2015 aish Va Associates, Advocates. All rights reserved.

316 Pages·2015·4.04 MB·English

by  Pushya Sinha

2015 Vaaish Associates, Advocates. All rights reserved.
© 2015 Vaish Associates, Advocates. All rights reserved.
iv India Business Guide-Start-up to Set-up
About Wolters Kluwer Tax & Accounting
WOLTERS KLUWER (INDIA) PVT LTD
Wolters Kluwer Tax & Accounting in India (www.cchifirm.co.in), provides publishing,
software and services that deliver vital insights, intelligent tools and guidance of subject-
matter experts as well as offer subscription-based products with high quality content in
areas including direct and indirect taxation, international taxation, corporate law and sev-
eral other related topics.
Wolters Kluwer Tax & Accounting (a Wolters Kluwer business) is part of the Wolters
Kluwer Group, a leading global information service provider for professionals. Wolters
Kluwer Tax & Accounting publications cover a wide range of topics such as tax, account-
ing, law, financial planning, human resources and training.
For more information on our products and services, log on to Wolters Kluwer Tax & Ac-
counting website at www.cchindia.co.in
Disclaimer
No person should rely on the contents of this publication without first obtaining advice
from a qualified professional person. This publication is sold on the terms and under-
standing that: (1) the authors, consultants and editors are not responsible for the results of
any actions taken on the basis of information in this publication, nor for any error in or
omission from this publication; and (2) the publisher is not engaged in rendering legal,
accounting, professional or other advice or services. The publisher, and the authors, con-
sultants and editors, expressly disclaim all and any liability and responsibility to any per-
son, whether a purchaser or reader of this publication or not, in respect of anything, and
of the consequences of anything, done or omitted to be done by any such person in reli-
ance, whether wholly or partially, upon the whole or any part of the contents in this pub-
lication. Without limiting the generality of the above, no author, consultant or editor shall
have any responsibility for any act or omission of any other author, consultant or editor.
© 2015 Vaish Associates, Advocates
All rights reserved. No part of this work covered by the copyright owners may be repro-
duced or copied in any form or by any means (graphic, electronic or mechanical, includ-
ing photocopying, recording, recording taping, or information retrieval systems) without
the written permission of the publisher and copyright owners.
First Edition, 2015
First Print, 2015
ISBN-13: 978-93-5129-536-5
Published by Wolters Kluwer (India) Pvt Ltd
Regd. Office: SCF-3, Sector-71, Mohali - 160071, Punjab, (India)
CIN-U74899PB2005PTC039211
Printed and bound at Sanat Printers
© 2015 Vaish Associates, Advocates. All rights reserved.
Chapter 1 Introduction v

Dedicated to Mr. O. P. Vaish
Senior Advocate
&
Founder
Vaish Associates Advocates
(1929-2013)
2015 Vaish Associates,, Advocates. All riggghts reserved.
Chapter 1 Introduction vii
© 2015 Vaish Associates, Advocates. All rights reserved.
Chapter 1 Introduction ix
About Vaish Associates Advocates

Founded by Late Shri. O.P. Vaish, Senior Advocate in 1971, Vaish Associates Advocates
is a full service law firm in India having offices in Delhi, Mumbai and Bengaluru. The
Firm has been providing legal services and advisory to domestic and international clients
for over four decades.
Vaish Associates practice areas extends across Direct Tax (Income Tax, Transfer pricing,
International Taxation), Indirect Tax (Customs, Central Excise, Service Tax, Central
Sales Tax and Value Added Tax), Corporate Practice, Mergers and Acquisitions, Busi-
ness Reorganization, Foreign Investment, Strategic Alliance/Joint Ventures, Capital Mar-
kets –Domestic and International Offerings, Legal & Secretarial Due Diligence, Regula-
tory Compliances, Alternate Dispute Resolution, Real Estate, Special Economic Zones,
Banking and Finance, Labour and Employment laws, Competition/ Anti-Trust laws, In-
tellectual Property Rights and Information Technology, Litigation, Non Profit Organiza-
tions, etc.
Vaish Associates Advocates remains committed to provide high quality, solution oriented
and client focused legal advisory services.

Address:
New Delhi
Vaish Associates Advocates
1st, 9th & 11th Floors, Mohan Dev Building
13, Tolstoy Marg New Delhi-110001 (India)
Phone: [phone]
Email: [email protected]

Mumbai
Vaish Associates Advocates
106, Peninsula Centre
Dr. S. S. Rao Road, Parel
Mumbai - 400012 (India)
Phone: [phone] (Board)
Fax: [phone]
E-mail: [email protected]

Bengaluru
Vaish Associates Advocates
305, 3rd Floor, Prestige Meridian-II,
Building No. 30,
M.G. Road, Bengaluru - 560001 (India)
Phone: [phone]
Fax: [phone]
E-mail: [email protected]
© 2015 Vaish Associates, Advocates. All rights reserved.
x India Business Guide-Start-up to Set-up
From the Editors

India Business Guide: Start-up to Set-up is a compendium of laws, rules and regu-
lations that govern Indian businesses, which are updated as on November 2015 (unless
otherwise specified) and presented in a reader-friendly manner. This publication, pre-
pared after a detailed research and wide consultations among experts, attempts to give
discerning investors, both domestic and international, a kaleidoscopic idea of establishing
presence in India and, importantly, doing business in India.
“Focus India”, “Make in India”, “Invest in India” are the much talked about words in
boardrooms across the world. India’s continental market, sustained high growth, large-
scale capacity building, particularly in the manufacturing and service sectors, addition of
millions of high net-worth individuals every year, propensity to absorb investments, es-
pecially in the frontier areas of technology, unprecedented blossoming of entrepreneur-
ship, etc, are well known and documented. A combination of all these factors makes India
one of the most-happening business destinations in the world. The thematic sequencing of
the book is crafted in a way so as to unravel the “India Advantage” factor to the myriad
business corporations, foreign investors, analysts and the swelling ranks of entrepreneurs.
A practical approach to forming joint ventures, technology transfer, formation of compa-
nies, intellectual property rights, investment opportunities in important sectors, etc, has
been adopted. The book also dwells upon subjects like investment framework, govern-
ance including corporate governance framework, trade and competition policies, over-
view of various key enactments governing businesses, issues concerning expatriates
working in India, etc. It also provides links to important government, business and other
relevant websites.
The Government of India has embarked upon economic reform process with the twin
objective of opening up of the Indian economy to attract foreign investment and to accel-
erate its process of global integration. Against this backdrop, it has been the endeavour of
the Government to benchmark the country’s laws and regulations vis-à- vis the best glob-
al practices. This has led to quick and progressive adjustments in the economic and com-
mercial laws of India. It is, therefore, important to keep pace with the changing dynamics
of the legal landscape.
The publication captures the changes taking place in the legal and policy framework and
the abounding business opportunities emerging on account of progressive policy flexibil-
ity. Yet, the book, in no way, seeks to substitute the expert advice and guidance that must
be sought on specific projects and issues that an investor or entrepreneur may be con-
fronted with. It serves as a valuable guide to your “India strategy”.
India Business Guide: Start-up to Set-up is a consolidation of the body of experience and
incisive knowledge accumulated over the years at Vaish Associates Advocates. The sem-
inal contributions of the team of professionals and their penchant for looking at every
conceivable aspect of enactments governing businesses are commendable.

Vinay Vaish Hitender Mehta
[email protected] [email protected]
© 2015 Vaish AAAssociates, Advocates. All rights reserved.
Chapter 1 Introduction xi
Acknowledgements

We are thankful to the following key resource person for their significant contribution:

Mr. Bomi F. Daruwala, Partner
Mr. Vinay Vaish, Partner
Mr. Hitender Mehta, Partner
Mr. Rupesh Jain, Partner
Mr. Hemant Puthran, Partner
Mr. V. P. Dalmia, Partner
Mr. Shammi Kapoor, Partner
Mr. M. M. Sharma, Head, Competition Law Practice
Ms. Puneeta Kundra, Principal Associate
Mr. Pavit Singh Katoch, Principal Associate
Ms. Rakshanda Niyazi, Sr. Associate
Ms. Pushya Rakshita Sinha, Sr. Associate
Ms. Varnika Sharma, Sr. Associate
Ms. Purva Juneja, Sr. Associate
Mr. Vishal Kumar, Sr. Associate
Mr. Ankit Gupta, Associate
Mr. Priyank Rathi, Associate
This acknowledgment would be incomplete without the mention of the support and guid-
ance extended by Mr. Ajay Vohra, Senior Advocate.
© 2015 Vaish Associates, Advocates. All rights reserved.
xii India Business Guide-Start-up to Set-up
Contents

Page
Foreword ............................................................................................................. vii
About Vaish Associates Advocates ................................................................................... ix
From the Editors ............................................................................................................... x
Acknowledgements ............................................................................................................ xi
Chapter
1 Introduction ............................................................................................................ 1
2 Advantage India ..................................................................................................... 5
3 Constitutional Framework .................................................................................. 14
4 Competition Policy and Law .............................................................................. 21
5 Special Schemes for Export Promotion (SEZs/EOUs /STPs/
EHTPs/ BTPs) ....................................................................................................... 34
6 Foreign Investment in India ................................................................................ 43
7 Establishing Presence in India .......................................................................... 112
8 Tax Laws .............................................................................................................. 129
9 Labour and Industrial Laws ............................................................................. 174
10 Intellectual Property Laws ................................................................................ 191
11 Consumer Protection Law................................................................................. 217
12 Environment Laws ............................................................................................. 221
13 Important Considerations for Expatriates Working in India ....................... 227
14 Important Sectors ............................................................................................... 240
15 Corporate Governance Framework ................................................................. 262
16 Important Websites ............................................................................................ 288
Index ...................................................................................................................... 291
© 2015 Vaish Associates, Advocates. All rights reserved.
Chapter 1 Introduction 1
Chapter 1 Introduction
Start-ups Revolution in India ........................................................................ ¶1-010

India is the seventh largest country in the world spread over a total area of 32,87,263
sq kms, including the territorial seas. Located in South Asia in the tropical belt just north
of the equator, it is separated from mainland Asia by the Himalayas, a mountain range
that umbrellas the entire northern region stretching to a distance of 2,400 kms to the east.
India is home to some of the world’s highest peaks shielding the country’s 291 States and
7 Union Territories. Several important rivers originate from this mountain range.
To the south of the mountain range are the Indo-Gangetic Plains. To the west of this
plain and cut off from it by the Aravalli range is the Thar Desert. Further south,
geologically, the oldest part of India is the Deccan Plateau flanked on the left and the
right by coastal ranges, the Eastern and Western Ghats. Peninsular India is bordered by
the Bay of Bengal in the east and the Arabian Sea in the west. The Indian Ocean forms a
pedestal to the country.
India is surrounded by Afghanistan and Pakistan in the north-west, China, Bhutan
and Nepal in the north, Myanmar in the east, and Bangladesh to the east of West Bengal.
Sri Lanka is separated from India by a narrow channel of sea, formed by Palk Strait and
the Gulf of Mannar.
India’s history dates back to 2500 BC when the first known civilisation settled along
the Indus River. India is a secular country where Hinduism co-exists with Islam,
Christianity, Buddhism, Jainism, Sikhism, Judaism and Zoroastrianism. India has 22
official languages and great ethnic diversity. As a consequence of India’s continental
size, the history of the country has seldom been the same for two adjoining territories.
The picturesque land is dotted with palaces, temples and monuments. One of the
fascinations of India is a creative fusion of old and new, centuries of history rubbing
shoulders with the computer age, Bengaluru’s (formerly Bangalore) “Silicon Valley” is
as much a part of the world’s largest democracy as its remotest villages.
Exciting topographical variations, cultural diversity, and the colourful local traditions
lend India harmony in variety. The second most populous country in the world after
China, India has over one billion people, accounting for one-sixth of the world’s
population.
The Constitution of India came into force on January 26, 1950. The preamble to the
Constitution defines India as a Sovereign Socialist Secular Democratic Republic with a
parliamentary form of Government. India has a bicameral Parliament operating under a
Westminster-style Parliamentary system which consists of the Upper House, called the
Rajya Sabha (Council of States) and the Lower House, called the Lok Sabha (House of
People). India’s governance is based on a federal structure consisting of the Central

1 http://knowindia.gov.in/knowindia/state_uts.php
© 2015 Vaish Associates, Advocates. All rights reserved.
2 India Business Guide-Start-up to Set-up
Government or the Union Government and federal units known as the States. The power
to govern issues relating to national security, defence, national waterways and airways,
international treaties, foreign trade, foreign exchange, customs duties, income tax, etc
(matters referred to in the “Union List” of the Constitution) vests within the Union
Government. The State Governments have a mandate over law and order, sales tax, land
revenue, tolls, agriculture, mines and minerals, etc, in the respective States (matters
referred to in the “State List” of the Constitution). Certain areas (matters referred to in
the “Concurrent List” of the Constitution) may be governed or legislated upon by both
the Union Government and the State Governments. In case of any conflict of laws, the
Union/Federal law prevails. India has a unitary three-tier judiciary consisting of the
Supreme Court, High Courts and Trial Courts.
The President of India is the Head of State, while the Prime Minister is the Head of
the Government. The Prime Minister runs the Government with the support of the
Council of Ministers, who form the [Union] Cabinet.
Ever since India emerged from the shackles of closed economy in the early 1990s, its
economy has steadily grown and today it is one of the fastest-growing economies in the
world, with a growth rate higher than in many developed countries. Over the last decade,
India has undergone a transformation and climbed to a high-growth path as
macroeconomic and structural reforms reduced regulations significantly, improved the
business environment, and opened the economy to greater competition. In 2014 India’s
GDP already crossed the US$ 2.049 trillion mark1, making the country the ninth2 -largest
economy in the world and the third3 largest economy by purchasing power parity. The
Indian economy has witnessed a significant economic growth in the recent past, growing
by 7.3% in 2015 as against 6.9% in 20144. India is fast becoming a leading international
business and financial hub. In the era of globalisation, India offers a cost-effective
environment for establishing and doing business for the burgeoning domestic and export
markets.
Foreign investors are looking at India as an attractive investment destination owing to
the prospects of high returns. A number of corporate and multinational companies from
all over the world have established businesses in India and have expanded over the years.
¶1-010 Start-ups Revolution in India
India’s phase of revolution has gained pace which has had no parallel in the past. This
revolution is driven by Start-ups across segments, with the potential to touch lives
of over One Billion Indians, thereby attracting the attention of global investors and
competitors, all of them wanting to tap and be a part of this growth story.
Foreign investors have started viewing India as a country with excellent potential and
have funded many such start-ups. SoftBank Group, Tiger Global, Steadview Capital and
Accel Partners US are some of the major players who are looking to tap the potential that
India has to offer through these start-ups.

1 http://statisticstimes.com/economy/asian-countries-by-gdp.php
2 http://statisticstimes.com/economy/asian-countries-by-gdp.php
3 http://statisticstimes.com/economy/asian-countries-by-gdp.php
4 http://www.ibef.org/economy/indian-economy-overview