Establishing a Trading Company in India

India is fast emerging as a global trade dynamo with its vast natural resources and huge supply of skilled labor.

Undertaking considerable industrial deregulation and other structural reforms, regulators in India recognize that strong exports are critical for overall economic growth and poverty reduction.

As such, export-led growth has become a key driver of trade in India – one of the most important trailblazers in the recent enormous expansion of international trade.

In this scenario, import-export opportunities have never been greater, and starting a trading business in India has never been easier.

Setting up an import-export business in India

Starting an import-export business with the right strategies can render a business very profitable.

However, the long-term success and profitability of a firm depends greatly on the importer’s knowledge and understanding of international procedures, in addition to a keen analysis of the foreign and procedure-centric market in India.

Further, prospective investors looking to start an import-export business in India need to obtain the necessary information regarding foreign trade agreements and trade policies, which may require a lot of preparation time.

In order to register any kind of company in India, the proposed director(s) of the company must first apply for a Director Identification Number (DIN), which can be obtained by submitting an application to India’s Ministry of Corporate Affairs (MCA).

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Corporate Establishment and Structuring

The MCA recently introduced the SPICe Form INC-32, which stands for Simplified Proforma for Incorporating Company Electronically. 

Noted below are the new changes for company incorporation in India.

• Form INC-32 replaces INC-29, and is similar except for a few minor changes relating to reporting requirements.
• The subscribers and witnesses of the concerned establishment need to apply for their Digital Signature Certificate (DSC) for use in the SPICe MOA and SPICe AOA.
• SPICe also allows for the provision to apply for company incorporation with a pre-approved company name.
• Filings of the MOA in e-Form INC-33 and AOA in e-Form INC-34 will be linked with SPICe (Form INC-32), except for not-for-profit associations formed under Section 8 of the Companies Act, 2013.
• Upon approval, the Registrar of Companies (RoC) assigns a company with a 21 digit Corporate Identity Number (CIN).

Once the company has been registered and incorporated as an Indian company, it can then begin proceedings for import and export-related matters.

The entire registration procedure (including the processes mentioned below) can be accomplished within two months.

Registering with the Director General of Foreign Trade

In India, the federal Ministry of Commerce and Industry is the largest and most important agency concerned with the promotion and regulation of foreign trade. It has an elaborate bureaucratic structure aimed at the facilitation of various aspects of trade.

There are two departments under the Ministry of Commerce and Industry. The first one is the Department of Commerce (DoC) and the second is the Department of Industrial Policy & Promotion (DIPP).

In India, imports and exports are regulated by the Foreign Trade (Development and Regulation) Act, 1992, which provides the government with significant control over trade policy and procedures.

In terms of interaction with investors, however, one of the most critical and active bodies concerned with the import and export of goods in India is the Director General of Foreign Trade (DGFT).

Operating as an arm of the Ministry of Commerce and Industry’s Department of Commerce, the DGFT is the agency responsible for virtually all matters related to India’s import and export policies.

Some of its major resources are also devoted to the execution of all foreign trade laws passed by the federal government and the maintenance of an up-to-date database of all of India’s importers and exporters.

For all first-time exporters or importers, Indian law requires that you register with the DGFT – which in turn will provide your business with a unique Import-Export Code (IEC).

The IEC Code is a ten-digit code required for both exports and imports. It will be checked by Indian Customs during every single import/export transaction.

To apply for an IEC number, you must submit the required document – called the “Aayaat Niryaat Form” (ANF2A) – to the nearest regional authority of the DGFT. This form can be submitted online, via post, or in person.

In order to obtain the code, the entity seeking to export or import goods must submit the following documents as well:

• Two passport-size photographs of the legally responsible person;
• Permanent account number (PAN);
• Valid mobile number and email ID;
• Current bank account number; and,
• Banker’s Certificate.

The PAN is another ten-digit code that is necessary for many financial transactions in India, and can be obtained by submitting an application accompanied by the Copy of Certificate of Registration incorporated in India.

For almost all import businesses, an IEC number is absolutely necessary; however, certain exceptions do exist.

If you are importing items from Nepal, Myanmar (through the border), China or a small number of selected ports and locations around India, then an IEC number is not mandatory, provided that the value of individual consignments does not exceed US$382.20 (Rs 25,000).

Exemptions from obtaining the IEC number shall not be applicable for export of specific items that are listed by the DGFT. 

Obtaining an import license

India’s import-export laws are not considered highly restrictive by any standard, and the vast majority of goods making their way in and out of India are license-free, making them easy to administer, and profitable.

That said, Indian customs laws do prohibit the import of certain items, and restrict the import of certain items by way of placing import conditions on them.

To deal with any such restrictive regulation, the importer must apply for an import license, which is issued by the relevant government authorities. Without the necessary documents, imports run the risk of being declared unauthorized – which may subject them to confiscation or refusal of entry into the country.

Import licenses, which are renewable, are typically valid for 24 months for capital goods and 18 months for raw materials components, consumables, and spares.

Note that two copies of each import license will be issued – one will be considered the Foreign Exchange Control Copy, which is used to certify compensation for the foreign seller of the goods and the second will be presented to the relevant customs authority for import clearance purposes.

Registering with an Export Promotion Council

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 mandatory for any firm applying for an authorization to import or export or to avail trade benefits and concessions under the federal Foreign Trade Policy (FTP). (See here for the FTP for 2015-2020, as updated on December 5, 2017.)

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

• Engineering Export Promotion Council of India (EEPC);
• Project Exports Promotion Council of India (PEPC);
• Basic Chemicals, Cosmetics, and Dyes Export Promotion Council (Chemexcil);
• Chemicals and Allied Products Export Promotion Council (CAPEXIL);
• Council for Leather Exports (CLE);
• Sports Goods Export Promotion Council (SGEPC);
• Gem and Jewellery Export Promotion Council (GJEPC);
• Shellac and Forest Products Export Promotion Council (SHEFEXIL);
• Cashew Export Promotion Council of India (CEPCI);
• The Plastics Export Promotion Council (PLEXCONCIL);
• Pharmaceutical Export Promotion Council (PHARMEXCIL);
• Indian Oil Seeds And Produce Export Promotion Council (IOPEPC);
• Services Export Promotion Council (SEPC); and,
• Export Promotion Council for EOUs & SEZs (EPCES).

EPCs are registered as non-profit organizations under the Companies Act or the Societies Registration Act and work to promote various goods exported from India in international markets. 

The Councils also work closely with the Ministry of Industry and Commerce, acting as a platform for interaction between the exporting community and India’s federal government.

Given its function, exporters should regard the need to obtain a registration and membership certificate from the respective Council as paramount.

In order to apply for registration, a certified copy of the already-provided IEC number is required. Further, those wishing to register with the respective EPC will also be required to submit a membership fee (which varies by location).

Registering with tax and regulatory authorities

It is to a company’s advantage to identify and register with all of the relevant local tax authorities if it wishes to receive all of the possible benefits associated with exports and imports. For instance, certain goods exported from India may enjoy exemptions from the integrated goods and services taxes (IGST), if properly registered.

In order to enjoy the maximum level of benefits, your business should register with all of the relevant authorities, such as the regional Goods and Services Tax Department and the Export Import Credit Guarantee Corporation – both of which have different procedures that vary from state to state.

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Additionally, if a business intends to export goods, then it must undertake to register with the relevant regional branch of the Indian Chamber of Commerce.

The Chamber of Commerce issues the Non-Preferential Certificates of Origin to Indian exporters, in accordance with Article II of the International Convention Relating to Simplification of Customs Formalities, 1923, which requires certification that the exported goods originated in India.

Aside from Certificates of Origin, the Chamber of Commerce and other bodies also offer importers and exporters many other promotional initiatives, some of which can be very valuable to businesses unfamiliar with local systems.

For instance, once the actual process of exporting goods has begun, other regulatory compliances must be met, such as air and maritime insurance for the exported products, adequate warehousing, and quality control resources.

The various entities set up to deal with trading businesses can assist with these steps, and registering with them provides your business with the information resources and contacts that may prove invaluable in getting to know the Indian market.

Applying for an export license

To determine whether a license is needed to export a particular commercial product or service, an exporter must first classify the item by identifying its ITC (HS) Classification.

ITC (HS), also known as Indian Trading Clarification based on a Harmonized System of Coding, is India’s chief method of classifying items for trade and import-export operations. The ITC-HS code, issued by the DGFT, is an 8-digit alphanumeric code representing a certain class/category of goods, which allows the importer/exporter to follow regulations concerned with those goods.

ITC-HS codes are divided into two different sections or ‘schedules’.

The first of these, ITC(HS) Import Schedule I, deals with the rules and guidelines related to import policies, and is comprised of 21 sections in total. These 21 sections, further divided into 98 chapters, provide detailed guidelines for classification of imported goods and regulations regarding specific items.

Schedule II, called Export Policy Schedule II, deals with the regulations surrounding export policy and other issues surrounding certain exports. Export Policy Schedule II of the ITC-HS code contains 97 chapters, all of which provide thorough information about export procedures and policies, and also provide regulatory information on different classes of export items.

For those wishing to find regulatory or trade-related information about any item in Schedules I and II, the DGFT maintains an up-to-date database containing codes for all items. (See here for Schedule I, updated up till 2017 and here for Schedule II, updated 2018.)

Should the exporter find that a license is indeed necessary for the product in question, then the exporter must file an application for the relevant license to the DGFT. The Export Licensing Committee under the Chairmanship of the Export Commissioner is responsible for the consideration of such applications.

Additionally, the DGFT occasionally releases public announcements, timed to coincide with the implementation of new laws, noting that certain specified goods that are not included in the ITC (HS) Classifications of Export and Import items may be exported without a license.

These announcements also detail conditions for the export of these items, which may include a minimum export price registration with the relevant specified authorities, quantitative ceilings, and compliance with other relevant laws, rules, or regulations.

Editor’s Note: The article was first published in September 2013 and has been updated on May 29, 2018 as per the latest developments.

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