How to deal with Indian business legislation as a foreign company in 2026
To successfully run a subsidiary in India, you need to familiarize yourself with the complex legal frameworks. We will therefore guide you through the most important business legislation, such as the Compliance Act 2013, tax compliance requirements, and other legal obligations that foreign companies need to understand in order to be successful in the Indian market.
Understanding Indian legislation for businesses
Companies Act 2013: the fundament for corporate governance in India
The Companies Act 2013 forms the cornerstone of the regulatory framework for companies in India. This Act regulates how foreign companies can establish themselves, how they operate in India and the standards they must meet.
The Companies Act sets mandatory requirements for corporate governance, board meetings, shareholder rights, and transfer pricing.
Key compliance requirements under the Companies Act 2013:
- detailed minutes of board and shareholder meetings;
- statutory registers recording members, directors, and company expenses;
- annual returns, including form MGT-7 (annual return) and form AOC-4 (annual accounts);
- notices of changes to the board of directors and reporting on the capital structure;
- disclosure of related party transactions with requirements for shareholder approval.
Foreign companies must understand that transactions with related parties are subject to strict rules regarding the disclosure of documents under Indian company law.
These provisions protect minority shareholders and ensure corporate transparency. Multinationals must therefore comply with these rules meticulously.
FEMA compliance: dealing with foreign exchange regulations in India
Requirements of the Foreign Exchange Management Act (FEMA) 1999
Compliance with the FEMA Act is an ongoing obligation for foreign companies operating in India. The Foreign Exchange Management Act regulates foreign investments and international financial transactions.
Essential FEMA compliance requirements:
- Reporting of foreign investments and share transfers using FC-GPR and FC-TRS forms;
- Annual filing of FLA form with the Reserve Bank of India (RBI);
- documentation for all cross-border payments and transfers;
- compliance with foreign direct investment ceilings and sector investment limits;
- compliance with automatic route versus approval route requirements;
- end-use control for foreign capital deployment.
Automatic vs. Approval Route
The automatic route and the approval route are two avenues for foreign direct investment (FDI) in India under FEMA regulations.
Automatic route: Foreign investors can invest in most sectors without prior government approval, subject to sectoral limits. Investment is permitted immediately, with only post-investment reporting to the Reserve Bank of India required through FC-GPR/FC-TRS forms.
Approval route: Certain sensitive sectors (defense, broadcasting, pharmaceuticals, aviation) require prior approval from the Foreign Investment Promotion Board or relevant ministries before investment can be made. This involves a detailed application, thorough examination, and formal approval.
Most sectors now allow 100% foreign direct investment through the automatic route, which simplifies foreign investment.
Tax compliance in India: income tax and transfer pricing rules
Income Tax Act 1961: corporate tax for foreign companies
Indian corporate tax laws create multiple compliance obligations that extend throughout the fiscal year.
Key income tax compliance requirements:
- Quarterly TDS deduction and payment;
- Advance tax payment based on estimated annual income;
- Annual income tax return with supporting schedules;
- Documentation on transfer pricing for international transactions
- Form 3CEB: auditor’s report for related party transactions
- Form 15CA/15CB: certificates for international payments
Transfer pricing compliance in India
is one of the most complex aspects of tax compliance for foreign companies in India.
Transactions with related parties, including parent companies, must comply with the arm’s length principle and be supported by comprehensive documentation setting out the pricing methodologies used.
The Indian tax authorities are increasingly scrutinizing transfer pricing arrangements, making advance pricing agreements (APAs) and thorough, up-to-date documentation essential.
GST compliance: the Indian version of VAT
Understanding GST registration and filing requirements
The Goods and Services Tax (GST) has significantly improved India’s tax system, but it remains complex for foreign companies. GST compliance includes registration, filing, paying input tax, and electronic invoicing obligations.
Key requirements for compliance with GST laws:
- GST registration for businesses that exceed the thresholds;
- monthly filing of GSTR-1 (outgoing supplies) and GSTR-3B (summary declaration) forms;
- annual filing of GSTR-9 returns;
- documentation of input tax credit (ITC) paid;
- compliance with e-invoicing for businesses above turnover thresholds;
- correct HSN code for goods and services.
has become mandatory for companies that exceed certain revenue thresholds, requiring invoice reporting to the GST Network (GSTN). This digitization improves compliance transparency but requires up-to-date accounting systems.
Compliance with labor laws in India
prioritize the protection of employees through comprehensive regulations governing employment, social security, and workplace safety.
Key obligations in terms of labor law compliance:
- Registration and contributions for the Provident Fund (PF) and Employee State Insurance (ESI);
- maintaining payroll and attendance records;
- compliance with regulations on leave, working hours, and overtime;
- workplace safety measures and systems for handling complaints;
- registration for tax purposes;
- registration under the Shops and Establishments Act.
Social security contributions are mandatory, with both the employer and employee portions required to be paid on time to avoid penalties.
Sector-specific and national rules
In addition to central legislation, foreign companies must also comply with additional compliance requirements:
State-level requirements:
- Shops and Establishments registration in states where applicable;
- sector-specific tax obligations;
- compliance with labor laws and cooperation with state inspections;
- GST registration in the state, if applicable.
Sector-specific regulations:
- Pharmaceutical sector: drug licenses and manufacturing approvals.
- Financial services: SEBI, RBI, and IRDA regulations.
- Technology: compliance with data protection and IT legislation.
- Manufacturing: environmental permits and pollution control.
Compliance with legislation for companies in India
Foreign companies that comply with company law, FEMA regulations, income tax obligations, GST requirements, customs procedures, and labor legislation will benefit from India’s enormous market potential.
Investing in compliance is worthwhile when it is seen as a basis for sustainable growth in one of the world’s most dynamic economies.
To be successful in India, regulatory compliance should not be seen as a burden, but as a business function that deserves strategic attention, sufficient resources, and expert guidance.
Do you have specific questions about the challenges your company faces? Feel free to contact us here.
