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Steps involved in starting business in India

Registration Requirements:

Step 1: Obtain director identification number (DIN) online from the Ministry of Corporate Affairs portal (National)

Step 2: Obtain digital signature certificate online from private agency authorized by the Ministry of Corporate Affairs (National)

Step 3: Reserve the company documents at the State Treasury (State) or authorized bank (Private)

Step 4: Stamp the company documents at the State Treasury of Companies (ROC) (National)

Step 5: Get the Certificate of Incorporation from the Register of Companies, Ministry of Corporate Affairs (National)

Step 6: Make a seal (Private)

Step 7: Obtain a Permanent Account Number (PAN) from an authorized franchise of agent appointed by the National Securities Depository Ltd. (NSDL) or the Unit Trust of India (UTI) Investors Services Ltd., as outsourced by the Income Tax Department (National)

Step 8: Obtain a Tax Account Number (TAN) for income taxes deducted at source from the Assessing Office in the Mumbai Income Tax Department

Step 9: Register with the Office of Inspector, Shops and Establishment Act (State / Municipal)

Step 10: Register for Value – Added Tax (VAT) at the Commercial Tax Office (State)

Step 11: Register for Professional Tax at the Professional Tax Office (State)

Step 12: Register with Employees Provident Fund Organization (National)

Step 13: Register for medical insurance at the regional office of the Employees’ State Insurance Corporation (National)

 

Detailed Steps and Explanation of Procedure to Start Business in India

Step 1: Obtain director identification number (DIN) is as follows:

Obtain the provisional DIN by using filing application from DIN-1 online. This form is on the Ministry Corporate Affairs 21st Century (MCA 21) PORTAL. The provisional DIN is immediately issued.

The application form must then be printed signed and sent for approval to the ministry by courier along with proof of identity and (address):

  • Identity Proof (any of the following): Permanent Account Number (PAN) Card, Driving License, Passport, or  Voter ID Card
  • RESIDENCE Proof (any of the following): Driving License, Passport, Voter ID Card, Telephone Bill, Ration Card, Electricity bill, Bank Statement
  • The concerned authority verifies all the documents and upon approval issues a permanent DIN. The process takes about 4 weeks.

Step 2: Obtaining digital signature

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 MCA21 such as Tata Consultancy Services. Company directors submit the prescribed application from along with proof of identity and address. Each agency has its own fee structure, ranging from INR 400 to INR 2650.

Step 3: Reserve the company name online with the Register 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 conform 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 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).

Step 4: the request for stamping the incorporation documents should be accompanied by unsigned copies o f 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 (1989), the stamp duty payable on the Memorandum and Articles of Association for company incorporation in Mumbai, Maharashtra, is as follows:

  1. Articles of Association : INR 1000/- for every INR 500,000/- of share capital (or part thereof), subject to a maximum of INR 50,000,000;
  2. Memorandum of Association : INR 200;
  3. Form -1 (declaration of compliance): INR100.

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.

Step 5: The following are required to be electronically field on the website http://www.mca.gov.in/ of Ministry of Company Affairs:

E-form; 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 18 and the original name approval letter, consent of directors and stamped power or attorney must be physically submitted to the Register 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):

  1. INR 100,000 or less; INR 4,000. If the nominal share capital is over INR 100,000 of nominal share capital or part of INR 100,000, additional fees based the amount of nominal capital apply to the base registration fee of INR 4,000.
  2. For every INR 10.000 of nominal share capital or part of INR 10,000  after  the first 1,00,000 up to INR 500,000: INR 300;
  3. FOR EVERY INR 10,000 of nominal share capital or part of INR 10,000 after the first INR 500,000, up to INR  5,000,000 : INR 200;
  4. For every INR 10,000 of nominal share capital or part of INR 10,000 after the first INR 5,000,000 up to INR 11O,000,000:INR 100;
  5. For every INR 10,000 of nominal share capital or part of INR 10,000 after the first INR 10,000,000: 50.

The payment of fees can be made:

  1. Offline: One can upload all incorporation documents and generated the payment challan. Against this  challan, the applicant must obtain a demand draft for filing fees amount in favor of –“the Pay and Accounts Office, Ministry Of Corporate Affairs, New Delhi” and this demand draft is payable in Mumbai. The applicant must make the payment at specified branches of certain banks. It takes around one week for clearance of payment. Only after the clearance of payment does the ROC accept the documents for verification and approvals;
  2. Online: The applicant makes the payment by credit card and the system accepts the document immediately. Please note that in Mumbai, the ROC requests for pre-scrutiny of documents for any corrections, before they are uploaded. Once the documents have been uploaded, they can then be approved without any further correction. 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 all article and for the other forms (1, 18 and 32):

  1. INR 200 for a company with authorized share capital of more than INR 100,000 but less than INR 500,000;
  2. INR 300 for a company with nominal share capital of INR 500,000 or more but less than INR 2,500,000;
  3. INR 500 for a company with nominal share capital of INR 2,500,000 or more.

Step 6: although making 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 from INR 300 to INR 500.

Step 7: Under the Income Tax Act, 1961, each person must quote his or her Permanent Account Number (PAN) for tax payment purpose 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 of 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 registration, issued by the Registrar of Companies, along with proof of company address and personal identity. A fee of INR 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 as the case may be, will print the PAN card and deliver it to the applicant.

The application for PAN can also b 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.nsdlco.in)

Step 8: The Tax Account Number (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 TAN or to comply with any of the other provisions of the section is subject to a penalty of INR 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 Canters can be found at www.incometaxindia.gov.in and http://tin.nsdlcom. The processing fee for both applications (a new TAN or a change request) is INR 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 out sourcing, any authorized franchise of agent appointed by the National Securities Depository Services Limited (NSDL) can accept and process the TAN application. The application for TAN can be made either online through the NSDL website (www.tin.nsdl.com) or offline.

Upon payment of fee by credit card, the hard copy of the application must be physically filed with the NSDL.

Step 9: 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 Establishment 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 be submitting 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 registration and renewal of registration (as per Rule 5) is as follows:

  1. 0 employees: INR 100;
  2. 1 to employees: INR 300;
  3. 6 to employees: INR 600;
  4. 11 to 20 employees: INR 1000;
  5. 21 to 50 employees: INR 2000;
  6. 51 to 100 employees: INR 3500;
  7. 101 or more employees: INR 4500.

Hence in the case the registration fees would be INR 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).

Step 10: Beginning April, 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 Driving 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 o Form No.210 (original) showing payment of registration fee at INR 5000 (in case of voluntary RC) and INR 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 only so that the Sales Tax Office can verify the listed-documentation.

Step 11: 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.

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.

Step 12: 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 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, underreporting, or non-reporting of workforce size. Provident Fund registration is optional of workforce size is not more than 20. The employer is required to provide necessary information to the concerned regional Provident Fund Organization (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 applicants have received the intimation letter with the code number in 12 to 15 days. An online application facility is not provided so far.

Step 13: registration is the process by which every employer/factory and every paid employee is identified for insurance purpose and their individual records are set up for them.

As per the Employee’s State Insurance (General), Form 01must 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 as 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.