Why India Is the Market You Cannot Afford to Ignore
India remains one of the most attractive places in the world to invest. For multinational businesses looking to set up manufacturing, technology, R&D, or shared services here, the opportunity is real — but so is the complexity. Getting India entry right takes careful planning across legal structure, tax, foreign investment rules, employment law, and ongoing compliance.
That planning matters more than ever right now. India’s economy is projected to grow around 6.4% in 2026, keeping it the fastest-growing major economy in the world. FDI is following the growth: gross inflows had already hit $88.29 billion by February FY26, surpassing the $80.61 billion recorded for all of the previous year.
The startup story tells a similar tale. From roughly 350 startups in 2016, India now has over 230,000, creating more than 2.3 million jobs along the way. It’s a fast-moving ecosystem, shaped by ongoing regulatory reforms, a digital-first mindset, and deep talent pools, and global companies are taking notice.
But first-time entrants often misjudge India. It isn’t one market — it’s many, with different languages, cultures, consumer habits, business norms, and state-level rules. A strategy that works for a tech company in Bengaluru may need a complete rework for a manufacturer setting up in Gujarat’s industrial corridor.
At AKM Global, we help multinational groups choose the right entry structure based on their business goals, tax position, and long-term expansion plans. This guide walks through what a solid India market entry strategy actually involves — from legal structure and tax obligations to FDI rules and the compliance groundwork you need before day one.
Understanding the Indian Business Landscape in 2026
Key Sectors Attracting Foreign Investment
Computer software and hardware sector attracted the largest share of FDI equity inflows in FY 2025–26 at $13.9 billion, up sharply from $7.8 billion the year before. The services sector drew $10 billion, while Karnataka alone saw inflows nearly double to $12.9 billion, reflecting the continued build-out of India’s Global Capability Center ecosystem.
Key sectors deserve particular attention while evaluating India market entry:
Technology, IT Services, and GCCs: Cities such as Bengaluru, Hyderabad, and Pune have moved past the cost-arbitrage back-office model. Country now offers excellent talent and infrastructure for engineering, product development, and R&D, with over 2000 GCCs already operating.
Manufacturing and Infrastructure: Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh and Rajasthan states are tapping capital intensive projects which are being facilitated through proactive state-level policies and single-window clearance systems.
Retail and Consumer Goods: With rapid urbanisation happening in India, and near-universal adoption of digital payment systems (UPI) India’s Tier 2 and Tier 3 cities are offering immense growth potential for retail sector.
Renewable Energy and Clean-Tech: India has committed to 500 GW of non-fossil fuel energy capacity by 2030. This policy-backed target creates substantial, long-term commercial opportunity in clean energy, storage, and green supply chains.
Healthcare and Pharmaceuticals: India is evolving from the world’s largest generic drug manufacturer to a seasoned R&D driven pharmaceutical base along with booming medical tourism.
Knowing which sector, you are entering and the FDI limits, licensing requirements, and regulatory bodies that govern it is the starting point for any credible India entry strategy.
Choosing the Right Business Structure for India Market Entry
Selecting the right legal and corporate structure is one of the most consequential early decisions a foreign company faces when entering India. Each option has distinct consequences for liability, taxation, profit repatriation, compliance burden, and the ability to scale or exit down the line.
The five main structures available to foreign companies are compared below:
| Structure | Suitable For | Can Earn Revenue in India? | RBI Approval Required? |
| Wholly Owned Subsidiary (WOS) | Companies planning long-term operations, local hiring, and Indian client billing | Yes | No (automatic route in most sectors) |
| Branch Office | Foreign companies conducting defined commercial activities (trade, services, research) without a separate Indian entity | Yes (limited to permitted activities) | Yes (under FEMA) |
| Liaison Office | Companies at market exploration stage; brand presence only | No | Yes |
| Limited Liability Partnership (LLP) | Professional services, consulting, niche engineering practices | Yes | No (where 100% FDI is allowed under automatic route) |
| Project Office | Foreign companies executing a specific, time-bound project contract in India | Yes (project-specific only) | Yes |
The choice of entry vehicle shapes tax residency status, transfer pricing obligations, GST registration requirements, and how easily the company can restructure or exit later. Getting this right at the outset is significantly less expensive than correcting it afterwards.
Navigating FDI Policy and Sectoral Caps
India’s FDI framework is governed by the Consolidated FDI Policy issued by DPIIT and administered by the RBI through FEMA. Investment flows via one of two routes.
Under the Automatic Route, no prior government approval is required as investor simply needs to notify RBI after the investment is made. This route covers most sectors.
Under the Government/Approval Route, prior sign-off from the relevant ministry or DPIIT is required. This specifically applies to sectors considered strategically sensitive such as defence, multi-brand retail, broadcasting, and banking.
| Sector | FDI Permitted | Route |
| IT and Software | 100% | Automatic |
| Single Brand Retail | 100% | Automatic (up to 49%), Approval above |
| Multi-Brand Retail | 51% | Government Approval |
| Insurance | Up to 100%* | Automatic |
| Telecom | 100% | Automatic (up to 49%), Approval above |
| Defence Manufacturing | 100% | Automatic (up to 74%), Approval above |
| Print Media | 26% | Government Approval |
*India has recently passed legislation raising the FDI ceiling in insurance from 74% to 100%, opening the sector further to international capital.
One very specific compliance requirement is to access investments from neighbouring countries sharing border with India including China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, and Afghanistan. These investments are subject to Press Note 3 (PN3) requirements, companies with shareholders from these jurisdictions must seek qualified legal advice before proceeding with any Indian investment.
Taxation Framework: What Every Foreign Company Must Know
India’s tax environment is multi-layered and a clear-eyed understanding of your obligations across -is essential before operations begin.
Corporate Income Tax
An Indian subsidiary of a foreign company needs to pay a base corporate tax rate of 22%, which rises to approximately 25.17% adding surcharge and cess- Branch offices and project offices pay a significantly higher tax rate of 40% plus applicable surcharge and cess. From tax efficiency perspective setting up a separate entity is always better for a long-term operation.
Goods and Services Tax (GST)
In 2017, India’s GST replaced a patchwork of indirect taxes broadly comparable to VAT in other countries. If foreign companies operating within service sector in India, have an annual turnover of over ₹20 lakhs (approximately USD 21,000) for service providers, or ₹40 lakhs (approximately USD 42,000) if company supplies goods, then its compulsory to have a GST registration. Compliance requires monthly or quarterly GSTR filings, annual returns, and reconciliation statements.
Transfer Pricing
Under Sections 92 to 92F of the Income Tax Act, 1961 Indian transfer pricing regulations require that all transactions between an Indian entity and its foreign parent or associated enterprises be conducted at arm’s length. India’s framework aligns closely with the OECD Transfer Pricing Guidelines, establishing a defensible TP policy is not optional.
Permanent Establishment Risk
Foreign companies without a formal Indian entity but with employees, agents, or operational infrastructure in India, where employees are routinely concluding contracts or generating revenue on behalf of parent organisation, may inadvertently create a Permanent Establishment (PE), triggering corporate tax liability on profits attributable to that PE. Hence PE assessment must be part of any India entry strategy review, not an afterthought.
Labour Law Compliance and the Employment Framework
India’s key labour law landscape incudes: the Code on Wages (2019), the Industrial Relations Code (2020), the Code on Social Security (2020), and the Occupational Safety, Health and Working Conditions Code (2020). These codes are being implemented unevenly across different States however still, companies entering the Indian market should begin aligning their employment contracts, payroll structures, and HR policies with this framework from the outset.
The core statutory compliance requirements in India are:
Provident Fund (PF): Employer and employee each contribute 12% of basic wages. Applicable to establishments with 20 or more employees, administered by Employee Provident Fund Organisation (EPFO).
Employee State Insurance (ESI): For employees drawing wages up to ₹21,000 per month, the employer should contribute 3.25% and employee contribution must be 0.75%.
Gratuity: This is payable to employees who have completed five or more years of continuous service, calculated at 15 days’ wages for each completed year of service.
POSH Compliance: Any establishment with 10 or more employees must constitute an Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.
Setting Up Operations: A Practical Roadmap
Step 1: Evaluate the market opportunity: Before committing to any investment in India understand your target segment, regional distribution networks and the competitive landscape. Due to its varied geographical expanse and regional influence, the Indian consumer preferences vary considerably across states and income tiers.
Step 2: Select the right local advisor: Due to federal republic structure the compliance requirements in India are quite varied. Retaining qualified legal counsel, chartered accountants, and company secretaries who understand how rules are enforced is essential at the beginning itself.
Step 3: Choose the right entry structure: Using the comparison above, align your chosen structure with your near-term intent. The structure you choose at entry will shape your compliance obligations for years.
Step 4: Incorporate the entity: Before starting any commercial activity, company should obtain your Corporate Identity Number (CIN), PAN, and TAN, open corporate bank account under KYC compliance.
Step 5: Complete tax and regulatory registrations: Depending on sector you will typically need GST registration, an Import Export Code (IEC) and sector-specific clearances such as FSSAI for food businesses or drug licences for healthcare or IRDAI approval for financial services.
Step 6: Build your local team: Recruit keeping a compliant employment framework in mind and ensure employment contracts, payroll structures, and employee benefits align with the new Labour Codes.
Step 7: Stay compliant: For ongoing compliance related checks and filing on GST, annual taxes and filings, use a compliance specialist service provider like AKM Global to minimise your financial and reputational risk.
Common mistakes foreign companies make while entering India
- Choosing the wrong entry structure for the stage of business e.g. a liaison office suits market exploration and not commercial activity.
- Underestimating state-level variation e.g. India being a federal republic, labour law enforcement, land acquisition processes, industry licensing differ significantly across states.
- Ignoring GST compliance can attract notices and penalties that disrupt operations and consume management time.
- With intensifying scrutiny of transactions, weak Transfer Pricing documentation is one of the most common and avoidable tax risks for foreign-owned Indian subsidiaries.
- Treating PE risk as a hypothetical and letting employees concluding contracts in India. This requires legal assessment before the first hire is made, not after.
- Delay in engaging experienced local counsel, accountants, and company secretaries at the planning stage.
India market entry isn’t a one-time setup — it’s an ongoing commitment. As your operations scale, so do your transfer pricing obligations, social security requirements, and cross-border tax planning needs. The companies that get the foundation right from day one are the ones best placed to capture what India’s market has to offer over the next decade.
If you’re weighing your India entry options or need help structuring operations compliantly, AKM Global’s chartered accountants, tax advisors, and legal specialists can guide you through every stage, from initial market assessment to fully operational entity management. Reach out to us at info@akmglobal.in to speak with an advisor now.
Frequently Asked Questions
Q1. Can a foreign company own 100% of an Indian subsidiary?
Yes, in most sectors. 100% FDI is permitted under the automatic route across the majority of commercial sectors, including IT and software, manufacturing, and services. Certain sectors such as insurance, defence, multi-brand retail, and print media have lower are the most common examples.
Q2. What is the fastest way to set up a business in India?
For companies needing to start quickly, an Employer of Record (EOR) arrangement is best as it allows hiring in India within 1 to 2 weeks without incorporating an entity.
Q3. How long does incorporation take?
The incorporation process generally takes 15 to 20 business days. However, to become a fully functional entity it can take up to 4-6 months due to obligatory requirements around bank account opening, GST registration, EPF and ESI registrations.
Q4. Do foreign companies need GST registration?
Yes, if annual turnover in India exceeds ₹20 lakhs for service providers or ₹40 lakhs for goods suppliers GST registration is mandatory.
Q5. Can a Liaison Office generate revenue?
No. Liaison Office role is strictly restricted to a communication channel between the foreign parent and Indian parties. It cannot sign contracts, engage in trading or earn revenue within India.
Q6. What is FEMA?
The Foreign Exchange Management Act (FEMA), 1999 is the central legislation governing all cross-border capital flows into and out of India. It is administered by the Reserve Bank of India (RBI) and sets the legal framework for FDI, Non-compliance with FEMA carries significant financial penalties.
Q7. Which structure is best for startups?
For early-stage foreign start-ups entering India, an EOR arrangement can be a quick way to hire talent before completing incorporation. A Wholly Owned Subsidiary (Private Limited Company) is typically the most practical choice as this permits 100% FDI under the automatic route (in most sectors) and provides the flexibility to issue ESOPs and raise further capital as the business grows.
