Establishing a Trading Company in India

Posted by Written by Archana Rao Reading Time: 7 minutes

The process of establishing a trading company in India involves several steps. Success and profitability depend significantly on the importer/exporter’s comprehension of international procedures and India’s bureaucratic frameworks. Prospective investors must thoroughly research foreign trade agreements and policies, which can be time-consuming. Understanding these factors is crucial for long-term viability and success in the import-export business in India.

India is rapidly establishing itself as a global trade powerhouse, boasting abundant natural resources and a vast pool of skilled labor. Recognizing the significance of robust exports for overall economic growth and poverty alleviation, Indian regulators have undertaken significant industrial deregulation and structural reforms.

As a result, export-led growth is propelling India’s trade dynamics, contributing significantly to the growth of the economy. Consequently, import-export opportunities have reached unprecedented levels, making the initiation of a trading business in India more accessible than ever before. Further, India is keen to broaden its commercial access to fast-growing and wealthy markets to spread out its trade exposure. To this end, various free trade deals are being negotiated or have come into effect in recent years.

Step 1: Establishing a business entity

The first step towards incorporating an import-export company would be to open a bank account in India. As mandated by the Indian government, an entity must open a current account with an authorized bank within the country for foreign exchange.

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A trading business can be carried out by any form of entity, i.e., by sole proprietorship, partnership, limited liability partnership (LLP), private limited company, etc.

Documents generally required for incorporation:

  • Digital signature certificate (DSC)
  • Designated Partner Identification Number (DPIN), Director Identification Number (DIN), etc.
  • Unique trade name (different from the existing ones) and company logo.
  • Identity proof of the owner (like Voter id, Passport, Driving License)
  • Residential address proof of the owner (like bank statement, electricity bill, telephone bill, not older than 2 months)
  • Official address proof of the legal entity in the name of the owner (like electricity bill, telephone bill, gas bill, not older than 2 months)
  • No Objection Certificate (NOC) from the owner of premises to be used as the official address
  • PAN (Permanent Account no.) and Aadhar card
  • Written consent of the designated partners or directors to act as such under the legal entity

Documentation required for incorporation depends upon the type of entity it is. For example, a sole proprietorship will not require a Designated Partners Identification Number (DPIN), but an LLP will.

Incorporating an LLP

As prescribed by the Ministry of Corporate Affairs (MCA), the steps for user registration are as follows:

• Register yourself on the website of Ministry of Corporate Affairs, developed for LLP services.

• Fill in the registration form. 

• Upload digital signature certificate.

On successful registration, system will give a message the applicant on registered successfully.

Obtain Designated Partners Identification Number (DPIN)

• All designated partners of the proposed LLP shall obtain “Designated Partner Identification Number (DPIN) / Director Identification Number (DIN)”.

• DPIN/DIN may be applied from: Ministry Of Corporate Affairs – Apply for DIN (mca.gov.in)

Digital Signature Certificate

• Partner/Designated partner of LLP/proposed LLP, whose signatures are to be affixed on the e-forms has to obtain class 2 or class 3 Digital Signature Certificate (DSC) from any authorized certifying agency.

2. Trademark/ brand name or patent registration

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Business owners pursue trademark registration to proactively protect their offerings from unauthorized use. In case of infringement, owners have the legal right to take action. In India, trademark registrations fall under the purview of the Controller General of Patents, Designs, and Trademarks, (Office of the Registrar of Trademarks), Ministry of Industry and Commerce, Government of India.

Both trademark and patent registrations can be obtained by submitting respective registration applications along with the prescribed fee. Once, the application is approved, the business can be carried out under such name.

ISO 9001 Certificate

To obtain an ISO 9001 certificate, the company must follow all the rules and regulations outlined in the ISO 9001 Standard. Business organizations are entitled and eligible to obtain this certification, regardless of the size and scope of the business. It is important to note, that ISO 9001 Certificate is not mandatory to obtain. However, certain sectors may need firms to acquire other ISO certification to meet regulatory standards.

The industry or field of operation can be anything from service to manufacturing. The ISO 9001 certificate is applicable for all business operations, from restaurants, manufacturing companies to consultancy, government entities, and more.

How to get ISO certified?

The certification cost of ISO 9001 is about INR 3,999 (approx. US$48.27). There are three crucial steps to be followed for obtaining the said certification:

1. Application submission: Check the eligibility criteria and make sure your organization follows the Quality Systems Management (QSM) standards set by ISO 9001. Submit your application for certification.

2. Assessment by the auditor: The performance of an organization is then audited by a Certification Body (CB or Registrar) against the latest version of ISO 9001 requirements.

3. Certification: If the applicant organization passes the above-mentioned audit, the Registrar issues an ISO 9001 certificate. Once the certificate is registered for your organization, it is valid for three years.

Step 3: Registrations under tax laws

Every trading enterprise in India is subject to both direct and indirect taxes. Direct taxes are regulated under the Income-tax Act, 1961, while indirect taxes include the Goods and Service Tax (GST) regime and customs duties.

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Income tax obligations under the Income Tax Act, 1961, mandate that business entities fulfill their tax liability through advance tax, Tax Deducted at Source (TDS), Tax Collected at Source (TCS), self-assessment tax, etc. Sole proprietorships pay taxes based on slab rates, while partnerships, companies, etc., adhere to fixed rates specified in the Income-tax Act. Entities responsible for TDS and TCS must obtain a Tax Deduction and Collection Account Number (TAN).

Under GST regulations, businesses must first obtain a Goods and Service Tax Identification Number (GSTIN) based on turnover limits. The turnover threshold for GST registration is INR 4 million (approx. US$48,278.8) for suppliers of goods (excluding specified states) and INR 2 million (approx. US$24,139.4) for specified states. For service providers, the threshold is INR 2 million (approx. US$24,139.4) (excluding specified states) and INR 1 million (approx. US$12,069.71) for specified states. It is crucial to acquire the PAN of the entity before proceeding with GST registration, as the registration is PAN-dependent. Additionally, registration is necessary for every state where the business operates, and voluntary registration is an option for entities seeking Input Tax Credit (ITC) benefits.

Step 4: Registration and membership certificate (RCMC)

After completing your initial registration, the next step is to register with an Export Promotion Council (EPC) to obtain a Registration Cum Membership Certificate (RCMC).

The RCMC is similar to a stamp of approval for the company’s connection to a specific product category. The RCMC is mandatory for any firm applying for an authorization to import or export or to avail trade benefits and concessions under the Foreign Trade Policy.

Presently, there are fourteen Export Promotion Councils under the administrative control of the Department of Commerce. They have branches all over the country and offer procedures based on state laws. They are:

  1. Engineering Export Promotion Council of India (EEPC);
  2. Project Exports Promotion Council of India (PEPC);
  3. Basic Chemicals, Cosmetics, and Dyes Export Promotion Council (Chemexcil);
  4. Chemicals and Allied Products Export Promotion Council (CAPEXIL);
  5. Council for Leather Exports (CLE);
  6. Sports Goods Export Promotion Council (SGEPC);
  7. Gem and Jewellery Export Promotion Council (GJEPC);
  8. Shellac and Forest Products Export Promotion Council (SHEFEXIL);
  9. Cashew Export Promotion Council of India (CEPCI);
  10. The Plastics Export Promotion Council (PLEXCONCIL);
  11. Pharmaceutical Export Promotion Council (PHARMEXCIL);
  12. Indian Oil Seeds And Produce Export Promotion Council (IOPEPC);
  13. Services Export Promotion Council (SEPC); and,
  14. Export Promotion Council for EOUs & SEZs (EPCES).

Step 5: Business agreements

A trading business also gives rise to contracts between the parties involved in trading. A written contract is important to avoid any kind of disputes in the future since the legal terms and conditions in the contract are binding on both the parties. Business contracts can be in the form of MOU (Memorandum of Understanding), Vendor Agreement, Lease Agreement, Insurance Agreement, Financial Agreement, etc.

Step 6: Further requirements to an import-export business

  • Register under the MSME Act (Micro, Small & Medium Enterprises Act) or the Shops and Establishment Act, etc.
  • Obtain licenses for specified categories of trading businesses like IEC (Import- Export Code).
  • As mentioned in FTP, 2023, IEC is mandatory for export/ import from/to India and is issued by the DGFT in electronic form (e-IEC).
  • Obtain clearance under the environmental laws for dealing with goods that may affect the environment, like hazardous goods, chemicals, etc.

Mandatory documents for export/ import of goods from/into India

(a) Mandatory documents required for export of goods from India:

1. Bill of Lading/ Airway Bill/ Lorry Receipt/ Railway Receipt/Postal Receipt

2. Commercial Invoice cum Packing List*

3. Shipping Bill/Bill of Export/ Postal Bill of Export

(b) Mandatory documents required for import of goods into India

1. Bill of Lading/Airway Bill/Lorry Receipt/ Railway Receipt/Postal Receipt in form CN-22 or CN 23

as the case may be.

2. Commercial Invoice cum Packing List**

3. Bill of Entry

[Note: *(i) As per CBIC Circulars issued under the Customs Act, 1962 (ii) **Separate Commercial Invoice and Packing List would also be accepted.]

(c) For export or import of specific goods or category of goods, which are subject to any restrictions/ policy conditions or require No-Objection Certificate (NOC) or product specific compliances under any statute, the regulatory authority concerned may notify additional documents for purposes of export or import.

(d) In specific cases of export or import, the regulatory authority concerned may electronically or in writing seek additional documents or information, as deemed necessary to ensure legal compliance.

Further, India’s Foreign Trade Policy 2023 has introduced a single window system for export of perishable agricultural produce, which is facilitated through the Agricultural and Processed Food Products Export Development Authority (APEDA).

READ: Import and Export Procedures in India

Step 7: Certificates of Origin

A Certificate of Origin (CoO) is crucial for verifying the legality and duty status of exported/imported goods. It identifies the country of manufacture and other relevant details of the product.

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Indian exporters must obtain a Certificate of Origin from the authorized Indian agencies to avail the preferential benefits under all preferential trade arrangements/agreements. The online application for CoO can be made through the Common Digital Platform for issuance of certificate of origin of the Directorate General of Foreign Trade (DGFT), Department of Commerce at  https://coo.dgft.gov.in/

The Certificates of Origin are issued online, and a unique number, i.e., UDIN (Unique Document Identification Number), and a QR code are available on every e-CoO for validation and authentication by user agencies.

Types of Certificates of Origin

  1. Non-preferential Certificate of Origin: This type indicates that exported/imported goods do not receive preferential tariff treatment, and standard duties apply to them.
  2. Preferential Certificate of Origin: This type is for goods eligible for preferential tariff treatment, which may involve reduced tariffs or complete tariff exemptions. It results from trade agreements between nations and regional trade associations, allowing special treatment for goods traded between them.

The Export Inspection Council (EIC) is authorized to issue the Certificates of Origin – both preferential CoOs and non-preferential CoOs.

EIC offices issue preferential Certificate of Origin for products from India under the following preferential trade arrangements/agreements:

  1. Preferential Tariff Schemes – An Overview
  2. Generalised System of Preferences (GSP)
  3. Global System of Trade Preferences (GSTP)
  4. Asia Pacific Trade Agreement (APTA)
  5. South Asian Free Trade Area (SAFTA)
  6. SAARC Preferential Trading Arrangement (SAPTA)
  7. Indo-Sri Lanka free Trade Agreement (ISFTA)
  8. India Afghanistan Preferential Trade Agreement (IAPTA)
  9. Into Thailand Free Trade Agreement (ITFTA)
  10. Indo Singapore Comprehensive Economic Co-operation Agreement (CECA)
  11. Indo Chile Preferential Trade Agreement (ICPTA)
  12. India MERCOSUR Preferential Trade Agreement (IMPTA)
  13. India Korea Comprehensive Economic Partnership Agreement (IKCEPA)
  14. ASEAN India Free Trade Agreement (AIFTA)
  15. India Malaysia Comprehensive Economic Cooperation Agreement (IMCECA)
  16. India Japan Comprehensive Economic Partnership Agreement (IJCEPA)
  17. India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (IMCECPA)
  18. India-UAE Comprehensive Economic Partnership Agreement (India-UAE CEPA)

(US$1 = INR 82.85)

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