I have set up more India subsidiaries for foreign parents than I can count, and the conversation almost always starts the same way: someone has been quoted a fixed fee, a four-week timeline, and a tidy list of deliverables. The company gets incorporated on schedule. Then, somewhere around month four, the questions start.
Here is what the incorporation quote usually does not tell you.
Incorporation is the cheapest part of the whole exercise
Getting a private limited company registered in India is genuinely straightforward now. Name approval, DSCs for the directors, DIN, SPICe+ filing, PAN and TAN issued along with the certificate of incorporation. For a clean structure with two directors and a foreign holding company, this is a matter of weeks, not months.
The cost that matters is what comes after. A registered Indian company is a filing entity from the day it exists, whether or not it has started trading. Statutory audit applies to every company, with no turnover threshold. Annual ROC filings, board meetings and minutes, director KYC, income tax returns, GST returns once registered, TDS returns every quarter. None of this is optional, and none of it stops because the business is still ramping up.
When a foreign parent budgets for “India setup”, they should be budgeting for the running compliance load, not the registration fee.
The resident director requirement is not a formality
Every Indian company needs at least one director who has stayed in India for the required number of days in the financial year. Foreign parents routinely discover this late and reach for the quickest fix: a nominee, often someone connected to the consultant who did the incorporation.
That director signs financial statements. That director carries personal liability for a range of defaults. I have had to unwind arrangements where the nominee had drifted out of contact, and the company could not file its accounts because there was no one willing to sign them. If you are going to use a resident director, treat it as a real appointment with a real agreement behind it, not a box to tick.
Funding the subsidiary has its own rulebook
Money coming in from the parent is not simply a bank transfer. Share capital has to be reported to the RBI through the prescribed filings within the prescribed windows, with a valuation certificate where one is required. Miss the window and you are into compounding, which costs both money and time.
The alternatives have their own constraints:
- Equity is clean but slow to reverse, and pricing is governed by valuation rules
- External commercial borrowings come with eligibility, end-use and maturity conditions
- Running the subsidiary on an intercompany payable is convenient and creates transfer pricing exposure almost immediately
The right answer depends on how long the parent expects to fund losses and whether it ever intends to take money back out. That second question is the one nobody asks at incorporation, and it is the one that determines the structure.
Transfer pricing starts on day one, not at scale
This is the single most expensive thing consultants leave out. The moment your Indian entity transacts with its foreign parent or any related company, those transactions are international transactions. They need to be at arm’s length, documented, reported in the accountant’s report, and defended if questioned.
A subsidiary that provides support services to its parent at cost, or at cost plus a margin someone picked out of the air, is a problem waiting to surface. So is a management fee charged down from the parent with no evidence of the service. The fix is cheap if it is designed at the start and expensive if it is retrofitted three years later during an assessment.
Permanent establishment risk sits in how you operate, not how you incorporate
Foreign parents often assume that incorporating a subsidiary ring-fences them from Indian tax. It does not. If the parent’s own people are habitually concluding contracts in India, or the subsidiary is functioning as the parent’s sales arm while being paid like a back office, the parent can be found to have a taxable presence here in its own right.
I look at what the India team actually does, what their titles say, what their email signatures say, and how contracts get signed. Those details decide the exposure, not the shareholding diagram.
What I would tell you before you sign the engagement letter
Ask the consultant three questions. What does year two cost, not year one? Who signs the financial statements, and what do they carry? And what is the plan for taking money back out of India, whether through dividends, buyback or an eventual sale?
A consultant who has a considered answer to all three is worth paying. One who only has a price for the incorporation is selling you the easy part.
If you are planning an India entry and want the structure thought through properly before anything is filed, my firm AeTx handles cross-border setups end to end — incorporation, funding, transfer pricing and the compliance calendar that follows. Start the conversation there.