India: Company Limited by Shares

ASIA/PACIFIC HOME PAGE | VIEW A DIFFERENT TAX JURISDICTION

On this Page:

- India: Nature of a Company Limited by Shares
- India: Formation of a Company Limited by Shares
- India: Ongoing Formalities for a Company Limited by Shares
- India: Employing Staff for a Company Limited by Shares
- India: Taxation of a Company Limited by Shares

India: Nature of a Company Limited by Shares

Companies limited by shares are formed under the Companies Act 1956 and may be public or private. This section is concerned only with private companies. Such a company has a minimum share capital of INR100,000, must restrict the right to transfer its shares, may not have more than 50 members and may not invite or accept subscriptions to its shares from members of the public. It is governed according to its Memorandum and Articles of Association by a board of directors. There must be at least two members and two directors. The liability of the shareholders is limited to the amount of share capital subscribed by them.

Formation of a limited company in India can be a lengthy and bureaucratic procedure. The key steps are as follows:

• Prospective directors should obtain DINs (Director's Identification Numbesr) from the Registrar of Companies;
• Selection of name for the proposed company on Form 1A. Application is made to the Registrar of Companies, giving six alternative proposed names. The approved name remains available for six months.
• Filing of required documents with the Registrar of Companies: Memorandum and Articles of Association; list of subscribers; e-Form 1; Power of Attorney issued by the subscribers in favour of authorised person; e-Form 18 (location of registered office; e-Form 32 (particulars of Directors);
• Issuance of the Certificate of Incorporation, normally within seven days of filing of documents; business may then be commenced.

Once incorporation has been completed, the company can then register with the tax and customs authorities, obtaining a PAN (permanent account number) and a TAN (tax collection number). Visas for foreign staff can now be issued and bank accounts opened.

Back to top

India: Ongoing Formalities for a Company Limited by Shares

All companies incorporated under the Companies Act must file audited accounts annually with the Registrar of Companies. If turnover exceeds INR6m, a separate tax audit must be carried out

Back to top

India: Employing Staff for a Company Limited by Shares

Limited companies can hire local and foreign staff.

The Ministry of Foreign Affairs is responsible for the issuance of work permits (employment visas) under the Foreigners Act. They are normally necessary for foreigners, although people with Indian ancestry may be exempted from the need for a visa. The family members of an individual holding a work permit are also permitted to work. Indian Consulates issue work permits and visas prior to arrival.

Normally a foreigner employed by a limited company will require an Employment Visa, although if only short visits atre being made a Business Visa may be sufficient.

The local Foreigners Regional Registration Office (FRRO), an agency of the Home Ministry, is responsible for registering the visas of foreigners employed by limited companies in India and for supervision of the individuals during their stay.

Registration with the police is required witin 14 days of arrival in India (which may or may not be the same as registration with the FRRO in a given region). Documents required include a registration form in quadruplicate and a registration permit booklet, copies of passport and visa, a copy of the employment contract, copies of a letter of recommendation from the parent company, six passport photos. An HIV/AIDS test result must also be filed, within 30 days.

Visas can be extended, through another set of bureaucratic procedures.

Back to top

India: Taxation of a Company Limited by Shares

Indian companies are taxed on the previous year's income. Thus, for resident companies, income in the 2009/2010 financial year is assessed to tax in the 2010/2011 year, at a rate of 30% plus surcharge (10%) and education 'cess', for a total of 33.99%.

Income in the 2010/2011 financial year is assessed to tax in the 2011/2012 assessment year (beginning in April 2011) at 30% plus a 7.5% surcharge plus 3% education 'cess' for a total of 33.22%.

Companies with taxable income below INR10m are exempt from the surcharge.

Non-resident companies are taxed at 40% plus surcharge and 'cess' giving a total of 42.23%.

The Direct Taxes Code, which may come into force in April 2012, would put in place a flat 30% rate of corporate income tax for both resident and non-resident companies; but foreign-owned companies would pay a 15% 'branch profits tax'.

There is a Minimum Alternative Tax which bears on companies declaring taxable profit of less than 10% of accounting profit, at a rate of approximately 18%, increasing to approximately 18.5% in the current year, and to 20% next year.

Dividend distributions to shareholders are subject to a 15% final withholding tax (plus surcharges).

Corporate taxation is dealt with more fully here, and individual taxation is dealt with more fully here. Incentive schemes are dealt with here.

Back to top