Are you looking to grow your business by expanding to a new market? India should be a top choice. It is a growing economy, with a pro-business mindset. In this blog, we provide a complete guide that covers all you need to know for business expansion in India – incorporation, tax compliance, labor laws, IP rights, culture, and more.
Why Expand to India: Market Potential & Opportunities
Expanding your business to India offers numerous opportunities.
- India continues to grow faster than other countries, even in a subdued global environment. The World Bank projects that India will grow at a robust 6.3% – 6.9% in the fiscal year 2024-25, and be the fastest-growing economy in the world.
- With the rapid growth, India also boosts a large consumer market. It is set to become the third largest consumer market surpassing Japan and Germany in 2026, with a larger share of affluent consumers.
- The service sector attracted the highest foreign direct investment in India. Other sectors that attract FDI include computer software, hardware, telecommunications, and automobiles.
Top Reasons to Enter The Indian Market
India is an attractive market for business expansion with cost-effective labor, robust technology ecosystems, favorable government policies, and large consumer base.
- Cost-Effective Labor
India boasts a large pool of talented and cost-effective labour. With a favourable demographic dividend, there is an increase in the share of the working-age population from 59% in 2011 to 63% in 2021, which businesses expanding to India can benefit from.
- Robust Technology Ecosystems
India has a thriving startup ecosystem, ranked third globally. The Government of India (GOI) offers affordable digital public infrastructure to aid business growth through innovations like Unified Payment Interface (UPI) for digital payments and DigiLocker for digital document verification.
- Favorable Government Incentives
The Indian government has implemented a range of policies to attract foreign direct investment (FDI) and support business expansion in India. Major efforts include the Make in India campaign, liberalization of FDI policies, and tax incentives for businesses in Special Economic Zones (SEZs).
- Large Consumer Base
With a favourable demographic dividend and rapid economic growth, India will become the third largest consumer market by 2026, according to UBS.
Key Factors to Consider Before Expanding A Business in India
It is crucial to consider the economic growth, consumer preferences, and competitive landscape before expanding business to India.
- Economic Indicators
India is the fastest-growing economy in the world. The growth is fueled by policies to simplify processes of starting a business, getting permits, facilitating credit access, and filing for insolvency.
- Consumer Preferences
The household consumption in India has doubled in the past decade, with an increase in the share of non-food expenditure. Indians are spending more on clothing, footwear, entertainment, health, and education.
- Competitive Landscape
There are a multitude of customer segments, arising from the cultural diversity. These customers are generally price-sensitive, but recent times have indicated success of premiumisation by brands. The Indian market has undergone digital transformation and e-commerce has emerged as a well-received distribution channel.
Government Incentives & Support for Business Expansion in India
The key initiatives taken by India to attract foreign investment are:
- Make In India
The Make in India campaign aims to attract investment and promote manufacturing in India. The GOI has opened up various sectors for foreign investment – single brand retail, space, defence manufacturing, railways – under this scheme. Besides liberalization, India aims to create a favourable business environment to attract foreign investment and businesses.
- Production-Linked Incentives
The Production-Linked Incentive Scheme targets 14 sectors such as mobile manufacturing, automobiles, etc. A foreign or domestic manufacturer can benefit from this by earning incentives on incremental sales in products (from PLI sectors) manufactured in India.
Industry-Specific Opportunities in India
India is a home to businesses in emerging industries, supported by a conducive regulatory environment.
- Electronics and Semiconductors
Electronics manufacturers in India benefit from production-linked incentives. Semiconductor investments in India can receive up to financial benefits that cover up to 50% of project costs under ‘Modified Scheme Of Semiconductor Fabs In India’.
- Electric Vehicles
The Indian government launched Faster Adoption and Manufacturing of Electric Vehicles (FAME) to support businesses in the EV ecosystem and encourage adoption. Following its success, FAME II has been recently launched. 100% FDI is allowed in the EV space.
- Renewable Energy
India encourages innovation and R&D in the non-fossil renewable energy sector through its initiatives – National Green Hydrogen Mission and Offshore Wind Energy. The country aims to achieve 500 GW of renewable energy by 2030, and incentivizes businesses that help achieve the goal.
- Healthcare and Pharmaceuticals
India leads the global vaccine production and supply of generic drugs. It attracts foreign investment to improve its healthcare infrastructure through 100% FDI allowance and priority in the Make in India campaign.
Legal Steps to Start A Business in India
The FDI policy in India allows investment in a sector through automatic or government route. Under the government route, you must get the approval of the Indian government before setting up your business. You can apply for foreign investment approval in the National Single Window System portal, depending on the sector. Some sectors such as gambling are prohibited from FDI.
The Make in India website offers more details about the FDI limits for different sectors.
Now, you should get sector-specific approvals from the national and state governments. You find more details about this under Know Your Approval page. The National Single Window System helps you get all approvals in one place.
Navigating Business Taxes & GST in India
A business in India is subject to two major taxes broadly – corporate income tax (direct tax) and Goods and Services Tax (indirect tax).
Corporate Income Tax
The corporate income tax rates levied vary depending on the business structure – domestic company, foreign company, or limited liability partnership.
| Business Structure | Tax Rate |
|---|---|
| Domestic company when total turnover in 2020-21 does not exceed INR 400 crores (around $46.2 million) | 25% |
| Domestic company under Section 115BA (power companies) | 25% |
| Domestic company under Section 115BAA (pay additional surcharge and cess) | 22% |
| Domestic company under Section 115BAB (newly registered manufacturing company) | 15% |
| Other domestic company | 30% |
| Foreign company on royalty income | 50% |
| Foreign company on other income | 40% |
| Limited Liability Partnership | 30% |
Goods and Services Tax (GST)
The Indian government introduced a single indirect tax system to cover both goods and services and eliminate cascading effects of ‘tax on tax’. The Goods and Service Tax is levied across the value chain, and the revenue earned is shared between the national and the state government. GST on input purchase can be offset on GST collected on sale of goods. The floor rates are 0%, 5%, 12%, 18%, and 28%.
Tax Incentives
If you set up your business in a special economic zone (SEZ) in India, you can benefit from tax incentives such as 100% income tax exemption on export income for 5 years, 50% in the next 5 years, and 50% of ploughed-back export profit in next 5 years. Inputs to SEZs are zero-rated (no GST).
Choosing the Right Business Structure in India
The choice of business structure depends on the nature of business expansion in India.
When you expand to India to carry out research, project execution, and export-import activities, you can set up a foreign company in India. The choices for foreign company incorporation include:
- Liaison Office to represent parent company in India
- Branch Office to carry out research and export-import activities
- Project Office to execute projects based on contracts
When you expand to India to carry out manufacturing/ services and other business operations, you have three choices:
- Joint venture with an Indian company
- Wholly owned subsidiary of an Indian company
- Limited liability partnership (applicable only when 100% FDI through automatic route is allowed)
Where to Incorporate: Best States / Regions for Business in India
The best states in India to incorporate and expand your business are:
Maharashtra
Mumbai, the capital of Maharashtra, is the financial capital of India. The state places extreme emphasis on infrastructure development through Public-Private Partnerships, providing growth opportunities for business. It has the highest FDI inflow in India.
Karnataka
Karnataka has emerged as a global hub for software companies and startups. The state has continually focused on tech-innovation – even with its recent EV policy. It was also the first Indian state to come up with an aerospace policy.
Gujarat
Gujarat has emerged as an industrial hub for India. It is known for its petroleum refining and diamond processing industry. Technical textiles is also an emerging sector. GOI has announced three semiconductor projects in Gujarat.
Tamil Nadu
Tamil Nadu has evolved to become a manufacturing centre for India and houses several industries – automotives, textiles, and pharmaceuticals. It has an extensive rail and road network. To attract more businesses in the IT space, it has around 54 special economic zones (SEZs).
Navigating Regulatory Compliance in India: Beyond GST
The major compliance requirements for businesses in India include income tax, tax deducted at source (TDS), GST, and annual return filing.
- You must pay corporate income tax on the taxable income of your business, based on the appropriate tax rate.
- You must have a valid TAN (Tax Deduction and Collection Account) to file TDS returns, usually done quarterly.
- You must maintain a record on GST paid on inputs, and GST collected on sales. You can adopt for monthly or quarterly filing.
Our compliance calendar for India can help you understand regulatory needs and stay compliant. You can further simplify compliance burden by automating compliance using our compliance monitor.
Hiring Employees & Complying with Indian Labor Laws
When you want to hire employees for business expansion in India, you have three options:
- Employer of Record (EOR): You can hire an EOR to look after payroll, taxes, and labor law compliance. They assume legal responsibilities as an employer on your behalf, so that you can focus on your core business.
- Opening an Entity: This option creates a legal entity in India that controls all operations, including hiring. It requires a long-term commitment and significant resources.
- International Contractor: A contractor is hired for temporary or project-based work, in this case, to aid hiring. They manage taxes and payroll, while also offering flexibility.
Read this article on hiring choices for successful global expansion to make an informed choice.
The new labor laws in India apply to workers in organized and unorganized sectors. They provide ease of doing business while protecting worker’s rights. You can find the labor codes in India here.
Setting Up Banking & Securing Funding in India
Setting up a corporate bank account helps manage finances in India. You can choose a bank by comparing their features, costs, and services. The most suitable account is a current account, as it helps with frequent deposits and withdrawals.
You can fill in the application, by providing the required documentation (company documents, PAN cards, address proofs). You may be required to deposit a minimum account, depending on the account type and bank. Post account-opening, you can manage your bank account easily through digital applications.
You may need to consider funding sources to help with business expansion and growth in the early stage. Common sources of funds available in India for businesses in early and growth stages include:
- Government Grants: If you are a DPIIT-recognized startup incorporated less than 2 years ago and working on product development, innovation, or improvement, you can apply for the Startup India Seed Fund Scheme to avail funding in form of grants or debt.
- Angel Investors & Venture Capital Financing: You can pitch your business to angel investor communities or venture funds in India to get equity-based financing.
Building Local Partnerships & Networking in India
As you expand your business in India, it is crucial that you build and foster local partnerships. A local partner can help you:
- Fulfil regulatory requirement of a domestic business interest, when 100% FDI is not allowed in the sector your business operates
- Understand needs of local customers, culture, and competitive environment
A mutually beneficial relationship with a local business partner can help with long-term growth of your business in India.
You can find like-minded business partners by joining formal associations and committees that operate in your industry or informally through LinkedIn and other social media platforms.
Protecting Your Brand : Trademarks & IP Rights in India
India has a robust intellectual property ecosystem. It is part of the TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement, the most comprehensive multilateral agreement in IP yet.
You can protect your intellectual property in India by registering for a trademark, patent, or design for a simple fee. You can apply for these IPs online through e-filing services at a lower application fee than physical filing.
Register your trademark online today after conducting a preliminary search.
Cultural Nuances & Business Etiquette in India
Understanding the cultural nuances and business practices in India can help your business be cultural sensitive and achieve growth and success.
Indian culture respects traditions, while embracing modernity. The cultural diversity is reflected in a multitude of languages, religions, and states in India. Collectivism and group harmony take precedence over individual success.
Business decision-making is hierarchical, reflecting social values of respect for elders and senior members. India is a high-context country where communication also focuses on non-verbal cues. Personal connection and trust-building can help achieve success in business partnerships in India, owing to the collectivist culture.
Overcoming Challenges & Avoiding Common Pitfalls in India
Business expansion in India can pose challenges due to the regulatory complexity and cultural differences.
- Regulatory complexity: Businesses must be compliant to several laws – FDI policy, labor laws, direct, and indirect tax regimes – while incorporating and conducting operations in India. To focus on your business, you can outsource this to people who specialize in these activities – Commenda can look after your incorporation and tax compliance and having an EOR can ensure labor law compliance.
- Cultural differences: India is culturally diverse – customers have different tastes and preferences across states. Understanding cultural differences can help your business be more sensitive in marketing your products. Partnering with a local business can help in aligning your business offering to the Indian market.
How Commenda Can Help with Expanding to India
Commenda simplifies business expansion in India by offering end-to-end solutions to businesses.
- Quick Incorporation
Commenda helps businesses incorporate their business in India in a matter of days. We get on a call to understand your needs and get it done. We handle everything – obtaining licenses, submitting incorporation applications, and opening bank accounts. All of this starting at $200.
- Simplified Compliance
Navigating tax and regulatory compliance in a new country may be stressful. Commenda handles all your tax and corporate filing. You can keep track of this in a simple dashboard and focus on your business.
- Professional Support
Commenda’s Service Provider Marketplace can help you find pre-vetted accountants and legal consultants in a hassle-free manner. You can consolidate these conversations and keep a clean audit trail.
Do you have any more doubts? A free consultation with Commenda’s experts will help you. Book yours now.
Frequently Asked Questions About Expanding To India
- How to register a business in India?
You have to select a suitable business structure and state of incorporation. You will then have to submit the application along with the required documentation.You can find a detailed step-by-step process here.
- Do I need an Indian visa to register a company in India?
No, an Indian visa is not required during company registration. However, to continue business operations offline, you need to get an Indian visa.
- Do GST rates vary across states, like US sales tax?
No, GST rates are uniform across all states in India, unlike US sales tax.
Citations
- ABOUT US | Make in India. (n.d.). https://www.makeinindia.com/about
- Production Linked Incentive Schemes for 14 key sectors aim to enhance India’s manufacturing capabilities and exports. (n.d.). https://pib.gov.in/PressReleasePage.aspx?PRID=1945155
- Domestic company for AY 2025-26. (n.d.). Income Tax Department. https://www.incometax.gov.in/iec/foportal/help/company/return-applicable
- Foreign company for AY 2025-26. (n.d.). Income Tax Department. https://www.incometax.gov.in/iec/foportal/help/company/return-applicable-0
- FAQ’s | Special Economic Zones in India. (n.d.). https://sezindia.gov.in/FAQ
