Doing Business in India: Tax, Rules, and What to Expect

What is doing business in India actually like once the paperwork is done and you are running?

That is a different question from how to get in, and it is the one most guides skip. They stop at incorporation, which is roughly like explaining a country by describing its airport.

So this guide is about operating. How you get taxed, how GST works, how money leaves the country, what you have to file and when, and what genuinely trips people up. If you are still weighing which India operating model to run, start there instead.

If you are at an earlier stage, three companion guides cover it: whether and how to expand to India for the entry decision, business setup in India for choosing between a subsidiary, branch or liaison office, and company registration in India for the filing steps themselves. This page picks up after all three.

Can a foreign company or foreigner do business in India?

Yes, and in most sectors you can own the whole thing. Foreign companies routinely hold 100% of an Indian subsidiary under what India calls the automatic route, meaning no prior government approval is required. You invest, then you report it.

Two qualifications matter, and both are about which route your investment falls under:

• The automatic route covers most of the economy: the large majority of India's cumulative foreign investment has come in this way, with reporting to the Reserve Bank of India after the fact rather than permission before it.
• The government route covers the exceptions: restricted sectors need prior approval, and investment from an entity in a country sharing a land border with India needs approval regardless of sector. Check your sector and your ownership chain early, because this one surprises people late.

Individuals can also do business in India, though a foreign national generally operates through an Indian company rather than as a sole trader, since sole proprietorships and partnerships are largely closed to non-residents.

Once you are in and trading, the first thing your finance team will want to know is what India takes.

How is a foreign business taxed in India?

It depends entirely on whether you operate through an Indian company or as a foreign company, and the difference is large enough to drive the structure decision. As of July 2026, an Indian subsidiary is taxed as a domestic company and a branch office is taxed as a foreign company.

Read that table twice if you are still choosing a structure, because it is the single strongest financial argument for incorporating a subsidiary rather than running a branch. Our guide to business setup in India works through the full trade-off.

Two more things sit on top of the corporate rate. Transfer pricing applies to anything you transact with your parent, and India's Income Tax Act 2025 took effect on April 1, 2026, renumbering provisions inherited from the 1961 Act. Our India tax compliance guide tracks the wider picture, and you should ask your advisers for current section references rather than reusing old ones.

Corporate tax is the headline. The tax you will actually touch every month is GST.

How does GST work for a business operating in India?

GST is India's single indirect tax on goods and services, and it got considerably simpler in late 2025. The 56th GST Council meeting on September 3, 2025 approved the biggest overhaul since GST launched, effective September 22, 2025. Current GST rates in India now sit on four main slabs.

• 0% and 5%: essentials and a large share of everyday goods, with many items moved down from the old 12% slab.
• 18%: the standard rate, and where most business services sit. Many items previously at 28% moved down to it.
• 40%: a new top rate for luxury and sin goods such as tobacco and pan masala.
• The 12% and 28% slabs are largely gone: if a supplier, contract or internal pricing sheet still quotes them, it is out of date. This is the most common stale assumption we see.

If your India pricing model, vendor contracts or finance templates were built before September 2025, they encode GST slabs that no longer exist. That is a quiet source of mispriced invoices, and it is worth an afternoon to check.

Registration is threshold-based and returns are monthly for most businesses, with an annual return on top. If you are a US company working with Indian contractors rather than selling in India, the position is different again, and we cover it in GST registration thresholds for US companies hiring in India.

So money comes in and tax goes out. The question founders ask next is how the profit gets home.

How do you get profits out of India?

Mainly as dividends, and the rules changed in 2020 in a way that helps most foreign parents. India abolished dividend distribution tax from April 1, 2020. Dividends are now taxable in the shareholder's hands, with the Indian company withholding tax at source when it pays out.

Three practical consequences:

• Treaty relief is now available: under domestic law withholding on dividends to a non-resident is 20% plus surcharge and cess, but a double taxation avoidance agreement commonly reduces it, often into the 5% to 15% range depending on the treaty. Under the old regime that relief was not reachable.
• You have to document the claim: a tax residency certificate, the prescribed declaration form and a PAN for the recipient are the usual conditions. No paperwork, no treaty rate.
• Dividends are not the only route: service fees, royalties and interest paid to the parent also move money, but each has its own withholding rate and each attracts transfer pricing scrutiny. Pricing them casually is how audits start.

Underneath all of it sits FEMA, India's foreign exchange law, which governs how funds enter and leave. Your authorised dealer bank handles the mechanics, but the reporting obligations are yours.

Which brings us to the part that actually consumes management attention.

What compliance does a business in India have to keep up with?

More filings, more often, than most Western finance teams expect. Nothing in India's HR and payroll compliance is conceptually hard. The difficulty is cadence: several obligations recur monthly, and missing them creates interest and penalties rather than a polite reminder.

The recurring set breaks into four streams:

• Payroll and statutory contributions: provident fund, employees' state insurance where applicable, professional tax and tax withheld from salaries, each with its own monthly due date. The India payroll compliance calendar lays them out.
• GST returns: monthly for most registered businesses, plus an annual return, and input credit depends on your suppliers filing correctly too.
• Corporate and ROC filings: annual accounts, annual return, board and shareholder meeting records, director filings, and an audit. These are calendar-driven and unforgiving about dates.
• Labour law: India's four labour codes have been in force since November 21, 2025, and state-level rules were still being issued as of July 2026. Your state's rules govern a private employer, not just the central ones.

Our guide to statutory compliance in India goes through the obligations in detail. The practical point is that this is an ongoing operations job, not a setup task you finish.

How do you hire and pay employees in India?

Either through your own registered entity, or through an Employer of Record that employs the team on your behalf. The second route means you can hire in India without an entity at all, which is why a lot of companies start there and incorporate later.

Three rules apply whichever route you take:

• Pay in rupees through a compliant channel: sending dollars directly to an employee's personal account is not a compliant payroll process. See how to pay employees in India.
• Classify people correctly: long-term, full-time, directed work is employment, whatever the contract calls it. Read contractor vs employee in India before defaulting to contractor agreements.
• Watch permanent establishment exposure: how people are engaged and who signs what can create a taxable presence. Understand permanent establishment risk in India before you scale headcount.

What actually makes doing business in India hard?

Not the things people worry about beforehand. In our experience the friction is administrative and local rather than legal or cultural, and it mirrors the compliance concerns founders actually hit.

• State-level variation: professional tax, shops and establishments registration, leave rules and labour rules differ by state. A team split across three states is three compliance footprints.
• The filing cadence never pauses: monthly deadlines continue through your holidays, your fundraise and your reorganisation. Someone has to own them by name.
• Rules move: GST slabs changed in September 2025, the labour codes commenced in November 2025, and a new Income Tax Act took effect in April 2026. Anything you documented two years ago needs re-reading.
• Talent is competitive, not scarce: you are hiring against well-funded local and global employers, so attrition and counter-offers are the real staffing risk, not availability.

None of that is a reason not to operate in India. It is a reason to decide early who carries the administrative load, which is where we come in.

How does Wisemonk help you do business in India?

Wisemonk is an India-native Employer of Record. We help global companies hire, pay, and manage employees in India, and we carry the compliance work behind every payroll cycle so the monthly cadence stops being your problem.

More than 300 global clients work with us, we manage over 2,000 employees, we process $20M+ in annual payroll, and we hold a 4.8 out of 5 rating on G2 across verified customer reviews. EOR pricing starts from $99 per employee per month.

For a company operating in India, five things matter most:

• Employment without an entity: we become the legal employer, so you can operate in India before incorporation or alongside it.
• Payroll and statutory filings: managed India payroll with contributions, deductions and monthly deadlines handled on schedule.
• Contractor engagement: as your Contractor of Record we become the contracting party, with compliant agreements and local payouts.
• Recruitment: India recruitment support across the major hubs, sourcing and screening against your own criteria.
• Benefits and equipment: statutory and market benefits set up locally, plus laptop procurement and recovery.

We provide EOR services in India, and we are expanding rapidly into the US and UK markets.