India: Doing Business in India – Key Legal Considerations for Foreign Investors

India continues to position itself as one of the world’s most attractive destinations for foreign investment, supported by economic reforms, regulatory modernization, and a rapidly expanding consumer market. The country’s evolving legal and regulatory framework offers significant opportunities across sectors, but also requires careful navigation of foreign investment rules, taxation requirements, corporate structures, and compliance obligations.

India recorded foreign direct investment (FDI) inflows of approximately USD 80.6 billion in FY 2024–25, reflecting strong international confidence in the market and continued liberalization of investment policies.

This article provides an overview of key legal considerations for companies seeking to establish or expand operations in India.

1. Foreign Direct Investment (FDI) Framework

India has significantly liberalized its FDI regime, allowing 100% foreign investment in most sectors, subject to certain limited exceptions such as atomic energy, lottery businesses, gambling, and certain real estate activities.

Foreign investment can generally be made through two routes:

Automatic Route

Investment does not require prior government approval but must be reported to the Reserve Bank of India (RBI) within prescribed timelines.

Government Approval Route

Certain sectors require prior approval from relevant government ministries where strategic or security considerations apply.

Investors should also note additional scrutiny requirements for investments originating from countries sharing a land border with India, which may require prior approval regardless of sector classification.

2. Market Entry Structures

Foreign investors may choose from several structures depending on operational needs and tax considerations:

Liaison Office

Used primarily for market research or coordination activities. These offices cannot generate revenue in India and must be fully funded by the parent company.

Branch Office

Permitted to undertake certain commercial activities such as consulting services, technical support, and import/export activities, although manufacturing is generally restricted.

Project Office

Commonly used for infrastructure or construction projects funded by foreign remittances or international financing agencies.

Joint Venture (JV)

A JV with an Indian partner can provide local expertise, regulatory familiarity, and established distribution channels.

Wholly Owned Subsidiary (WOS)

Often the preferred structure for foreign investors seeking full operational control, particularly in sectors where 100% FDI is permitted.

Private limited companies remain the most commonly used corporate vehicle due to relatively lower compliance burdens and operational flexibility.

3. Corporate and Tax Considerations

India’s tax regime applies both central and state taxes, with recent reforms simplifying compliance requirements.

Corporate Tax Rates

Companies engaged in manufacturing activities may benefit from reduced tax rates as low as approximately 17.16%, subject to eligibility requirements.

Other domestic companies may opt for a concessional tax regime of approximately 25.168%, provided certain deductions are not claimed.

Foreign companies are generally taxed on income derived from Indian operations.

Goods and Services Tax (GST)

GST applies to the supply of goods and services and operates as a destination-based tax. The system has simplified indirect taxation by replacing multiple legacy taxes and creating a unified national tax structure.

Reforms introduced in 2025 simplified GST rates into core slabs of 5% and 18%, with higher rates applying to certain goods.

India also maintains an extensive network of double taxation avoidance agreements (DTAAs) with over 120 countries to mitigate double taxation risks for multinational businesses.

4. Mergers, Acquisitions and Investment Structures

Foreign investors may enter the Indian market through acquisitions of existing companies or assets.

Common transaction structures include:

• Share acquisitions
• Asset purchases
• Mergers and amalgamations
• Demergers
• Private equity investments
• Venture capital investments

Certain acquisitions involving publicly listed companies may trigger mandatory open offer requirements under India’s takeover regulations.

Recent reforms have streamlined merger procedures and expanded the availability of fast-track mergers for eligible companies.

5. Employment Law Framework

India’s employment laws are governed by both central and state legislation, covering areas such as:

• Industrial relations
• wages and bonus payments
• workplace safety
• social security contributions
• employee benefits and termination requirements

The government has consolidated 29 labour laws into four labour codes, simplifying compliance and improving ease of doing business.

Companies employing staff in India must also consider statutory benefits such as gratuity payments, provident fund contributions, and employee insurance requirements.

6. Competition Law and Regulatory Compliance

India’s Competition Act prohibits anti-competitive agreements, abuse of dominant market position, and regulates mergers that may impact market competition.

Large transactions meeting specified thresholds must be notified to the Competition Commission of India (CCI) prior to completion.

Recent regulatory reforms have introduced simplified approval pathways for transactions that do not pose competition concerns.

7. Insolvency and Dispute Resolution

India’s insolvency regime has undergone significant reform in recent years, with amendments designed to improve efficiency and creditor confidence.

Recent updates aim to accelerate insolvency proceedings and introduce cross-border insolvency mechanisms aligned with international standards.

The Indian judicial system provides structured dispute resolution mechanisms, including specialized tribunals for corporate and commercial matters.

Conclusion

India offers a dynamic and increasingly investor-friendly environment, supported by regulatory reforms, strong economic growth, and expanding consumer demand.

While the legal framework continues to evolve, careful structuring of investments, appropriate choice of entry vehicle, and proactive compliance planning remain critical for successful market entry.

Businesses considering expansion into India should seek appropriate legal and tax advice to ensure compliance with sector-specific requirements and to optimize investment structures.

By Majmudar & Partners, India, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact india@transatlanticlaw.com

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 84 Brook Street, London W1K 5EH, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.