India entry for foreign companies: subsidiary, FEMA and GST.

Advisory Monks Consulting is an India-entry advisory for foreign companies setting up and operating an Indian subsidiary. The right vehicle, clean FDI and FEMA compliance, and an entity that can invoice, hire and bank from day one. A practical setup guide for foreign companies entering India.

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Choose the right vehicle

• Wholly-owned subsidiary (Pvt Ltd) — the default for operating businesses; full FDI under the automatic route in most sectors.
• LLP — lighter compliance; FDI allowed in sectors with 100% automatic route and no performance conditions.
• Branch / Liaison / Project Office — for representation, project execution or limited activity; RBI/AD approval and narrower scope.

How to set up an Indian subsidiary, step by step

For a foreign company, incorporating a wholly-owned Indian subsidiary runs through the MCA's SPICe+ process and then the FEMA reporting that legitimises the money-in. The sequence that holds the 4–6 week timeline:

1. Groundwork. Obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN) for each proposed director, legalise/apostille the parent's charter documents, line up a resident director (in India 182+ days), and fix a registered-office address.
2. Name reservation — SPICe+ Part A. Reserve the company name (up to two proposed names) through SPICe+ Part A.
3. Incorporation — SPICe+ Part B. File incorporation with the MoA and AoA; the same form allots the DIN, PAN and TAN, and the linked AGILE-PRO-S form bundles EPFO, ESIC, state Profession Tax where applicable, an optional GSTIN and bank-account opening.
4. Bank account and capital. Clear foreign-shareholder KYC, let the subscription money land, and allot shares. This is usually the slowest step — start the bank file in week one, in parallel with Part B.
5. FDI & FEMA reporting. Confirm the sector is on the automatic route (Press Note 3 approval first if any beneficial owner sits in a land-bordering country), then file FC-GPR on the RBI's FIRMS portal within 30 days of allotment, at a FEMA-compliant price.
6. Statutory kick-off. Hold the first board meeting and appoint the first auditor (both within 30 days of incorporation), file INC-20A commencement of business within 180 days, register GST with a Letter of Undertaking, and sign a transfer-pricing-defensible intercompany agreement before the first invoice.
7. Ongoing cadence. ROC annual filings (AOC-4, MGT-7), GST and TDS returns, payroll (PF/ESI), Form 3CEB, and the RBI's FLA return by 15 July — the same calendar whether you are two people or two hundred.

Incorporation & registrations

Name reservation (SPICe+ Part A) and incorporation (SPICe+ Part B, which also issues PAN/TAN and, via AGILE-PRO-S, GST and EPFO/ESIC registration), plus a bank account — typically 4–6 weeks to an entity that can invoice, hire and bank.

State-wise incorporation variations

The registered-office state does not change the SPICe+ process, but it changes two things materially: stamp duty on the MoA/AoA, and how fast the state's Registrar and Shops & Establishment / Professional Tax desks move. At ₹10 lakh authorised capital, MoA+AoA stamp duty runs roughly ₹1,710 in Delhi, ₹2,020 in Telangana, ₹720 in Tamil Nadu, ₹4,100 in Maharashtra and ₹6,020 in Karnataka — Karnataka's Articles stamp jumped after a February 2024 amendment and is now one of the costlier states at this capital band. The gap widens sharply at higher capital: Maharashtra charges roughly 0.3% of authorised capital on AoA (capped near ₹1 crore), Karnataka roughly ₹500 per ₹10 lakh slab, Delhi and Telangana about 0.15% (capped ₹25 lakh and ₹5 lakh respectively), and Tamil Nadu a flat, comparatively low schedule capped around ₹5 lakh. None of this is large enough to override a genuine business-location decision — proximity to customers, talent pools (Bengaluru for tech, Mumbai/Pune for BFSI and manufacturing, NCR for policy and trading) still drives the choice correctly — but it is worth pricing in before fixing authorised capital, since raising it later repeats the stamp duty. Separately, Maharashtra, Karnataka, Telangana and Tamil Nadu all levy Professional Tax on salaries (Delhi and UP do not), adding a state-specific payroll registration most foreign parents don't anticipate until their first payroll run.

FDI & FEMA

Inbound equity is reported on FC-GPR within 30 days of allotment; pricing must meet FEMA pricing guidelines and sectoral caps. Downstream investment and ODI have their own filings.

Tax & transfer pricing

An Indian subsidiary of a foreign parent has related-party transactions from day one — service fees, cost recharges, IP. These need an arm's-length policy and Form 3CEB. Corporate tax follows the Income-tax Act, 2025 (erstwhile Income-tax Act, 1961).

STPI, SEZ and the DTA tradeoff

For an export-oriented IT/services subsidiary, the STPI (Software Technology Parks of India) scheme is still worth evaluating — but not for the reason most founders expect. The income-tax holiday under the old Section 10A/10B sunset in FY 2010-11 and has not been revived; STPI registration today carries no corporate tax benefit. What it still delivers is a customs and procedural package under the Foreign Trade Policy: duty-free import of capital goods and raw materials, simplified Softex certification for export invoicing (which also supports the FEMA/RBI export-realisation trail), and bonded-warehouse status for hardware. The real decision is STPI/DTA versus a Special Economic Zone (SEZ) unit: an SEZ unit gets the same customs exemptions plus GST-exempt supplies into the zone, but under SEZ Act conditions — positive net foreign exchange earning, physical location inside a notified zone, and more onerous unit-level compliance (approvals from the Development Commissioner, separate SEZ returns). For most newly-incorporated foreign subsidiaries — especially a captive GCC or a software-services unit without a large capital-goods import need — a plain domestic tariff area (DTA) unit with ordinary GST/LUT export treatment is simpler and carries lower compliance drag; STPI or SEZ registration earns its complexity only when import duty savings or a specific zone's ecosystem (talent, rent, or client co-location) materially offset the extra filings.

Ongoing compliance

ROC annual filings, GST returns, TDS, payroll and FEMA reporting run on a fixed calendar — handled in-house or via our Virtual CFO desk.

Choosing between the vehicles: the questions that decide it

The comparison is rarely about incorporation cost — it is about what the entity must be able to do in year three. Four questions settle most cases:

• Will it earn revenue in India? A liaison office cannot invoice at all; a branch can, but only within its RBI-approved scope and at a 35% tax rate on branch profits. Revenue businesses end up as subsidiaries almost every time.
• Will it need outside capital or ESOPs? Only a company issues shares cleanly to investors and employees. An LLP that later needs equity converts under time pressure.
• How heavy is the parent's control? A branch is legally the foreign company — its India dealings expose the parent's global income to Indian audit questions. A subsidiary ring-fences that: the parent's exposure stops at its shareholding and the transfer-pricing file.
• Is the sector caught by conditions? Most services and manufacturing are 100% automatic-route; retail, insurance, defence and a handful of others carry caps, conditions or approval routes that reshape the structure.

Two constraints that surprise foreign boards

The resident director. Every Indian company needs at least one director who stays in India 182+ days in the preceding calendar year under Section 149(3) of the Companies Act. Decide before filing whether that is a relocating founder, a local hire or a professional director — retrofitting one delays incorporation.

Press Note 3. Any investment where an entity or beneficial owner sits in a country sharing a land border with India — China most prominently, including Hong Kong-routed structures — needs prior government approval regardless of sector or size. It applies to indirect stakes too: a Chinese fund holding a slice of the investing parent can trigger it. The approval runs months, not weeks, and it is the first cap-table question we ask.

The real long pole: banking and money-in

Incorporation is fast; the bank account is not. Foreign-shareholder KYC — apostilled charter documents, beneficial-ownership declarations, director verification — clears at the bank's pace, and nothing else can finish without it: the subscription money cannot land, so shares cannot be allotted, so FC-GPR cannot be filed, so later remittances stay blocked. Start the apostille chain and the bank file in week one, in parallel with the SPICe+ filing, and the 4–6 week timeline holds. Start them after incorporation and it stretches toward ten.

Invoicing-ready means more than incorporated

To raise a compliant first invoice — usually to the parent — you need GST registration with a Letter of Undertaking filed (so export-of-services invoices go out without charging 18% GST, with input credits refundable), a signed intercompany agreement priced on a transfer-pricing-defensible basis, and the FIRC trail for each inward remittance that your auditor and the RBI's annual FLA return will ask for. The intercompany agreement is the one to get right first: it anchors the tax position for every year that follows.

The deadlines a first-year board misses

Three Companies Act deadlines land before most foreign boards have even finished opening the bank account, and missing them carries automatic per-director penalties, not warnings. Section 173(1) requires the first board meeting within 30 days of incorporation, and then a minimum of four meetings a year with no more than 120 days between any two — this is often the meeting where shares get allotted and the bank mandate approved, so it cannot simply wait for a quorum of overseas directors to find a date. Section 139(6) requires the board (not the shareholders) to appoint the company's first statutory auditor within 30 days of incorporation; miss it, and the members must appoint one at an extraordinary general meeting within 90 days instead — an avoidable extra filing. Thereafter, annual filings run on a fixed clock keyed to the AGM date (usually 30 September for a March year-end): AOC-4 (financial statements) is due within 30 days of the AGM, MGT-7 / MGT-7A (annual return) within 60 days, and ADT-1 (subsequent auditor appointment/ratification) within 15 days of the meeting that makes the appointment. For a 30 September AGM, that is roughly 29–30 October for AOC-4 and 29 November for MGT-7. A newly-incorporated foreign subsidiary's most commonly missed item isn't any of these, though — it's the INC-20A commencement-of-business filing within 180 days of incorporation, because it depends on subscription money actually landing, which depends on the bank account, which is usually the slowest piece in motion.

The first-year calendar, honestly

Budget for the full stack from day one, whatever the headcount: statutory audit and AGM, the income-tax return (31 October where transfer pricing applies) with Form 3CEB, monthly or quarterly GST returns, quarterly TDS returns, payroll (PF/ESI) once employees join, MCA annual filings (AOC-4, MGT-7), the commencement-of-business filing (INC-20A, within 180 days), and the RBI's FLA return by 15 July. A two-person subsidiary carries essentially the same calendar as a two-hundred-person one — which is why most foreign parents outsource it entirely rather than hire for it.

Common questions

This guide is general information, not legal or tax advice; positions turn on the facts of each case and the notified Rules. Get in touch for advice on your situation.