First 90 Days India Subsidiary

Most founders who set up a subsidiary in India get the individual steps roughly right. What trips them up is the order. Here is a pattern we see repeatedly: a US company incorporates its India entity, hires a brilliant engineering lead, and has them start on a Monday. Payroll runs at the end of the month. Then, weeks later, someone realises the entity never registered for Provident Fund, never obtained a Tax Deduction Account Number, and the “salary” that went out created a backdated compliance obligation that now takes three months and a lot of money to clean up.

Nothing in that sequence was done incompetently. It was just done in the wrong order. And in India, sequence is not a detail — it is the difference between a clean setup and an expensive one. This playbook lays out the first 90 days the way an experienced practitioner would run them: step by step, in order.

1. Why Order Matters More Than the Steps Themselves

India's foreign investment climate is genuinely strong right now — FDI inflows reached USD 81.04 billion in FY2024-25, up 14% year on year. More companies are setting up India operations than at any point in recent memory, and the process itself has become more digital and more streamlined. But “streamlined” does not mean “forgiving.” India's statutory framework assumes a specific sequence: you register the entity, then you obtain tax and labour registrations, then you hire, then you transact with your parent. Each stage depends on the one before it.

When founders compress or reorder these stages — usually because a great candidate is available and they want to move fast — they create obligations that exist before the infrastructure to meet them exists. The employee joins before Provident Fund registration is live. The parent wires operating capital before the entity has the right account structure to receive it cleanly. The India team starts invoicing the parent before an inter-company agreement defines what that invoice is for. Each of these is fixable. But fixing them costs far more than doing them in order would have. The goal of the first 90 days is not speed for its own sake — it is doing things once, correctly, in a sequence that never creates a backdated liability.

2. Step One — Complete Statutory Registrations Before Your First Hire

This is the step that determines whether the rest of the 90 days is smooth or painful. Every statutory registration must be in place before your first India employee's start date — not their first payday, their start date. The setup sequence for an India subsidiary runs like this:

• Board resolution (parent company) — the foreign parent formally resolves to incorporate an Indian subsidiary and authorises the investment. This is a home-country action, but it is the legal starting point.
• DIN (Director Identification Number) — every proposed director of the India entity needs one. At least one director must be resident in India, present in India for 182+ days in the financial year.
• SPICe+ filing — India's integrated incorporation form. It bundles name reservation, incorporation, PAN, TAN, and several registrations into a single application.
• Certificate of Incorporation — issued by the Registrar of Companies (ROC). This is the moment your India entity legally exists.
• PAN and TAN — the Permanent Account Number (the entity's tax ID) and the Tax Deduction Account Number (required to deduct and deposit TDS). You cannot legally run payroll without a TAN.
• GST registration — required once the entity crosses turnover thresholds or, in practice, from the outset for most foreign-owned subsidiaries providing services to their parent.
• Corporate bank account — opened in the entity's name, this is what receives capital from the parent and funds operations.
• EPFO and ESIC registration — the labour codes that attach to employment. These are what let you legally employ someone and meet the monthly statutory obligations that come with each salary.

The practical rule: do not sign an employment contract with a start date earlier than the date your PF, ESI, and TAN registrations are confirmed live. If you do, you have created obligations you cannot yet meet.

3. Step Two — Set Up Payroll Before the First Salary Runs

In India, payroll is not salary processing. It is salary processing plus a parallel stack of statutory obligations — TDS deposits, PF contributions, ESI contributions, and state Professional Tax — each with its own government authority and deadline. This matters because the first payroll run is where all of those obligations activate at once. If your payroll process only moves money to employees but does not deposit TDS with the Income Tax Department by the 7th of the following month, or PF with EPFO by the 15th, you are non-compliant from month one — even though the salaries landed perfectly.

Set up your payroll process, and confirm exactly who is responsible for the statutory deposits and filings, before the first salary cycle. This is a place where founders routinely assume their payroll tool is handling compliance when it is only handling payments. Establish the full workflow — calculation, payment, deposit, filing — before you need it, not after the first notice arrives.

4. Step Three — Open the Right Inter-Company Account Structure for Capital Flows

Your India subsidiary needs operating capital, and that capital comes from the parent. How it comes in matters — because every inbound flow of foreign money into India is governed by FEMA, the Foreign Exchange Management Act. Here is the plain-English version of FEMA: it governs all cross-border money movement into and out of India. When your parent company brings capital in as equity investment (foreign direct investment), that inflow must be reported to the Reserve Bank of India within 30 days of receipt. Miss the reporting window and you face penalties — even though the money itself was entirely legitimate. The practical implications for your first 90 days:

• Set up your corporate bank account with the right designations for receiving foreign equity capital.
• Understand the difference between capital brought in as equity (an investment in the entity) versus a loan from the parent (an external commercial borrowing, which has its own rules).
• Ensure someone is responsible for the RBI reporting on every inbound tranche — this is not automatic and is easy to overlook when you are focused on getting the operation running.

Getting the capital structure right at the start avoids a common and painful outcome: the parent funds the subsidiary informally, the reporting never happens, and it surfaces during the first audit as a FEMA compliance gap.

5. Step Four — Draft the Inter-Company Service Agreement Before Transactions Begin

Once your India subsidiary starts working — writing software, providing support, running operations — it is doing something for the parent. And when money moves between the two for that work, Indian tax authorities want to see that the price is fair and documented. This is transfer pricing, and it applies from the first year. In plain terms: when your India entity charges your parent for services (or the parent charges the India entity for a software licence, a management fee, or an inter-company loan), the price has to be what two unrelated companies would have agreed — the arm's length price. The tax authority's concern is that companies could otherwise shift profits offshore by mispricing these internal transactions.

The document that anchors all of this is the inter-company service agreement. It defines what the India subsidiary does for the parent, how it is compensated, and on what basis. It should exist before the first inter-company invoice is raised, not reconstructed afterward. Transfer pricing documentation is mandatory from the first year, and the annual Form 3CEB — which reports your inter-company transactions — must be certified by a Chartered Accountant. Founders who draft the inter-company agreement early find the year-end documentation straightforward. Those who transact first and paper it later find the reconstruction difficult and the audit uncomfortable.

6. Step Five — Open the Compliance Calendar for Month 1

The moment your India subsidiary is operational, it is on a monthly compliance clock. Unlike the US, where much of compliance is annual, India runs on a monthly and quarterly cadence. Your Month 1 calendar, once you have employees and are transacting, includes:

• Monthly — GST returns (GSTR-1 and GSTR-3B), TDS deposit, PF contribution, ESI contribution (where applicable), Professional Tax.
• Quarterly — TDS returns (Form 24Q for salaries, 26Q for non-salary payments), advance tax instalments.
• Annually — ROC filings (AOC-4 financial statements, MGT-7 annual return), corporate income tax return, transfer pricing report (Form 3CEB), and the FLA return to the RBI (Foreign Liabilities and Assets, due 15 July — one of the most commonly missed filings).

The FLA return deserves a specific mention because foreign subsidiaries miss it so often. It is an annual report to the RBI of the foreign investment in your entity, and it applies to any company that has received FDI. It is easy to miss precisely because it is annual and does not attach to a monthly rhythm. The point of opening this calendar in Month 1 is that missing a deadline in India is not a warning-letter situation — late fees and interest begin accruing automatically, and they compound. A calendar that is set up on Day 1 costs nothing. A calendar reconstructed after six months of missed filings costs real money.

7. Step Six — Appoint a Statutory Auditor (Required From Year 1)

Every Indian company must appoint a statutory auditor — a Chartered Accountant or CA firm — within 30 days of incorporation. This is not optional, and it is not a large-company requirement. It applies to your entity from the moment it exists, regardless of size or revenue. The statutory auditor is independent of your compliance provider and is responsible for auditing your India entity's financial statements each year. For a foreign parent, this is actually reassuring: the audited financials of your India subsidiary are what you will consolidate into your group accounts, and having them properly audited from Year 1 keeps that consolidation clean. Appoint the auditor early. Leaving it past the 30-day window is itself a compliance lapse, and it is an avoidable one.

8. Step Seven — Brief Your India Team Lead on Employment Terms, Leave, and Benefits

The final piece of the first 90 days is human, not statutory — but it affects retention, and it affects compliance. Indian employment operates under different assumptions than US at-will employment or Singapore's framework. Your India team lead — and your employment contracts — need to reflect:

• Statutory leave entitlements, which vary by state and include earned leave, sick leave, and casual leave.
• Notice periods, which in India are typically longer than the US norm and are often negotiated into contracts.
• Statutory benefits beyond salary: PF, ESI (where applicable), gratuity (a statutory end-of-service benefit that accrues over time), and any bonus obligations.
• Employment contracts that are enforceable under Indian law — a US template will not map cleanly onto Indian employment norms.

Getting the employment terms right at the outset avoids disputes later and signals to your India team that the parent takes their local context seriously. In a competitive talent market, that matters.

9. In Our Experience — What Actually Goes Wrong

In our experience working with foreign companies through their India setup, the single most common — and most expensive — mistake is hiring before the registrations are live. A founder finds an exceptional candidate, wants to lock them in, and has them start before PF, ESI, and TAN are confirmed. The intention is good. The result is a backdated set of obligations that has to be untangled retroactively, usually at several times the cost of simply waiting for the registrations to complete.

The second pattern we see is transacting with the parent before the inter-company agreement and transfer pricing documentation exist. The entity gets incorporated, the team starts working, invoices to the parent begin flowing — and only at the first year-end does anyone ask what those invoices were priced against. Reconstructing that documentation after the fact is far harder than drafting it before the first invoice. Both mistakes come from the same root: treating the steps as a checklist to be completed in any order, rather than a sequence where each stage depends on the last.

10. The Realistic Timeline — 6 to 10 Weeks

Founders often ask how long it takes to set up a subsidiary in India. The honest answer is 6 to 10 weeks for the entity itself, from board resolution to a functioning bank account, assuming documents are provided promptly and there are no name-reservation or director-residency complications. The full operational and compliant state — registrations live, payroll configured, inter-company agreement in place, auditor appointed, compliance calendar running — is what fits inside the 90-day window this playbook describes. The 6 to 10 weeks is the entity; the remaining time is building the infrastructure around it so that the first employee and the first inter-company invoice land on solid ground.

11. Common Mistakes to Avoid

First — signing a start date before registrations are confirmed live. The fix: work backward from your registration timeline, not forward from your ideal hire date. Set the employee's start date after PF, ESI, and TAN are confirmed.

Second — letting the parent fund the entity before RBI reporting is set up. The fix: confirm your account structure and reporting responsibility before the first capital tranche arrives, so the 30-day FEMA reporting window is never missed.

Third — skipping the inter-company service agreement until year-end. The fix: draft it before the first inter-company invoice. It is a short document to create in advance and a difficult one to reconstruct in arrears.

12. If You Are Planning Your India Setup Right Now

If you are in the early stages of setting up a subsidiary in India — or if you have started and want to check whether the sequence is on track — the most useful thing you can do is map your current position against the steps above. We are happy to walk through your specific setup checklist and give you a plain-English read on where you are, what is done, and what needs to happen before your first hire or your first inter-company transaction. There is no obligation to that conversation — if your sequence is sound, we will tell you so. Start with a free consultation at alacritycorp.com/contact.

13. FAQ — Do I need a resident Indian director to set up my subsidiary?

Yes. Every Indian company must have at least one director who is resident in India — defined as having stayed in India for 182 days or more during the financial year. For foreign parents without an obvious candidate, this is one of the first practical questions to solve, because incorporation cannot complete without it. It is a common early bottleneck, and worth addressing before you begin the SPICe+ filing.

14. FAQ — Can I start hiring while the entity is still being incorporated?

Not compliantly. Your entity needs to legally exist (Certificate of Incorporation), have a TAN to deposit TDS, and have PF and ESI registrations before an employee's start date. Hiring during incorporation creates obligations the entity cannot yet meet. If you need to bring someone on before the entity is ready, an Employer of Record (EOR) arrangement lets you employ them legally in the interim while the entity completes — and then transition them to your own entity once it is live.

15. FAQ — How much capital do I need to bring in to set up an India subsidiary?

India removed the minimum paid-up capital requirement for private limited companies, so there is no statutory floor. In practice, you bring in enough capital to fund the entity's operations — salaries, rent, and running costs — with a runway that reflects your plans. What matters more than the amount is that the inflow is correctly structured as equity and reported to the RBI within 30 days under FEMA.

16. FAQ — When does transfer pricing start applying to my subsidiary?

From the first year, as soon as your India entity transacts with the foreign parent — which for most subsidiaries is immediately, since the entity is typically providing services back to the parent. Transfer pricing documentation is mandatory from the first year, and the Form 3CEB report on your inter-company transactions must be certified by a Chartered Accountant. This is why drafting the inter-company service agreement early matters so much.

17. FAQ — What happens if I miss the statutory auditor appointment deadline?

Every Indian company must appoint its first statutory auditor within 30 days of incorporation. Missing this is a compliance lapse under the Companies Act, and while it is correctable, it is entirely avoidable and signals a rocky start to your entity's compliance record. Appointing the auditor should be one of the first actions after incorporation, not something left until the first year-end approaches.

Alacrity Corporate Solutions is a CA and CS certified professional services firm based in Gurgaon, Delhi-NCR. As India Subsidiary Specialists for US and Singapore founders, we handle entity setup, ongoing compliance, payroll, and back-office management for foreign-owned companies operating in India, with 20+ years of practitioner experience behind every engagement.