Decoding various licenses needed to run an Indian subsidiary compliantly

Setting up and running an Indian subsidiary comes with several compliance requirements, including obtaining various licenses and registrations. These licenses ensure that your business adheres to the country’s labor laws, tax regulations, and industry-specific rules. Here’s an overview of some essential licenses that need to be acquired to operate compliantly in India.

Professional Tax

Professional tax is a state-level tax imposed on individuals who are employed in India. It applies to both salaried employees and professionals who work within a state. The amount is determined based on the income of the individual and the state in which the business operates. It’s important for employers to ensure they are meeting these tax obligations and remit payments accordingly to avoid penalties.

Provident Fund (PF)

The Provident Fund (PF) is a mandatory saving scheme for employees in India, where both the employer and the employee contribute an equal amount. This scheme is applicable when the company has more than 20 employees. The contributions are managed by the Employees' Provident Fund Organisation (EPFO), and both the employer and the employee must comply with the required contributions. This is a long-term saving plan that benefits employees post-retirement.

Employee State Insurance (ESI)

The Employee State Insurance (ESI) is a social security and health insurance scheme for employees in India. It becomes mandatory for employers to register their company under ESI when the workforce consists of 10 or more employees, and the salary of the employees is below ₹21,000 per month. Even if employees earn above ₹21,000, the company is still required to take ESI registration, but the filings may be nil. The scheme provides medical benefits, maternity benefits, and other social security services to workers.

Shops and Establishment Act Registration

The Shops and Establishment Act requires businesses to register with the local municipal authority. This registration is necessary for establishments operating within a particular state, and it covers working hours, wage regulations, employee conditions, and other basic rules of operating a business. This license is essential to ensure the workplace is adhering to local labor laws and offers a safe working environment for employees.

Prevention of Sexual Harassment (POSH) Policy

The Prevention of Sexual Harassment (POSH) Act is an important law for every company to comply with, especially if the company employs 10 or more people. It mandates the creation of a committee to handle complaints of sexual harassment in the workplace. Regardless of whether the workforce is predominantly male or female, the POSH policy applies. Companies must ensure they implement this policy, train employees on it, and set up a compliant grievance redressal mechanism.

Conclusion

Running an Indian subsidiary requires attention to numerous legal and regulatory requirements, particularly around labor laws and employee welfare. Compliance with professional tax, provident fund contributions, employee insurance, and workplace safety policies is crucial for smooth operations and to avoid legal complications. Engaging with compliance experts and legal advisors will help you navigate these processes effectively and ensure your subsidiary adheres to all necessary regulations.