Setting up of operations in India by an Indian Citizen/ Company

An Indian citizen can set up IT software and services operations in India in the following manner:

  • as an Individual/ Proprietor; or
  • as a Partnership Firm/ Trust; or
  • as a Company registered under the Companies Act, 1956 (“Co Act”).

No prior permission of Government of India is required to set up IT/ software units in India.

Moreover, to encourage units in this sector, Government of India has announced many schemes ie:

  • Export Promotion Capital Goods (“EPCG”) Scheme: This scheme allows import of capital goods at a concessional customs duty rate, where the importer as a condition is required to achieve a specified export obligation. The export obligation and the period within which the same is required to be achieved vary based on the nature of the unit and value of imported capital goods.
  • Special Economic Zones (“SEZs”): SEZs are designated areas dedicated towards growth of exports, having full flexibility of operations that are permitted to import duty free capital goods and raw material. The movement of goods to and fro between ports and SEZ are unrestricted. The units in SEZ have to export the entire production subject to permitted sales in the DTA. Currently, there are 11 operational SEZs in India which include the Santacruz Electronic Export Promotion Zone, Kandla Export Promotion Zone, Vizag Export Promotion Zone and Cochin Export Promotion Zones which have been converted to SEZs. Fiscal incentives available to SEZ units have been discussed ahead in detail.
  • 100 Percent Export Oriented Unit (“EOU”): In terms of the benefits available, the EOU scheme, on a general basis, is similar to SEZ scheme. But in this scheme, there is no need to be physically located in the designated area (as in the case of SEZs). This scheme offers zero import duty on import of all capital goods, special 10 years income tax rebate (however, such rebate will not be available for Assessment Year 2010-2011 and onwards). The incentives provided to EOUs are generally similar to those provided to SEZ units, except the exemption from central sales tax on purchases.
  • Software Technology Park (“STP”): This is a special scheme under the Ministry of Information Technology, similar to EOU scheme, which is specific for the software industry. STPs are located at Noida, Navi Mumbai, Pune, Gandhinagar, Hyderabad, Bangalore, Chennai, Bhubaneshwar, Jaipur, Mohali and Thiruvanathapuram. This scheme offers zero import duty on import of all capital goods, special 10 years income tax rebate (however, such rebate will not be available for Assessment Year 2010-2011 and onwards), availability of infrastructure facilities like high-speed data communication links, etc. The incentives provided to EOUs are generally similar to those provided to SEZ units, except the exemption from central sales tax on purchases.

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  • Ankit

    Thanks for this information Mukesh. I am a freelancer software professional in India. Currently I work from home and develop software for a foreign company from home. They pay me in US $ in my saving account. Since my income has grown over last 1-2 yrs (it is above 20 lac/annum), so I am thinking of better way to setup my business so as to claim IT benefits of professionals like me. Now since we are only 2 people and we do not need more staff at this moment, what is your suggestion to me? How should I conduct business to utilize tax benefits available to 100% export oriented income professionals? Or do you suggest me to file my return as a proprietor just like any Indian businessman? I have no domestic income.