Numerous qualitative factors have been discussed and elaborated at various platforms regarding the rationale for anybody to look at India as a strategic destination. India attracts any business as a producer and as a consumer. But this enormous opportunity comes along with some challenges. Among other factors, complex legislations are cited as a major barrier for establishing a business in India. However these legislations are framed from time to time for promoting sustainable economic development and safeguard the interest of the country in the global economy.
At the outset, the compilation of various business legislations in India can appear to be exhaustive. However, the relevant legislations can be far and few depending on the business activity of a particular business entity. Hence the legislations cited below needs to be viewed as an indicative list, which are quite generic in nature and will not cover the exhaustive list one may face in a practical scenario.
Following is an overview of some of the regulatory requirements for establishing and operating the business in India. Most of them may require a prior registration with the respective authority empowered under the relevant act or rules framed there under or an intimation based on the performance of a particular activity:
- CORPORATE LAWS:
- Companies Act: Companies Act regulates all the affairs of a company. It contains the provisions relating to the formation; powers and responsibilities of the directors and managers; raising of capital; holding company meetings; maintenance and audit of the company accounts; powers of inspection and investigation of company affairs; reconstruction and amalgamation of a company and winding up of a company.
- Reserve Bank of India Act and Foreign Exchange Management Act: Applicable for foreign companies making remittance to India for capital and current account transactions. Intimation to be given or approval has to be obtained based on the nature of the transaction either with RBI or Authorised Dealer or Foreign Investment Promotion Board.
- TAX LAWS:
- The Income Tax: The act governs the levy of income tax in the country. It defines various terms and expressions and states the liability of a person and an entity to pay income tax. The rates and pattern of taxation; however, are changed from time to time.
- Central Excise: The central government is empowered to levy excise on most of the articles manufactured in the country and the liability to duty starts the moment a new commodity is manufactured.
- Sales tax: Sales tax is the tax levied by state and centre. Tax charged by the state is called LST or local sales tax and tax charged by the centre is known CST or central sales tax. The latter is charged when goods move out of a state.
- Service Tax It is a type of indirect duty levied on particular services that are categorized as taxable services. The responsibility of paying this kind of levy lies on the service provider.
- Customs Act: Applicable to businesses exporting or importing goods or services from or to India.
- INDUSTRIAL AND LABOUR LAWS:
- Factories Act: This is applicable to enterprises where the number of employees is (i) Ten or more and where power is used (ii) Twenty or more and power is not used. The enterprises covered under the act are required to keep certain records.
- Shops and Establishments Act: is applicable to shops and business undertakings employing five or more persons.
- Employees Provident Fund and Miscellaneous Provisions Act: applies to every factory or establishment employing twenty or more employees. It, however, exempts a factory or establishment for an initial period of three years from the commencement of business, if the number of employees is more than 50 and for an initial period of five years if the number of employees is less than fifty.
- Employees’ State Insurance Act: The act benefits to employees in the case of sickness, maternity and employment injury and for certain other matters in relation thereto. The act also provides for payment of contributions by employers and employees at the rates specified in the first schedule of the act.
- Payment of Gratuity Act: An Act to provide for a Scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments and for matters connected therewith or incidental thereto.
- The Contract Labour (Regulation and Abolition) Act: Applies to every establishment in which twenty or more workmen are employed on any day in the preceding twelve months, as contract labour. Its aim is to place the contract labourers at par with labourers employed directly, with respect to the working conditions and other benefits under labour law.
- ECONOMIC LAWS:
The Pollution control act and environmental legislations: Over the years, together with the spread of environmental consciousness, there has been a change in the traditionally held perception that there is a tradeoff between environmental quality and economic growth. People have now come to believe that the two are necessarily complementary.
- Water (Prevention and Control of Pollution) Act: The water act has the objective of Prevention and Control of Water Pollution and for maintaining or restoring of wholesomeness of water. The act specifies powers and functions for the central and state pollution control boards so as to ensure the effective implementation of the act.
- The Air (Prevention and Control of Pollution) Act: The Air Act lays down the standards for emission of air pollutants into the atmosphere from industrial plans and automobiles or for the discharge of any air pollutants into the atmosphere from any other source. The Air Act requires the industries to obtain the prior consent of the State Pollution Control Board to establish or operate any industrial plant in the Air Pollution Control Area.
- The Environment (Protection) act: This is an umbrella act on account of the facts that it comprehensively covers environmental issues related to the human environment. Rules framed under this Act lay down comprehensive standards for waste water discharges, air emissions, ambient air quality, noise levels. The Environment Protection Act also provides for tackling of the unforeseen issues, which can affect the environment adversely.
Foreign Trade Policy (2015-20): Foreign Policy refers to the principles and considerations that lie behind India’s international relations. Since there is an intimate connection between world events and there is also constant action and reaction, the foreign policy keeps evolved to adapt to the new situations.
- GENERAL AND COMMERCIAL LAWS:
- Indian Contract Act: The provisions of the act govern the commercial relations and agreements between parties business.
- Arbitration and Conciliation Act: The Arbitration Act is based on the UNCITRAL Model Law of International Commercial Arbitration. It encompasses both domestic and international commercial arbitration and gives freedom to the arbitrating parties in case of trans border contracts to choose the venue as well as the rules governing their arbitration. It further accords due recognition to mediation and conciliation.
Indian regulatory system is fast evolving with the global macro and micro economic realities. Reforms such as the new Companies Act 2013, proposed amendments in Labour Laws and proposed Good & Service Tax Act covering all Tax laws except Income Tax and Customs Act, etc. are aimed at abolishing the conventional systems and a faster integration with the global economy. These measures are definitely aimed at establishing ease of doing business and focused on a sustainable economic growth.
Disclaimer: The information provided in this article is intended for information purposes only and does not constitute a legal opinion or advice. Readers are requested to seek formal advice prior to acting upon any of the information provided herein.