concerned within 14 days of arrival except those Afghan nationals who enter India on a visa valid for 30 days or less provided the Afghan national concerned gives his/her local address in India to the Indian Mission/FRRO/FRO. The Afghan nationals who are issued visas with ‘ Exemption from police reporting’ are exempt from Police reporting as well as Exit permission provided they leave within the Visa validity period.

Foreigners other than those mentioned above will not be required to get themselves registered, even if they have entered India on a long term visa provided their continuous stay in India does not exceed 180 days. If the intention of the foreigner is to stay in India for more than 180 days, he/she should get himself/ herself registered well before the expiry of 180 days from the date of arrival with the FRRO/FRO concerned.

Foreigners (including minors above 16 years of age) have to report in person or through an authorized representative to the appropriate Registration Officer for registration. No registration is required in respect of children below the age of 16 years.

Work Permit

There are two types of work related Visas, namely:-

1. Business Visa designated as ‘B’ Visa
2. Employment Visa designated as ‘E’ Visa

A Business Visa with multiple entry facility can be granted for a period up to 5 years or for a shorter duration as per the requirement. A stay stipulation of a maximum period of six 6 months will be prescribed for each visit by the concerned Indian Mission keeping in view the nature of the business activity for which such Business Visa is granted.

Indian Missions can grant Business Visa with 10 years validity and multiple entry facility to the nationals of the United States of America. This visa should be issued with the stipulation that the stay in India during each visit shall not exceed six (6) months.

An Employment Visa is granted to foreigners desiring to come to India for the purpose of employment, subject to fulfillment of certain conditions. The validity period of the visa has been specified and is based on the purpose of employment.