Regulatory Framework in India

A Framework by Ministry of Commerce, Department of Industrial Policy and promotion, (Jan 2008)*

Setting up of a company:

The principal forms of business organizations in India are:

1) Companies – both public and private
2) Partnerships
3) Sole proprietorship

Companies incorporated in India and branches of foreign corporations are regulated by the Companies Act 1956 (the Act). The Act, which has been enacted to oversee the functioning of companies in India, draws heavily from the United kingdom’s Companies Act and although similar, is more comprehensive. The Registrar of Companies (ROC) and the Company Law Board (CLB) both working under the Department of Company Affairs ensure compliance with the Act.

Foreign Companies:

Foreign investors can enter into the business in India either as a foreign company in the form of a liaison office/ representative office, a project office and a branch office by registering themselves with Registrar of Companies (ROC), New Delhi within 30 days of setting up a place of business in India or as an Indian company in the form of a Joint Venture and wholly owned subsidiary. For opening of the foreign company specific approval of Reserve bank of India is also required. For starting a new project, a number of approvals/clearances are required from different authorities such as Pollution Control Board, Chief Inspector of Factories, Electricity Board, Municipal Corporations etc.

Foreign Exchange Management Act (FEMA):

Indian Parliament has enacted the Foreign Exchanged Management Act, 1999 to replace the Foreign Exchange Regulation Act, 1973. This Act came into force on the 1st day of June 2000. The object of the Act is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.

This act extends to the whole of India and will also apply to all branches offices and agencies outside India owned or controlled by a person resident in India. It will also be applicable to any contravention committed outside India by any person to whom this Act is applicable.

Taxation in India:

Since the onset of liberalization in the country, tax structure of the country is also being rationalized keeping in view the national priorities and practices followed in other countries. Foreign nationals working in India are generally taxed only on their Indian income. Income received from sources outside India is not taxable unless it is received in India. The Indian tax laws provide for exemption of tax on certain kinds of income earned for services rendered in India. Further, foreign nationals have the option of being taxed under the tax treaties that India may have signed with their country of residence.

Remuneration for work done in India is taxable irrespective of the place of receipt. Remuneration Includes salaries and wages, pensions, fees, commissions, profits in lieu of or addition to salary, advance salary and prerequisites. Taxable payments include all allowances and tax equalization payments unless specifically excluded. The stock options granted by the employer are taxable as capital gains at the time of sale of shares acquired due to exercise of options.

Intellectual Property:

India is a signatory to the agreement concluding the Uruguay Round of GATT negotiations and establishing the World Trade Organization (WTO). This agreement, interalia contains an Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) which came into force from 1st January 1995. It lays down minimum standard for protection and enforcement of Intellectual Property rights in member countries which are required to promote effective and adequate protection of Intellectual Property Rights with a view of reducing distortions and impediments to international trade. The obligations under the TRIPS Agreement relate to provision of minimum standards of protection within the member country’s legal systems and practices.

As regards the status of various Intellectual property laws in India and standards in respect of various areas of intellectual property, a law on Trade Marks has been passed by parliament and notified in the gazette on 30.12.1999. This law repeals and replaces the earlier Trade & Merchandise Act, 1958. A new law for the protection of Geographical Indications of Goods (Registration and the Protection) Act, 1999 has also been passed by the parliament and notified on 30.12.1999. A law called the Designs Act, 2000 relating to Industrial Designs which repeals and replaces the earlier Designs Act 1911 has also been passed by parliament in its Budget Session, 2000. The Act has been brought into force from 11.05.2001. A Bill on Patents to amend the Patents Act, 1970 was introduced in Rajya Sabha on 20.12.1999 and the bill was passed by Parliament on 14.05.2002.