Wholly Owned Subsidiary in India: Rules and Process

A wholly owned subsidiary is an Indian private limited company where the foreign parent holds the entire shareholding. Because the company is separate from the parent, its liabilities are generally limited to its own capital, and the parent is protected from most operational risk. It can open bank accounts, lease premises, hire employees and earn revenue in its own name.

In many sectors, including most manufacturing and a wide range of services and technology activities, 100 percent foreign investment is permitted under the automatic route. Other sectors have caps, conditions or a government approval route. Check the position for your activity before you plan the shareholding. If the sector is capped, a joint venture may be the practical alternative.

A private limited company needs at least two directors and two shareholders, and at least one director must be resident in India under the residency test in the Companies Act. The company also needs a registered office in India where official communication can be delivered. Foreign directors need digital signatures and director identification numbers, and corporate shareholders provide authorised, notarised and apostilled documents.

The process runs through the Ministry of Corporate Affairs: obtain digital signatures, apply for director IDs, reserve a name, and file the incorporation form with the memorandum and articles. The registrar issues a certificate of incorporation, and the company then gets its PAN and TAN. Afterwards you hold the first board meeting, appoint an auditor, open a bank account and receive the share capital from abroad.

Foreign exchange law requires the receipt of funds and the allotment of shares to be reported to the RBI through the authorised dealer bank within the prescribed timelines. Incorrect pricing of shares or late reporting can lead to compounding. Our FEMA and RBI compliance team prepares these filings so they are submitted correctly the first time.

A subsidiary pays Indian corporate income tax, registers for GST if it supplies taxable goods or services above thresholds, deducts and deposits TDS, and files annual returns. It also needs a statutory audit and annual filings with the registrar. If it deals with the parent or other group companies, transfer pricing rules require arm's length pricing and documentation. A monthly compliance calendar keeps all of this predictable.

Choose a subsidiary when you will earn revenue in India, hire a team, hold assets or want full control and a clean separation from the parent. It may be more than you need if you only want to test the market, in which case an office could be a lighter first step. When you are ready, explore our wholly owned subsidiary registration service for a step-by-step plan.