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Some Amazing Facts about India


       India has become one of the top foreign investment destination and there are good reasons for the same. Some of the major facts about India, which may seem amazing to some are nevertheless true, are as follows:           

  • A middle class estimated at 350 million out of a total population of more than 1 billion

  • The second largest English-speaking scientific, technical and executive manpower in the world

  • The fourth largest economy in the world based on purchasing power parity

  • An abundant supply of raw materials

  • An extensive rail and road network

  • The largest democracy in the world

  • A stable political system based on parliamentary democracy

  • A common law legal system with English as a court language

  • India is emerging as a major market and investment destination

  • The economic reforms initiated in 1991 have brought dramatic changes in international investment in India

  • The U.S. Department of Commerce has identified India as one of the world's top ten "Big Emerging Markets."

  • The largest producer of movies in the world

  • A large country with 28 states and 9 Union Territories

  • A vibrant capital market

  • Highly developed stock market with more than 9000 listed companies

  • A developed banking system

  • Most preferred Business Process Outsourcing (BPO) destination  


  • Men and Westernized Indian women will offer to shake hands with foreign men.
  • Western men should not initiate handshakes with Indian women. If Indian women initiate handshake, then respond with handshake; otherwise perform traditional Indian greeting, the namaste.
  • To perform the traditional Indian greeting, the namaste, hold the palms of your hands together below the chin, and nod or bow slightly.


  • Titles are highly valued. Advanced degrees (Ph.D.) are listed on business cards and mentioned in introductions.
  • Status is determined by age, university degrees and profession.
  • There are numerous ethnic/linguistic/religious groups in India. Hindus, Muslims and Sikhs generally use different traditional naming conventions.


  • Late mornings and early afternoons are preferred.
  • Meetings are not scheduled during India's numerous religious holidays.


  • Business is highly personal, and conducted at a leisurely pace.
  • The word "no" has harsh implications. Evasive refusals, like "I'll try" are acceptable.  Sometimes, yes means no. Make sure to have an expert lawyer trained in Indian and western legal systems during negotiations.


  • Most of the Indians are vegetarians
  • Hindus do not eat beef and Muslims do not eat pork.
  • Never offer another person food from your plate.
  • Eat with your right hand.
  • Do not give leather gifts, like leather belts or purses.



The major kinds of Offshore Outsourcing are as follows:

  • Direct Off-shore

  • Indirect Off-shore

  • BOT

  • Captive

Special attention should be paid in having comprehensive service agreements between the parties and local laws should be complied with. The following are the standard steps in an outsourcing agreement:

  • RFP

  • Memorandum of Understanding (MOU)

  • Agreement Negotiations

  • Outsourcing Agreement

  • Service Commencement

  • Service Improvement

  • Renewal or termination

Outsourcing to India Free Guide | Legal Services Outsourcing

Contact us for Setting up BPO in India




Legal System and Major laws of India

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 India is a common law country with a written constitution which guarantees individual and property rights. There is a single hierarchy of courts, with the Supreme Court of India at the top. Indian courts provide adequate safeguards for the enforcement of property and contractual rights. However, case backlogs often result in procedural delays. Most of the laws are codified. Regulations and policies fill in the details.

The major bodies of law in India affecting foreign investment includes the following:

  • The Foreign Trade (Development and Regulation) Act, 1992
  • The Industries Act, 1951
  • The Indian Contract Act, 1872
  • The Sales of Goods Act, 1930
  • The Partnership Act, 1932
  • The Negotiable Instruments Act, 1881
  • The Consumer Protection Act, 1986
  • The Monopolies and Restrictive Trade Practices Act, 1969
  • The Copyright Act, 1957
  • The Trade and Merchandise Mark Act, 1958 
  • The The Trade Marks Act, 1999 
  • The Information Technology Act, 2000 
  • The Company Act, 1956
  • The Income Tax Act, 1961
  • The Customs Act, 1962
  • The SEBI Act, 1992
  • Air (Prevention and Control of Pollution) Act,1981
  • The Industrial Disputes Act, 1947
  • The Factories Act, 1948 
  • The Benami Transactions (Prohibitions) Act, 1988 

The Foreign Trade (Development and Regulation) Act of 1992 ("FTA"), the Industries Act of 1951, the Companies Act of 1956, the Monopolies and Restrictive Trade Practices Act of 1969 and the Industrial Policies issued from time to time are the major statutes and regulations governing foreign investment in India. Foreign collaboration and equity participation in India is regulated by the Foreign Trade (Development and Regulation) Act, 1992. The Industries (Development Regulation) Act of 1951 governs industrial regulation. The Companies Act of 1956 regulates corporations and their management in India. The Monopolies and Restrictive Trade Practices Act of 1969 ("MRTP") governs restrictive and fair trade practices. The New Industrial Policy of 1991 ("NIP") which lays down the policy and procedure for foreign investment has liberalized and simplified the investment procedures.

 The major changes introduced by NIP are as follow:

(i) NIP brings about a streamlining of procedures, deregulation, de-licensing, a vastly expanded role for the private sector and an open policy towards foreign investment and technology.

(ii) Foreign investors are allowed to hold more than up to 76% equity ownership in most of the sectors, and 100% percent equity ownership in some sectors.

(iii) Foreign Institutional Investors ("FII's) from reputable institutions (like pension funds, mutual funds) may participate in the Indian capital markets.

(iv) Joint ventures with trading companies and imports of secondhand plants and machinery are allowed.

(v) Monopoly and restrictive trade practice restraints (i.e., antitrust laws) have been eased.

(vi) Customs duties have been slashed considerably; duty-free imports are allowed in some cases.

(vii) The rupee is completely convertible; 100% of foreign exchange earnings can be converted at free market rates.

(viii) Export policies have been liberalized.

(ix) The Foreign Trade Act of 1992 has been enacted to encourage foreign investments in India.

(x) Tax holidays are available for a period of 5 continuous years in the first 8 years of establishing exporting units.

(xi) A tax holiday for up to 5 to 8 years is available and 100% equity participation is allowed for the power projects in India.

(xii) Concessions in tax regime are available for foreign investors in high-tech areas.



Joint Ventures in India


Joint Venture companies are the most preferred form of corporate entities for investment in India. There are no separate laws for joint ventures in India. The companies incorporated in India, even with up to 100% foreign equity, are treated the same as domestic companies. Click here for Types of companies and corporations in India.  Foreign companies are also free to open branch offices in India. However, a branch of a foreign company attracts a higher rate of tax than a subsidiary or a joint venture company. The liability of the parent company is also greater in case of a branch office.

The Government has outlined 37 high priority areas covering most of the industrial sectors. Investment proposals involving up to 74% foreign equity in these areas receive automatic approval within two weeks. An application to the Reserve Bank of India in the form FC (RBI) is required. The application can be made either by the Indian party or the foreign party. Existing companies having foreign equity holding and desiring to increase it to 74% can also obtain automatic approval if they are in priority areas. Besides the 37 high priority areas, automatic approval is available for 74% foreign equity holdings setting up international trading companies engaged primarily in export activities.

Approval of foreign equity is not limited to 74% and to high priority industries. Greater than 74% of equity and areas outside the high priority list are open to investment, but government approval is required. For these greater equity investments or for areas of investment outside of high priority an application in the form FC (SIA) has to be filed with the Secretariat for Industrial Approvals. A response is given within 6 weeks. Full foreign ownership (100% equity) is readily allowed in power generation, coal washeries, electronics, Export Oriented Unit (EOU) or a unit in one of the Export Processing Zones ("EPZ's").

For major investment proposals or for those that do not fit within the existing policy parameters, there is the high-powered Foreign Investment Promotion Board ("FIPB"). The FIPB is located in the office of the Prime Minister and can provide single-window clearance to proposals in their totality without being restricted by any predetermined parameters.

Foreign investment is also welcomed in many of infrastructure areas such as power, steel, coal washeries, luxury railways, and telecommunications. The entire hydrocarbon sector, including exploration, producing, refining and marketing of petroleum products has now been opened to foreign participation. The Government had recently allowed foreign investment up to 51% in mining for commercial purposes and up to 49% in telecommunication sector. The government is also examining a proposal to do away with the stipulation that foreign equity should cover the foreign exchange needs for import of capital goods. In view of the country's improved balance of payments position, this requirement may be eliminated.

Selection of a good local partner is the key to the success of any joint venture. Personal interviews with a prospective joint venture partner should be supplemented with proper due diligence. Once a partner is selected generally a memorandum of understanding or a letter of intent is signed by the parties highlighting the basis of the future joint venture agreement. Before signing the joint venture agreement, the terms should be thoroughly discussed to avoid any misunderstanding at a later stage. Negotiations require an understanding of the cultural and legal background of the parties.

Joint Ventures in India

  Click here for Types of Companies and corporations in India 

 Click here for Incorporating a company in India




Types of Business Entities for Doing Business in India

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There are following type of business entities in India:

  • Private Limited Company
    –is not open to public and it has from 2 to 50 shareholders whose liability is limited

  • Public Limited Company
    –is open to public and it has 7 or more shareholders, whose liability is limited, and at least 3 directors

  • Unlimited Company
    –does not restrict the liability of its shareholders

  • Partnership
    –has 2 or more members whose liability is not limited

  • Sole Proprietorship
    –has 1 member whose liability is not limited

In addition to the above,  the following types of business entities are available for foreign investors doing business in India:

  • Liaison Office

  • Project Office

  • Branch Office

  • Stand Alone Branch Office in SEZ's

  • Agency

  Click here for more details on types of companies and corporations in India 

 Click here for Incorporating a company in India


India permits Foreign Direct Investment (FDI) or collaborations in almost all sectors except the following: 

  • Atomic Energy

  • Arms and ammunition

  • Railway Transport 

  • Coal and lignite

  • Mining of iron, manganese, chrome, gypsum, gold, diamonds, copper and zinc 

A prior government approval is required for every foreign Investment or collaboration/joint venture in India in most cases. The approval may be automatic or special, as mentioned below.

FDI in India Sector wise Guide 

Click here for More Information on Obtaining Approvals for Investing In India


A prior government approval is required for every foreign Investment in India in most cases.

  • Kind of Approvals

    1. Automatic Approvals are granted by the Reserve Bank of India in sectors where up to 100%, 74%, 51%, 40% or 26% foreign equity is allowed as a rule

    2. Special Approvals are granted by Foreign Investment Promotion Board (FIPB) in New Delhi, where a foreign equity is proposed to be above the automatic rule limits

Click here for More Information on Obtaining Approvals for Investing In India

SEZ's are duty free enclaves and are treated as foreign territory for trade operations & duties and tariffs. SEZ's provide internationally competitive & hassle free environment for exports, units may be set up in SEZ’s for manufacture of goods, rendering of services & trading.  Up to 100% Foreign Direct Investment (FDI)  in manufacturing sector is allowed through automatic route barring a few sectors.  Units in SEZ’s have to be net foreign exchange earners within 3 years. 

Other benefits of SEZ's

  • Exemption from customs duty on import of capital goods, raw materials, consumables & spares

  • Exemption from Central Excise duty on procurement of capital goods, raw materials, consumables, spares, etc. from the domestic market

  • 100% income tax exemption for a block of five years;

  • 50% tax exemptions for two years; &

  • Up to 50% of the Profits ploughed back for next 3 years under S.10-A of Income Tax Act

  • Reimbursement of Central Sales Tax paid on domestic purchases

 Contact us for Setting up SEZ in India


  • EOU program is similar to SEZ program

  • But there is no need to be physically located in a SEZ; EOU can be established anywhere in India

  • All other incentives are same as provided to SEZ units

  • Up to 100% FDI is allowed


Revenue accruing to foreign companies (including royalty and technical services fees) from providing services concerning the exploration or production of petroleum or natural gas is subject to a maximum tax on a deemed profit of 10% of gross revenue.

Foreign companies engaged in the execution of turnkey power project contracts approved by the government and financed by international programs are subject to a maximum tax on a deemed profit of 10% of gross revenue.

The corporate income tax effective rate for domestic companies is  36.75% while the profits of branches in India of foreign companies are taxed at 42%. Companies incorporated in India even with 100% foreign ownership, are considered domestic companies under the Indian laws.

  For Individual tax rates, Wealth tax rates, gift tax rates click here

Non-Export Incentives

India offers a wide range of concessions to investors to provide incentives for economic and industrial growth and development. India's tax rates may not be one of the lowest in the world, but a careful tax planning keeping in mind the tax holidays and the following general tax incentives reduce the taxes considerably:

No corporate taxes are levied for a period of five years for projects set up for domestic power generation and transmission and also for projects in Electric Hardware Technology Park Schemes.

Deduction of preliminary and preoperative expenses incurred in setting up a project

Complete tax exemption on profits from exports of goods

Full or partial exemption of foreign exchange earnings on construction projects, hotel and tourism related services, royalties, commission, etc.

Liberal depreciation allowances

Deduction of capital research and development expenditures

New industrial undertakings may deduct 25% of their gross total income for eight years

Tax Incentives for Exporters

The New Export-Import Policy provides substantial tax incentives for investments in Export Oriented Units ("EOU's") and industries located in the Special Economic Zones ("SEZ's"). Automatic approvals are given by the Secretariat for Industrial Approval for setting up 100% Export Oriented Units ("EOU"). Incentives and facilities available under the EOU scheme include concessional rent for lease of industrial plots, preferential power allocation and supply, exemption from import duty for capital goods and raw materials for power sector industries as well as for trading companies primarily engaged in export activity.

There are seven major SEZ's and 27 other SEZ's or free trade zones located in different parts of the country. These zones are designed to provide internationally competitive infrastructure facilities and duty-free and low cost environment. Various monetary and non-monetary incentives are granted which include import duty exemption, complete tax holiday, decentralized "single window clearance," etc. 

For More Information on Special Economic Zones (SEZ) click here


India has entered into tax treaties with a number of countries including, Australia, Belgium, Canada, Denmark, France, Germany, Indonesia, Japan, Korea, Mauritius, Singapore, the United Kingdom and the United States. These treaties endeavor to avoid double taxation and attract know- how and technology. In many treaties the withholding tax on royalties and fees for technical services emanating from India is lower than the general tax rate. A careful planning and corporate structuring can reduce the tax obligations considerably. The following treaties have been successfully used by international investors to reduce their tax obligations in India and in their home countries:

(a)Indo-U.S. Treaty

The Indo-U.S. tax treaty considerably reduces the withholding tax in India for royalties, fees for technical services, and for interest paid to the US banks and financial institutions. The withholding tax on dividends arising out of India is 15%, if the parent company owns at least 10% of the voting stock. The withholding tax on royalties and technical services fees is at the rate of 15%. The capital gains is taxed at a rate of 20%. The withholding tax on rental of equipment and interest paid to U.S. banks and financial institutions is at the rate of 10%. All these rates are lower than the regular withholding tax rates.

(b)Indo-Mauritius Treaty

The withholding tax rates for dividends and capital gains can be reduced further by a careful corporate structuring and tax planning. The Indo-Mauritius tax treaty offers reduced withholding taxes for companies incorporated in the island country of Mauritius. Recently some U.S. companies have invested in India through offshore subsidiaries incorporated in Mauritius. For companies incorporated in Mauritius there is no withholding tax on capital gains in India and the withholding tax on dividends is only 5%. The companies incorporated in Mauritius, at present, can opt not to pay any tax in Mauritius.


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The Reserve Bank of India ("RBI") accords automatic permission for foreign technology agreements in high priority industries up to 5% royalty for domestic sales and 8% for exports, subject to total payment of 8% of sales over 10 year period from date of agreement or 7 years from commencement of production. In addition, lump-sum technology payments up to Rs. 1 crore, i.e., (Rs. 10 million) are permitted under the automatic approval system. The prescribed royalty rates are net of taxes and are calculated according to standard procedures.

Subject to the aforesaid guidelines, automatic approval is available in non-high priority industries, if no foreign exchange is required for any payment.

Governing Laws

Transfer of technology agreements must be subject to the laws of India. These agreements can be subject to arbitration under the rules of international institutions like the International Chamber of Commerce (the "ICC"). Arbitration can take place in India or abroad. India is a party to the 1958 New York Convention on Enforcement of Arbitration Awards. Foreign awards are, therefore, enforceable in India. Under Indian law, upon termination of the transfer of technology agreement after its 7-10 year period, the technology is deemed to be perpetually licensed to the Indian party for use in India. Special rules apply to the transfer of technology to Indian government companies.

 For Intellectual property laws in India click here



One of the biggest concerns for foreign investors is how to get dollars out of India? Historically, it is not a problem to repatriate investments and profits from India. The Overseas Private Investment Corporation ("OPIC"), a U.S. government backed insurer of foreign commercial dealings, has never had to pay a claim due to India's failure to provide foreign exchange. Dividends, capital gains, royalties and fees can be repatriated easily with the permission of the Reserve Bank of India. In a short, specified list of consumer goods industries, dividend balancing is required against export earnings.

In case of an exit decision, the overseas promoter can repatriate his share after discharging tax and other obligations. He can also disinvest his share either to his Indian partner, to another company, or to the public. Even during the so-called worst period no foreign company left India without proper and due compensation. Problems do arise when people and businesses try to go around the rules or from inexperience.

Rupee, the Indian currency, is convertible for the current account. It means that:

Repatriation of foreign exchange at the existing market rates has become easier.

Exporters can retain 25% of total receipts in foreign currency accounts to meet requirements such as travel, advertising, etc.

Foreign exchange will be available at market rates for all imports except specified essential items.

Foreign exchange requirements for private travel, debt servicing, dividend or royalty payments and other remittances may also be obtained from banks or exchange dealers at the current market rate.

The system has the advantages of completely bypassing bureaucratic controls and freeing importers from delays and inefficiencies.


Almost all the agriculture sector in India is in private hands. Most of the industrial sector is open to private participation. The number of industries reserved for the public sector has been reduced to 6. The industries reserved for public sector are arms and ammunition, defense equipment, defense aircraft and warships, atomic energy, coal lignite, mineral oils, and sulfur and diamonds. All other areas are open to the private sector and private sector participation on a selective basis even in the still restricted areas is being considered. In practice railways, post and telegraph, shipbuilding, oil exploration and mineral industries are mostly government owned. A process of disinvestment of government holdings in selected public enterprises has been initiated. The government plans to form a new corporation, Indian Railways Catering Tourism Corporation (IRCTC). IRCTC will take over catering work and enter into tourism projects and trains in collaboration with private sector.



Recently India enacted the Arbitration and Conciliation Act, 1996 ("New Law"). The New Law is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration ("Model Law"). Among others, the objectives of the New Law are to harmonize the Indian arbitration law with the Model Law and establish an internationally recognized legal framework for arbitration, consolidate the laws on domestic and international arbitration and conciliation, and enforcement of foreign awards. Another important purpose of the New Law is to encourage arbitration as an alternate dispute resolution process and avoid prolonged judicial process.

 © Copyright - 1997,  2015 Madaan & Co.

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We provides advice and assistance in negotiating, drafting and implementing commercial agreements in all areas of corporate and commercial laws including the following:


  • Incorporating company in India

  • Joint ventures in India agreements

  • Drafting shareholder agreements

  • Obtaining Government approvals for investing in India

  • Corporate Structuring 

  • Due diligence of Indian companies

  • Tax planning

  • Arbitration in India and oversees

  • Litigation in India and oversees

  • International Commercial Arbitration under various institutions including, ICC, AAA and London Court of Arbitration

  • Registering Trade Marks in India and overseas

  • Registering Patents in India and overseas

  • Registering copyrights in India and overseas

  • Intellectual property rights in India 

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