India is one of the world’s most promising destinations for international business expansion. With a thriving economy, a skilled workforce, and favorable government reforms, global companies are increasingly establishing subsidiaries in India to access new markets and leverage cost-effective operations.
This guide provides everything you need to know about starting a subsidiary in India—from benefits and setup process to taxation and compliance.
What Is a Subsidiary Company in India?
A subsidiary company is a business entity in which another company, usually a foreign parent, holds more than 50% of the share capital. Subsidiaries are recognized as separate legal entities under Indian law, giving them independence while still being controlled by the parent company.
Types of subsidiaries:
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Wholly-Owned Subsidiary (WOS): 100% owned by the foreign parent company.
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Partially-Owned Subsidiary: Foreign parent owns majority control, but local shareholders hold a minority share.
Why Start a Subsidiary in India?
Setting up a subsidiary provides multiple strategic benefits for global businesses:
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Access to a Large Market
India’s 1.4+ billion population creates massive demand across industries like technology, healthcare, manufacturing, retail, and finance. -
Skilled Workforce at Competitive Costs
India offers highly skilled professionals, particularly in IT, engineering, and finance, at significantly lower costs than Western markets. -
Government Support & Incentives
Programs like Make in India, Startup India, and SEZ (Special Economic Zones) incentives support foreign investment. -
Operational Independence
A subsidiary is legally independent, allowing it to manage local operations, contracts, and compliance effectively. -
Limited Liability
The liability of the foreign parent is limited to its investment in the subsidiary, reducing overall risk exposure.
Step-by-Step Process to Set Up a Subsidiary in India
Starting a subsidiary requires compliance with Indian corporate and foreign investment laws. Here’s how to get started:
1. Choose the Right Entity Type
Most foreign businesses establish subsidiaries as:
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Private Limited Company (most common and flexible)
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Public Limited Company (for larger operations)
2. Appoint Directors
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At least two directors are required.
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One director must be an Indian resident.
3. Obtain DIN and DSC
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Director Identification Number (DIN) for directors.
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Digital Signature Certificate (DSC) for online filings.
4. Reserve the Company Name
Apply through the Ministry of Corporate Affairs (MCA) portal. The name must be unique and compliant with Indian naming guidelines.
5. Draft MoA & AoA
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Memorandum of Association (MoA): Defines objectives and scope.
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Articles of Association (AoA): Outlines company rules and governance.
6. File for Incorporation
Submit all documents to the Registrar of Companies (RoC). Once approved, the company receives a Certificate of Incorporation.
7. Apply for PAN, TAN & GST Registration
These are mandatory for taxation, transactions, and compliance.
8. Open a Bank Account
The subsidiary must have an Indian corporate bank account to receive foreign investment and handle local operations.
Taxation of Subsidiaries in India
Foreign subsidiaries in India are taxed as domestic companies. Key points include:
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Corporate Tax:
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25% for companies with turnover up to ₹400 crore.
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30% for larger companies.
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GST: Mandatory for businesses above threshold turnover.
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Transfer Pricing Rules: Govern transactions between the parent and subsidiary.
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Double Taxation Relief: Available under Double Taxation Avoidance Agreements (DTAAs) between India and many countries.
Compliance Requirements
Subsidiaries must adhere to ongoing Indian corporate and tax regulations, such as:
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Annual filing with the Registrar of Companies (RoC).
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Statutory audits of financial accounts.
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Filing annual income tax returns.
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Compliance with FEMA (Foreign Exchange Management Act) for foreign investments.
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Conducting board and shareholder meetings as required.
Common Challenges & How to Overcome Them
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Regulatory Complexity – Partnering with legal and compliance experts ensures smooth setup.
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Cultural and Market Differences – Local market research and hiring local talent help bridge gaps.
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Taxation Rules – Professional accounting support prevents costly compliance errors.
Final Thoughts
Starting a subsidiary in India can unlock immense growth opportunities for global businesses. With its strong economy, skilled workforce, and investment-friendly climate, India is an ideal destination for companies seeking long-term success.
However, navigating Indian corporate, legal, and tax frameworks requires expertise. Many foreign businesses partner with Employer of Record (EOR) services, PEOs, or business consulting firms to simplify compliance, payroll, and HR management.
By planning strategically and partnering with the right experts, your business can establish a profitable and sustainable presence in India.