Starting A New Business In India
Below is a detailed summary of the bureaucratic and legal hurdles an entrepreneur must overcome in order to incorporate and register a new firm, along with their associated time and set-up costs. It examines the procedures, time and cost involved in launching a commercial or industrial firm with up to 50 employees and start-up capital of 10 times the economy’s per-capita gross national income.
The information appearing on this page was collected as part of the Doing Business subnational project in India by www.doingbusiness.org
|1||Obtain director identification number (DIN) online from the Ministry of Corporate Affairs portal (National)The process to obtain the Director Identification Number (DIN) is as follows:
a. identity proof (any of the following): PAN (Permanent Account Number) card, driver’s license, passport, or voter card;
b. residence proof (any of the following): driver’s license, passport, voter card, telephone bill, ration card, electricity bill, bank statement;
|2||Obtain digital signature certificate online from private agency authorized by the Ministry of Corporate Affairs (National)To use the new electronic filing system under MCA 21, the applicant must obtain a Class-II Digital Signature Certificate. The digital signature certificate can be obtained from one of six private agencies authorized by MCA 21 such as Tata Consultancy Services. Company directors submit the prescribed application form along with proof of identity and address. Each agency has its own fee structure, ranging from ₹400 to ₹2650.||3 days||₹1,500|
|3||Reserve the company name online with the Registrar of Companies (ROC) (National)Company name approval must be done electronically. Under e-filing for name approval, the applicant can check the availability of the desired company name on the MCA 21 web site. The ROC in Mumbai has staff members working full time on name reservations (approximately 3 but more if the demand increases). A maximum of 6 suggested names may be submitted. They are then checked by ROC staff for any similarities with all other names in India. The MCA receives approximately 50-60 applications a day.After being cleared by the junior officer, the name requests are sent to the senior officer for approval. Once approved, the selected name appears on the website. Applicants need to keep consulting the website to confirm that one of their submitted names was approved. In practice, it takes 2 days for obtaining a clearance of the name if the proposed name is available and conforms to the naming standards established by the Company Act (1 day for submission of the name and 1 day for it to appear on the MCA website).||2 days||₹500|
|4||Stamp the company documents at the State Treasury (State) or authorized bank (Private)The request for stamping the incorporation documents should be accompanied by unsigned copies of the Memorandum and Articles of Association, and the payment receipt. The company must ensure that the copies submitted to the Superintendent of Stamps or to the authorized bank for stamping are unsigned and that no promoter or subscriber has written anything on it by hand. The Superintendent returns the copies, one of which is duly stamped, signed, and embossed, showing payment of the requisite stamp duty. The rate of stamp duty varies from state to state. According to Article 10 and Article 39 of the Indian Stamp Act (1899), the stamp duty payable on the Memorandum and Articles of Association for company incorporation in Mumbai, Maharashtra, is as follows:
a. Articles of Association: ₹1000/- for every ₹500,000/- of share capital (or part thereof), subject to a maximum of ₹50,000,000;
b. Memorandum of Association: ₹200;
c. Form-1 (declaration of compliance): ₹100.
Once the memorandum and articles of association have been stamped, they must be signed and dated by the company promoters, including the company name and the description of its activities and purpose, father’s name, address, occupation, and the number of shares subscribed. This information must be in the applicant’s handwriting and duly witnessed.
|1 day||₹1,300 (₹200 for MOA + ₹1,000 for AOA for every ₹500,000 of share capital or part thereof + ₹100 for stamp paper for declaration Form 1)|
|5||Get the Certificate of Incorporation from the Registrar of Companies, Ministry of Corporate Affairs (National)The following forms are required to be electronically filed on the website of the Ministry of Company Affairs: e-form 1; e-form 18; and e-form 32. Along with these documents, scanned copies of the consent of the initial directors, and also of the signed and stamped form of the Memorandum and Articles of Association, must be attached to Form 1. The fees for registering a company can be paid online by credit card or in cash at certain authorized banks. One copy of the Memorandum of Association, Articles of Association, Form 1, Form 32, Form 18 and the original name approval letter, consent of directors and stamped power of attorney must be physically submitted to the Registrar of Companies. The certificate of incorporation is sent automatically to the registered office of the company by registered or rush mail.
The registration fees paid to the Registrar are scaled according to the company’s authorized capital (as stated in its memorandum):
a. ₹100,000 or less: ₹4,000. If the nominal share capital is over ₹100,000, additional fees based the amount of nominal capital apply to the base registration fee of ₹4,000:
b. For every ₹10,000 of nominal share capital or part of ₹10,000 after the first ₹1,00,000, up to ₹500,000: ₹300;
c. For every ₹10,000 of nominal share capital or part of ₹10,000 after the first ₹500,000, up to ₹5,000,000: ₹200;
d. For every ₹10,000 of nominal share capital or part of ₹10,000 after the first ₹5,000,000, up to ₹1 10,000,000: ₹100;
e. For every ₹10,000 of nominal share capital or part of ₹10,000 after the first ₹10,000,000: ₹50.
The payment of fees can be made:
The online filing mechanism requires only one copy of scanned documents to be filed (including stamped MOA, AOA, and POA). Schedule of Registrar filing fees for the articles and for the other forms (l, 18, and 32):
a. ₹200 for a company with authorized share capital of more than ₹100,000 but less than ₹500,000;
b. ₹300 for a company with nominal share capital of ₹500,000 or more but less than ₹2,500,000;
c. ₹500 for a company with nominal share capital of ₹2,500,000 or more.
|5 days||₹14,133 (see comments)|
|6||Make a seal (Private)Although making a company seal is not a legal requirement for the company to be incorporated, companies require a seal to issue share certificates and other documents. The cost depends on the number of words to be engraved, the number of seals required, and the time period for delivery. The cost can range from ₹300 to ₹500.||1 day||₹350 (cost depends on the number of seals required and the time period for delivery)|
|* 7||Obtain a Permanent Account Number (PAN) from an authorized franchise or agent appointed by the NSDL or the Unit Trust of India (UTI) Investors Services Ltd., as outsourced by the Income Tax Department Under the Income Tax Act, 1961, each person must quote his or her PAN for tax payment purposes and the Tax Account Number (TAN) for depositing tax deducted at source. The Central Board of Direct Taxes (CBDT) has instructed banks not to accept any form for tax payment (challan) without the PAN or TAN, as applicable. The PAN is a 10-digit alphanumeric number issued on a laminated card by an assessing officer of the Income Tax Department. In order to improve PAN-related services, the Income Tax department (effective July 2003) outsourced their operations pertaining to allotment of PAN and issuance of PAN cards to UTI Investor Services Ltd, which was authorized to set up and manage IT PAN Service Centers in all cities where there is an Income Tax office. The National Securities Depository Limited (NSDL) has also launched PAN operations effective June 2004, setting up TIN Facilitation Centers. The PAN application is made through the above mentioned service centers using Form 49A, with a certified copy of the certificate of registration, issued by the Registrar of Companies, along with proof of company address and personal identity. A fee of ₹60 (plus applicable taxes) applies for processing the PAN application.
IT PAN Service Centers or TIN Facilitation Centers will supply PAN application forms (Form 49A), assist the applicant in filling out the form, collect filled-out forms, and issue an acknowledgement slip. After obtaining PAN from the Income Tax department, UTIISL or NSDL as the case may be, will print the PAN card and deliver it to the applicant. The application for PAN can also be made online but the documents still need to be physically dropped off for verification with the authorized agent. For more details see(www.incometaxindia.gov.in , www.utiisl.co.in , and www.tin.nsdl.co.in )
|7 days||₹67 (₹60 application fee + 12.36% service tax + ₹5 for application form, if not downloaded)|
|* 8||Obtain a TAN for income taxes deducted at source from the Assessing Office in the Mumbai Income Tax Department. The TAN is a 10-digit alphanumeric number required of anyone responsible for deducting or collecting tax. The provisions of Section 203A of the Income Tax Act require that all persons who deduct or collect tax at the source must apply for a TAN. The section also makes it mandatory for the TAN to be quoted in all tax-deducted-at-source (TDS) and tax-collected-at-source (TCS) returns, all TDS/TCS payment challans, and all TDS/TCS certificates issued. Failure to apply for a TAN or to comply with any of the other provisions of the section is subject to a penalty of ₹10,000/- .
The application for allotment of a TAN must be filed using Form 49B and submitted at any TIN Facilitation Center authorized to receive e-TDS returns.Locations of TIN Facilitation Centers can be found at www.incometaxindia.gov.in and tin.nsdl.com The processing fee for both applications (a new TAN or a change request) is ₹50 (plus applicable taxes). After verification of application, the same is sent to the Income Tax Department and upon satisfaction the department issues the TAN to the applicant. The national government levies the income tax. Since outsourcing, any authorized franchise or agent appointed by the National Securities Depository Services Limited (NSDL) can accept and process the TAN application. The application for a TAN can be made either online through the NSDL website (www.tin-nsdl.com) or offline. Upon payment of the fee by credit card, the hard copy of the application must be physically filed with the NSDL.
|7 days||₹57 (₹50 application fee + 12.36% service tax)|
|* 9||Register with the Office of Inspector, Shops, and Establishment Act (State/Municipal)A statement containing the employer’s and manager’s names and the establishment’s name (if any), postal address, and category must be sent to the local shop inspector with the applicable fees. According to Section 7 of the Bombay Shops and Establishments Act,-(1948), the establishment must be registered as follows: – Under Section 7(4), the employer must register the establishment in the prescribed manner within 30 days of the opening of the business. – Under Section 7(1), the establishment must submit to the local shop inspector Form A and the prescribed fees for registering the establishment. – Under Section 7(2), after Form A and the prescribed fees are received and the correctness of the statement on the form is satisfactorily audited, the certificate for the registration of the establishment is issued on Form D, according to the provisions of Rule 6 of the Maharashtra Shops and Establishments Rules of 1961. Since the amendments in the Maharashtra Shops and Establishment (Amendment) Rules, 2003 dated 15th December 2003, the Schedule for fees for registration and renewal of registration (as per Rule 5) is as follows:
a. 0 employees: ₹100;
b. 1 to 5 employees: ₹300;
c. 6 to 10 employees: ₹600;
d. 11 to 20 employees: ₹1000;
e. 21 to 50 employees: ₹2000;
f. 51 to 100 employees: ₹3500;
g. 101 or moreemployees: ₹4500.
Hence in the given case the registration fees would be ₹2000, as there are 50 employees In addition, an annual fee (three times the registration and renewal fees) is charged as trade refuse charges (TRC), under the Mumbai Municipal Corporation Act,-(1888).
|2 days||₹6,500 (₹2000 + 3 times registration fee for trade refuse charges)|
|* 10||Register for Value-Added Tax (VAT) at the Commercial Tax Office (State)Beginning April 1, 2005, the sales tax was replaced by the VAT, which requires registration by filing Form 101. The authorized representative signing the application must be available at the Sales-Tax Office on the day of application verification. The applicant goes to the Sales-Tax Office and up to the registration counter. The clerk at the counter verifies that the applicant has all the required documents and gives the applicant a token (waiting number). After a short wait, the applicant’s number is called and the applicant approaches the desk of a sales-tax officer. There, all the information on Form 101 is manually entered into the system by the officer.
Within 10 minutes, the system generates a Tax Identification Number (TIN) Thereafter, the company is considered fully registered to pay taxes. However, the applicant must wait between 10 and 15 days to receive the VAT registration certificate by mail. In addition to Form 101, other accompanying documentation includes:
1) Certified true copy of the memorandum and articles of association of the company;-
2) Proof of permanent residential address. At least 2 of the following documents must be submitted: copy of passport, copy of driver’s license, copy of election photo identity card, copy of property card or latest receipt of property tax from the Municipal Corporation, copy of latest paid electricity bill in the name of the applicant;
3) Proof of place of business (for an owner, in the case of Doing Business): Proof of ownership of premises viz. copy of property card, ownership deed, agreement with the builder or any other relevant documents;
4) One recent passport-sized photograph of the applicant;
5) Copy of Income Tax Assessment Order with PAN or copy of PAN card;
6) challan on Form No. 210 (original) showing payment of registration fee at ₹5000 (in case of voluntary RC) and ₹500 (in other cases).
The whole process will be put online by the spring of 2009. This means that rather than physically having to go to the office, companies will fill in all their details online for Form 101 and then go to the office only so that the Sales Tax Office can verify the above listed-documentation.
|12 days||₹5,100 (registration fee ₹5000 + stamp duty ₹100)|
|* 11||Register for Profession Tax at the Profession Tax Office (State)According to section 5 of the Profession Tax Act, every employer (not being an officer of the government) is liable to taxation and shall obtain a certificate of registration from the prescribed authority. The company is required to apply to the registering authority using Form 1. The registration authority for the Mumbai area is located at Vikarikar Bhavan, Mazgaon in Mumbai. Depending on the nature of the business, the application should be supported with such documents as proof of address, details of company registration number under the Indian Companies Act (1956), details of the head office (if the company is a branch of company registered outside the state), company deed, certificates under any other act, and so forth.||2 days||No cost|
|* 12||Register with Employees’ Provident Fund Organization (National)The Employees Provident Funds and Miscellaneous Provisions Act (1952) applies to an establishment, employing 20 or more persons and engaged in any of the 183 industries and classes of business establishments, throughout India excluding the State of Jammu and Kashmir. The applicant fills in an application and is then allotted a social security number.
The Provident Fund registration focuses on delinquent reporting, under-reporting, or non-reporting of workforce size. Provident Fund registration is optional if the workforce size is not more than 20. The employer is required to provide necessary information to the concerned regional EPFO in the prescribed manner for allotment of Establishment Code Number.No separate registration is required for the employees. Nevertheless all eligible employees are required to become members of the Fund and individual account number is allotted by the employer in the prescribed manner. As per an internal circular, the code number is to be allotted within 3 days of submission, if the application is complete in all respects. However, in many cases applicants have received the intimation letter with the code number in 12 to 15 days. An online application facility is not provided so far.
|12 days||No cost|
|* 13||Register for medical insurance at the regional office of the Employees’ State Insurance Corporation (National)Registration is the process by which every employer/factory and every paid employee is identified for insurance purposes and their individual records are set up for them. As per the Employees’ State Insurance (General), Form 01 must be submitted by the employer for registration. It takes 3 days to a week for the Employer Code Number to be issued. The- “intimation letter”- containing the Code Number is mailed to the employer and that takes an additional couple of days.
The Employee’s individual insurance is a separate process that is initiated upon the employer’s registration. The employer is responsible for submitting the required declaration form and employees are responsible for providing correct information to the employer. The employee temporary cards (ESI Cards) are issued on the spot by the local offices in many places. The temporary cards are valid for 13 weeks from the date of the employees’ appointment. It takes about 4 to 5 weeks to get a permanent ESI card.
|9 days||No cost|
* Takes place simultaneously with another procedure.