The wholly-owned subsidiary is the most common structure for a foreign company entering the Indian market. A private limited company is incorporated in India with 100% foreign shareholding (where the FDI policy permits), operates under Indian law, files Indian taxes, and is generally simpler to administer than a branch / liaison office. The setup involves three concurrent workstreams. This note walks through them.
Workstream 1 — FDI policy and the route
FDI in India is governed by the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) issued under FEMA, and the consolidated FDI Policy issued by DPIIT. The two routes:
- Automatic route — FDI is permitted without prior approval, subject to sectoral caps and conditions. For most service sectors (IT, software, financial services subject to caps, manufacturing, e-commerce subject to conditions) this is the operative route.
- Government route — FDI requires prior approval from the relevant ministry. Applies to sensitive sectors (defence beyond a cap, broadcasting beyond a cap, multi-brand retail subject to conditions, etc.) and to investments from countries sharing land border with India (Press Note 3 / 2020 framework).
The first step of any subsidiary engagement is confirming the sector classification and the route. A wholly-owned subsidiary in a 100%-automatic-route sector takes weeks; one in a government-route sector or from a Press Note 3 country can take 6-12 months.
Workstream 2 — MCA incorporation under SPICe+
Once the FDI route is confirmed, incorporation is filed via SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus). SPICe+ is the integrated incorporation form on the MCA V3 portal that bundles:
- Name reservation (Part A)
- Incorporation, PAN and TAN application (Part B)
- EPFO and ESIC registration (where applicable)
- Professional Tax registration (state-specific, currently available for Maharashtra and Karnataka in some configurations)
- Bank account opening (with select partner banks)
- GSTIN application (optional)
For a foreign subsidiary, the SPICe+ pack additionally requires:
- Apostilled / consularised incorporation documents of the foreign parent — charter, certificate of incorporation, board resolution authorising the Indian subsidiary, list of directors / shareholders of the parent
- Apostilled / consularised KYC of the proposed Indian directors (where they are foreign citizens / non-residents)
- DSC (Digital Signature Certificate) for at least one director / authorised signatory — foreign nationals need a Class 3 DSC obtained through the Indian DSC issuing authorities, with apostilled passport / address proof
- MOA and AOA drafted with the objects clause matching the proposed business activity
- Resident director — Section 149(3) of the Companies Act requires at least one director to be resident in India (present for not less than 182 days in the previous calendar year)
Typical timeline from kickoff to incorporation certificate is 15 to 30 working days for a clean case — longer when the apostille / consularisation of foreign documents takes time at the parent’s end.
Workstream 3 — FEMA reporting
Incorporation doesn’t complete the FDI workstream. The capital coming in from the foreign parent needs to be reported under FEMA. The sequence:
- Indian company opens a bank account post-incorporation. The account receives the parent’s remittance.
- The remitting bank issues a FIRC (Foreign Inward Remittance Certificate) and KYC of the remitter.
- The Indian company allots shares to the parent in exchange for the remittance, within 60 days from the date of receipt of funds (NDI Rules requirement). If shares aren’t allotted within 60 days, the funds must be refunded.
- The allotment is reported to RBI through the Single Master Form (SMF) on the FIRMS portal as FCGPR (Foreign Currency — General Permission Route) within 30 days of allotment.
- A valuation certificate under Rule 21 of the NDI Rules supports the FCGPR — a CA or Merchant Banker certifies that the issue price is not below the fair value computed under an internationally accepted methodology.
Late filing of FCGPR attracts a Late Submission Fee under the LSF framework introduced by RBI — calibrated by the period of delay, capped, and applied automatically when the FCGPR is filed late. Beyond a year of delay, a compounding application to RBI is required.
The post-incorporation compliance calendar — first 90 days
The 90 days after incorporation are the critical window when a string of compliance items hit. Missing any of them creates exposure that carries for years.
- Day 0-15: open the company bank account; obtain initial capital from the parent; allot shares; issue share certificates with prescribed stamp duty (state-specific)
- Day 15-30: file Form INC-22 (registered office confirmation) if not done at incorporation; file Form INC-20A (commencement of business declaration) once paid-up capital is received
- Day 30-60: file FCGPR with RBI within 30 days of allotment; appoint the first auditor under Section 139(6) of the Companies Act within 30 days of incorporation; convene the first board meeting
- Day 60-90: register for GST (mandatory if turnover crosses the threshold or for inter-state supplies); register for PAN-based TAN if not auto-allocated; complete Shops and Establishments registration (state-specific)
- Ongoing: monthly TDS deposits and quarterly returns, GSTR-1 / 3B if registered, payroll if employees are on roll, board meetings, ROC annual filings
Common mistakes by foreign-parent groups
Treating the subsidiary as “the parent’s India desk”
The Indian subsidiary is a separate legal entity. Inter-company transactions need an arm’s-length pricing study under transfer pricing rules (Section 92 to 92F) and a Form 3CEB filing if cross-border related-party transactions exceed Rs 1 crore. Many foreign groups treat the subsidiary’s costs as “just reimbursed at cost” without TP support — this is exposed at the first tax audit.
Holding off on FCGPR
The 30-day filing window for FCGPR is strict. Late filings invite LSF and, beyond a year, compounding. We file FCGPR as soon as the allotment is signed.
Inadequate apostilled / consularised documents
Foreign documents need apostille (if the country is a Hague Convention signatory) or consularisation by the Indian embassy / consulate. Many parents send documents notarised but not apostilled — SPICe+ rejects them. Start the apostille process at the parent’s end early.
Missing the “resident director” requirement
Section 149(3) requires at least one director resident in India. For all-foreign boards this is a structural requirement. Common solutions: appointing a senior India hire as director on Day 1, or appointing a director who commits to satisfying the 182-day residence test.
What the subsidiary looks like by Day 90
A clean subsidiary at the end of the first 90 days has:
- MCA-issued incorporation certificate, CIN, PAN, TAN
- FCGPR filed and acknowledged with RBI
- First auditor appointed
- INC-20A filed; the company has formally commenced business
- GSTIN obtained (where applicable)
- Shops and Establishments registration in the state of the registered office
- EPFO / ESIC registration done if headcount thresholds are met
- Bank account live, FIRC received, share certificates issued
- Monthly compliance calendar in operation
From Day 91 the subsidiary is in steady-state — monthly statutory filings, quarterly TDS, half-yearly ESI / labour, annual audit and ROC filings. The setup work is done.
Sources
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