Doing Business in India

India is distinguished as one of the fastest-growing major economies in the world, characterized by a dynamic business environment underpinned by a substantial domestic market, advancements in digital technology, and pro-investment reforms. Nevertheless, operating within India entails navigating regulatory and cultural complexities that necessitate thorough planning and the engagement of local expertise. 

At H&CO, we help international investors and businesses understand the Indian market, mitigate risks, and identify opportunities aligned with long-term growth.

Index Content

Opportunities | Political and Economic | Entity Structures | Corporate Tax | Business Culture

Challenges of expanding into India 

India is an increasingly attractive destination for global investors, but doing business in India requires navigating a complex landscape of regulations, infrastructure limitations,  and administrative differences. Companies that understand the common challenges early on are better positioned for long-term success in the Indian market. 

1. Navigating India’s Complex Regulatory Framework 

One of the biggest challenges of doing business in India is adapting to its multilayered legal and regulatory system. Compliance requirements may differ between states, and frequent changes in policies can create uncertainty. Foreign companies must meet national and local regulations related to foreign direct investment (FDI), labor laws, and environmental standards, making expert local guidance essential. 

2. Taxation Challenges and Compliance Burdens 

 Businesses expanding into India must deal with a combination of direct and indirect taxes, complex reporting obligations, and transfer pricing rules. Inconsistent interpretations and delays in tax refund processing can further complicate operations. 

3. Infrastructure and Supply Chain Limitations 

Logistical constraints remain a challenge for businesses entering the Indian market. Although infrastructure is improving, companies may still face issues such as uneven transport networks, unreliable electricity in some regions, and congestion at ports. These challenges can increase costs and delay product delivery timelines. 

4. Cultural, Linguistic, and Administrative Diversity 

India is a diverse country with multiple languages, religions, and business practices. Regional consumer behavior and administrative requirements vary widely, demanding tailored strategies and strong local partnerships to navigate different state-level regulations and expectations. 

5. Labor Laws and Talent Acquisition 

India offers a large, skilled, and youthful workforce, especially in sectors like IT, manufacturing, and finance. However, navigating India's evolving labor laws and managing employee expectations can be difficult without local insight. Hiring, training, and retaining talent in a competitive labor market remains a key challenge for foreign businesses. 

Opportunities of Doing Business in India 

India presents a wide range of business opportunities for foreign investors seeking sustainable growth, diversification, and access to one of the world’s largest consumer markets. With economic liberalization, digital transformation, and government-led initiatives, India continues to evolve as a strategic destination for international expansion. 

1. Access to a Rapidly Expanding Consumer Market 

India’s population exceeds 1.4 billion, with a growing middle class and increasing urbanization. Consumer demand is rising across industries — from retail and healthcare to fintech and e-commerce. For companies looking to scale in emerging markets, India offers unmatched volume and demographic diversity. 

2. Competitive Talent Pool and Skilled Workforce 

India is home to one of the largest and most skilled labor forces globally, especially in technology, engineering, finance, and business services. With a young and digitally connected population, companies can tap into local talent to drive innovation, support global operations, and establish centers of excellence. 

3. Thriving Tech and Innovation Ecosystem 

India has emerged as a global technology hub, with over 100 unicorns, robust startup activity, and strong digital infrastructure. The government's push for “Digital India” and increasing internet penetration present opportunities in SaaS, AI, e-commerce, healthtech, and fintech. Foreign businesses can collaborate with Indian startups or invest directly in high-growth sectors. 

4. Strategic Location for Manufacturing and Exports 

As part of its “Make in India” initiative, the government is promoting India as a manufacturing base for global supply chains. Incentives are available for sectors like electronics, automotive, textiles, and pharmaceuticals. With access to major ports and trade routes, India also serves as a key export hub in Asia. 

5. Government Incentives and FDI Reforms 

India continues to liberalize its FDI policy, allowing 100% foreign ownership in various sectors, including defense, telecom, and infrastructure (subject to conditions). Tax incentives, simplified company registration processes, and reduced corporate tax rates for new manufacturing entities make market entry more appealing for foreign investors. 

6. Growth in Green Energy and Sustainability 

India has set ambitious goals for renewable energy and sustainability, creating opportunities in solar, wind, electric vehicles, and energy-efficient solutions. International companies with expertise in clean tech can benefit from the growing demand, government subsidies, and public-private partnership programs. 

Why Do Business in India? 

India combines economic resilience, market scale, and strategic reform to position itself as one of the most promising destinations for global investment. For companies seeking sustainable growth and diversification, doing business in India offers more than just low-cost operations; it offers access to innovation, digital transformation, and one of the most dynamic consumer bases in the world. 

Interesting Facts: India has a GDP exceeding USD 4.4 trillion, placing it among the top five economies by nominal GDP. It also boasts the largest concentration of IT service providers, exporting technological solutions to over 100 countries. 

Political and Economic System of India 

Population: 1.44 billion with a 36% urban population. 

Language: Hindi and English most widely used. 

Currency: Indian Rupee (INR) managed by the Reserve Bank of India (RBI) 

Political System: A federal parliamentary democratic republic, the president is the head of state, and the prime minister is the head of government. It is composed of 28 states and 8 union territories, each with different regulations. 

They hold regular democratic elections and have a relatively stable political climate. Business regulations may vary by state. 

Tax Treaties: India has signed a Double Taxation Avoidance Agreement (DTAA) with over 90 countries, and 88 are currently in force.  

India's International Investment Laws 

India has progressively liberalized its foreign investment framework to attract international capital while ensuring regulatory oversight and sectoral balance. The legal environment for international investors is governed by a mix of domestic statutes, sector-specific policies, and bilateral or multilateral treaties that provide both opportunities and protections. 

FEMA is the primary law regulating cross-border transactions. It governs foreign direct investment (FDI), external commercial borrowings, and capital account transactions. FEMA aims to facilitate international trade and maintain foreign exchange market stability. 

India has actively renegotiated its BITs since adopting the 2016 Model BIT to balance sovereignty with investor protection. The Model BIT includes fair and equitable treatment (FET), expropriation provisions, the elimination of the most-favored-nation (MFN) clause, and more restrictive investment definitions to reduce litigation risks. 

Labor Market & Employment Laws in India 

India consolidated nearly 29 labor laws into four comprehensive Labor Codes to modernize its regulatory framework. India is experiencing a surge in job creation, particularly in technology, digital services, and the gig economy. 

Governs trade unions, dispute resolution, strikes, and retrenchment procedures. Workers receive guaranteed minimum wages, overtime pay, and equal pay for equal work, while employers are legally required to provide written contracts, workplace safety, and social benefits. 

Regulatory Requirements and the Role of the Indian Government 

The country operates through a dual system of governance, where both the central and state governments influence business regulation. Foreign companies planning to enter the Indian market must comply with various legal, tax, and reporting requirements set by key national authorities. 

The Ministry of Corporate Affairs (MCA) oversees the registration and regulation of companies under the Companies Act, 2013, requiring every foreign-invested entity to register with the Registrar of Companies (RoC) and obtain a Corporate Identification Number (CIN). The Department for Promotion of Industry and Internal Trade (DPIIT) manages India’s foreign direct investment (FDI) policy, which classifies sectors under either the automatic or government approval route. Investors seeking approval must use the Foreign Investment Facilitation Portal (FIFP). Additionally, the Reserve Bank of India (RBI) plays a critical role in monitoring capital flows under the Foreign Exchange Management Act (FEMA) and mandates filings such as FC-GPR and FLA for inbound investments. 

Profit-Sharing Requirements 

Profit sharing encompasses various forms of profit distribution, typically involving the allocation of operating profits or losses among financial stakeholders. This arrangement functions as an incentive program. Additionally, profit sharing serves to allocate profits derived from collaborative business ventures. 

In India, profit-sharing agreements are gaining popularity among businesses for collaborating on profit and loss sharing. These flexible agreements are preferred over involving third parties or giving up equity, allowing partnerships with experts to enhance sales and benefit all involved, including owners, partners, and directors. 

Entity Structures in India 

A indian company must register under the Companies Act of 2013. To do so, every establishment needs to understand its options and adopt a legal structure approved by the Indian government. 

Each type of business structure has its own legal and financial implications, and choosing the right one can greatly impact the success and growth of a business in India. 

Sole Proprietorship 

A Sole Proprietorship is the simplest and most common type of business in India. It is owned and run by one person. This business does not need formal registration, making it a good choice for small businesses and startups. Ideal for small-scale operations with lower risk. 

The owner has unlimited liability, which means personal assets can be used to pay business debts. The income from the business is taxed as the owner's income, and compliance requirements are minimal. 

Partnership 

A partnership is a business structure where two or more individuals operate a business and share its profits and losses. In India, partnerships are governed by the Indian Partnership Act of 1932. Partners have unlimited liability, meaning they are responsible for business debts. The partnership deed outlines the terms, including profit-sharing ratios and roles. 

Limited Liability Partnership (LLP) 

A Limited Liability Partnership (LLP) merges the benefits of a partnership with the advantages of limited liability for its partners. Governed by the Limited Liability Partnership Act of 2008, an LLP is a separate legal entity that is distinct from its partners, offering them protection through limited liability. 

Private Limited Company 

A Private Limited Company (Pvt Ltd) is a common business structure in India. It offers limited liability protection to its shareholders and has restrictions on the transfer of shares. Governed by the Companies Act of 2013, this structure is suitable for businesses that need external funding and professional management. 

One Person Company (OPC) 

A One Person Company (OPC) is a distinctive business structure established under the Companies Act of 2013. This framework permits a single entrepreneur to operate a corporate entity with limited liability. The OPC structure is particularly advantageous for individual entrepreneurs seeking to capitalize on the benefits associated with a corporate format while eliminating the necessity for partners. 

Joint Venture 

A Joint Venture (JV) is a business arrangement where two or more companies come together to combine their resources to achieve a specific goal or project. This collaboration enables companies to leverage each other's strengths, share risks, and benefit from their combined expertise. JVs are often used for large projects, international expansions, or entering new markets. They provide a flexible structure for achieving strategic business objectives without requiring the merging of the entities involved. 

Corporate Tax Landscape Under India's Income Tax Act

India's corporate tax framework is governed by the Income Tax Act, which outlines the process for levying corporate income tax and calculating income tax for both domestic and foreign entities. As of 2025, the base corporate income tax rate for domestic companies stands at 22% (plus applicable surcharge and cess), provided they do not claim any exemptions.

For new manufacturing companies incorporated after October 1, 2019, a reduced tax rate of 15% remains applicable, making India an attractive jurisdiction for industrial investment. Additionally, businesses are subject to Minimum Alternate Tax (MAT) at a rate of 15% on book profits if their normal tax liability is lower, though this does not apply to companies that opt for the concessional tax regimes. When it comes to paying taxes in India, compliance involves advance tax payments, electronic filings, and adherence to statutory deadlines, which are strictly enforced by the Indian tax authorities.

Payroll taxes & Wages 

Employers must pay income tax withholding (TDS), as well as social security contributions under the EPF and ESI schemes. The payroll cycle in India is generally monthly, with wages paid on or after the 28th of each month. 

The 13th salary in India is mandatory for low-income workers, paid as a percentage of the annual salary and within eight months of the end of the financial year. 

Minimum wages in India are determined at the state level and vary significantly across regions, industries, and skill levels.

The termination process in India is standard and requires notice periods, unless the employer can provide sufficient grounds for dismissal without notice due to reasons such as misconduct, disobedience, lack of skill, neglect of duties, or absence without permission. 

Incentives and Tax Implications for Foreign Investors in Infrastructure Projects

India continues to prioritize infrastructure development as a key driver of economic growth, with the government allocating significant funds in the 2025 Union Budget toward transportation, energy, and smart city initiatives. Foreign investors engaging in infrastructure projects may benefit from various fiscal incentives, particularly when revenues are earned in convertible foreign exchange. These incentives often include reduced tax rates, tax holidays, and faster depreciation on qualifying assets. Eligible companies must ensure their gross receipts are derived from specified infrastructure activities, such as road construction, power generation, or airport development.

In terms of taxation, profits from infrastructure ventures are subject to corporate income tax, and the applicable education cess, currently 4% on the tax amount, including surcharge, must also be considered. Proper structuring is essential to optimize returns and ensure compliance, especially when dealing with cross-border transactions and repatriation of profits.

Business Culture in India 

Indian culture and heritage are characterized by their rich history, diversity, and blend of traditions, beliefs, and artistic expressions spanning millennia. The country's heritage is not only ancient but also extensive and varied, reflecting a fascinating story shaped by various ethnic groups and religions. 

Art and Architecture 

India boasts a rich architectural heritage, including ancient temples, majestic forts, and palaces like the Taj Mahal, Agra Fort, Qutub Minar, and numerous UNESCO World Heritage Sites. Traditional arts like painting, sculpture, and craftsmanship also hold immense cultural value.

Religious Diversity

India is the birthplace of four major world religions: Hinduism, Buddhism, Jainism, and Sikhism. It also hosts significant populations of Muslims, Christians, Jews, and other religious groups, fostering a secular and tolerant society.

Social and Cultural Practices

Traditional Indian society has been characterized by the joint family system, arranged marriages, respect for elders, and a strong emphasis on hospitality captured by the phrase "Atithi Devo Bhava" (the guest is equivalent to God). 

Business Etiquette 

Meetings typically begin with a “Namaste” (palms pressed at chest level with a slight bow), although handshakes are common among men. Non-verbal cues are equally important—avoid pointing with one finger, use full-hand gestures, and be mindful that head nodding often signifies agreement or understanding. 

Ways of Communication 

Indian business communication tends to be indirect and relationship-oriented. Body language matters too: prolonged eye contact may feel intrusive, personal space tends to be closer, and nonverbal affirmations matter a lot. 

Lunch Time 

A typical business lunch in India typically begins between 12:00 PM and 2:00 PM, with variations depending on the state and season. Meals are often shared in groups, with preference given to vegetarian options unless otherwise indicated. 

Transportation 

Navigating Indian cities for business requires planning, especially due to heavy traffic in metro areas like Delhi and Mumbai. Car services or pre-booked taxis are safer for business travelers. Always leave early to compensate for unpredictable delays, particularly during peak hours. 

Accommodation 

Foreign business travelers usually stay in 4–or 5-star hotels or serviced apartments located in business districts for convenience. Serviced apartments are preferred for longer stays, offering home-like amenities and workspace flexibility.  

Hotels like Hyatt Regency, JW Marriott, or ITC Maurya in major cities like Delhi, Mumbai, Bangalore, etc. are the best places to stay for their comfort and excellent restaurants.

Embassies and consulates of India 

India operates approximately 202 diplomatic missions across 141 countries, covering embassies, high commissions, consulates, and permanent missions. A widespread diplomatic presence facilitates market access, trade facilitation, visa services, and advocacy for Indian businesses abroad.