Investing In... 2025 Comparisons

In India, the applicable legal system is common law. India has a quasi-federal structure – federal in its division of legislative powers between the union and states, yet unitary in its integrated judiciary.

In addition to judicial precedents and laws enacted by the Indian legislature, specialised regulatory bodies have the power to issue regulations that govern specific sectors or areas. For example:

• banking, finance and foreign exchange is regulated by the Reserve Bank of India (RBI);
• the public securities market is regulated by the Securities and Exchange Board of India (SEBI);
• telecommunications, broadcasting and related services are regulated by the Telecom Regulatory Authority of India; and
• anti-competitive practices are regulated by the Competition Commission of India.

The Supreme Court is the highest court in India. Its decisions are binding on all lower courts and tribunals. High Courts in each state or union territory serve as the principal civil courts, supervising subordinate district courts. Additionally, specialised courts and quasi-judicial bodies – such as commercial courts, National Company Law Tribunals (NCLTs), consumer forums and income tax appellate tribunals – address subject-specific legal matters.

Foreign direct investment (FDI) in India is regulated under the Indian exchange control laws by the Department for Promotion of Industry and Internal Trade (DPIIT) (a department of the Indian government’s Ministry of Commerce and Industry), and by the RBI, which regulates foreign investments and foreign currency transactions.

Indian exchange control laws permit FDI through the following routes:

• automatic route – foreign investments under this route do not require prior approval of the RBI or the central government; and
• approval route – foreign investments under this route can be undertaken only with prior approval of the RBI or the relevant central government department.

Key considerations for FDI are as follows.

Sectoral Caps

Investments in specific sectors – depending on the sectoral caps and limits under the Indian exchange control laws – require prior approval. For example, 100% FDI under the automatic route is permitted in sectors such as manufacturing, agriculture, greenfield pharmaceuticals, services, etc. In contrast, for sectors such as defence and brownfield pharmaceuticals, FDI under the automatic route is permitted up to 74%, beyond which prior approval is required.

PN3 Restriction

Investments made from restricted territories (ie, China, Hong Kong, Macau, Bhutan, Nepal, Myanmar, Pakistan, Bangladesh and Afghanistan), or whose “beneficial owner” is situated in, is a citizen of or is incorporated in a restricted territory, require prior approval (this was originally introduced pursuant to Press Note No 3 (2020 Series), issued in April 2020 (PN3)).

Prohibited Sectors

FDI is completely prohibited for certain sensitive sectors such as atomic energy, lottery business, gambling, railways, chit funds, etc.

In 2024, monthly FDI in India averaged over USD4.5 billion, and a sustained flow of FDI is likely to continue into 2025, strengthened by the government’s focus on enhancing ease of doing business through investor-friendly policies, relaxed regulations and streamlined approvals and clearances.

Some key developments in the regulation of FDI over the last year are as follows.

Relaxations for the Space Sector

Previously, in the space sector, the FDI policy limited FDI to only the establishment and operation of satellites. In 2024, FDI was permitted up to:

• 100% under the automatic route for manufacturing of components and systems/subsystems for satellites, ground segments and user segments;
• 74% under the automatic route for satellites’ manufacturing and operation, satellite data products, ground segments and user segments; and
• 49% under the automatic route for launch vehicles and associated systems or subsystems, and the creation of spaceports for launching and receiving spacecraft.

Proposed Relaxation for the Insurance Sector

In the insurance sector, FDI up to 74% under the automatic route is currently permitted. This limit is proposed to be increased to 100%, which will enable foreign investments to be freely made in this sector.

Steady PN3 Approvals

In the last few years, stakeholders have argued for relaxation in PN3, expressing concerns regarding ambiguity in the definition of “beneficial ownership” and lack of transparency in the approval process. Recent news reports suggest that the government is considering allowing Chinese companies to acquire up to 26% equity in joint ventures for critical electronic components, suggesting a shift from the current 10% equity cap imposed on other categories. Although PN3 approvals continue to be given on a case-to-case basis, it is expected that in order to enhance ease of doing business the government may introduce certain relaxations in the coming years.

India’s Promise to Enhance Ease of Doing Business

In February 2025, the Indian finance minister announced that a high-powered committee would be constituted to review current hurdles and challenges, and to introduce measures such as deregulation policies and rules to allow hybrid instruments in corporate financing that encourage investors and attract FDI.

M&A and private equity transactions in India are commonly structured through primary issuances (subscription to fresh shares), secondary sales (purchase of existing shares) or a combination of both. Foreign investors typically invest via equity shares, compulsorily convertible debentures or preference shares, or share warrants – hybrid or optionally convertible instruments are not permitted under the FDI regime.

For acquisitions of private companies, share purchase or subscription agreements are common, involving equity or a mix of equity and preferred capital. In contrast, public company acquisitions are more strictly regulated and generally follow a securities acquisition route. Acquisition of 25% or more of a listed company, acquisition of more than 5% in a financial year by persons holding more than 25%, or acquisition of control, triggers a mandatory open offer for at least an additional 26% under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the “SEBI Takeover Code”), with pricing (among other things) based on the highest of the historical stock data, valuation reports and negotiated price.

Disclosure norms, insider trading regulations, and convertible instrument tenures (capped at 18 months) also differ significantly from private deals. While private and public deals share structural similarities, public acquisitions face additional regulatory scrutiny, impacting deal timelines and flexibility in structuring.

Court- or tribunal-approved schemes of arrangement are used where corporate restructuring or mergers are involved. Asset or business acquisitions (rather than share deals) may be preferred in specific cases, mainly for liability management or ring-fencing.

For minority investments, structures mirror those of majority acquisitions but include investor protections such as board rights, veto rights and put/call options (provided these do not guarantee assured returns). Deferred consideration (up to 25% of consideration and for no more than 18 months), escrows and staggered tranches are common tools for managing execution and performance risks.

Key considerations for foreign investors when structuring transactions include:

• FDI sectoral caps;
• tax implications;
• regulatory approval requirements (eg, antitrust, exchange control); and
• the overall speed and certainty of execution.

Structuring is aimed at reducing regulatory friction and accelerating completion timelines.

In addition to the FDI regime, M&A transactions in India may trigger other regulatory reviews or approvals based on factors such as deal size, target sector, investor rights and transaction structure.

Competition/Antitrust Clearance

Clearance may be required under the Competition Act, 2002 (as amended) where a transaction crosses the prescribed asset or turnover thresholds, or deal value threshold (see Section 6). This review is mandatory and suspensory, which means that the deal cannot be implemented until clearance is obtained.

Public Listed Companies

In transactions involving public listed companies, a mandatory tender offer may be triggered under the SEBI Takeover Code if the acquirer, along with persons acting in concert, crosses certain shareholding thresholds (typically 25% or more) or acquires control. In such cases, SEBI scrutiny applies to the offer process, pricing and disclosures.

Sector-Specific Approvals

Sector-specific transaction approvals may be required in regulated industries such as:

• banking and NBFCs, which are overseen by the RBI;
• insurance, which is regulated by the Insurance Regulatory and Development Authority of India (IRDAI); and
• pharmaceuticals, telecoms and defence.

Investments in these sectors may also be subject to caps on foreign ownership, minimum capitalisation norms, and ongoing compliance requirements.

Contractual Rights

Where contractual arrangements (eg, veto rights or board seats) confer “control” under Indian law, these may independently trigger regulatory scrutiny, even in minority investments. As a result, deal structuring should account for not just equity thresholds but also the nature of rights acquired.

Corporate governance in India is primarily governed by the Companies Act, 2013 (applicable to all companies), and, for public listed companies, the SEBI Listing Obligations and Disclosure Requirements Regulations. Additional governance norms may apply to entities regulated by sectoral authorities such as the RBI or the IRDAI. These frameworks set out:

• board composition requirements;
• qualifications for independent directors;
• functioning of board committees;
• audit standards; and
• director liabilities.

While executive directors carry operational responsibility, non-executive and independent directors typically have limited liability, proportionate to their role and oversight.

Limited Liability Companies

The most common form of legal entity in India is the limited liability company, which can be private or public. This form is preferred by foreign investors due to its well-defined governance structure, limited liability protection, and flexibility in ownership and capital structuring.

Other Legal Entities

Other legal forms include limited liability partnerships (LLPs), though these are less common than limited liability companies. In certain cases, there may be tax advantages to using an LLP and this entity is gaining more popularity, especially with companies in the IT/ITES sector. Foreign investors may also consider setting up branch offices, liaison offices or project offices. These are subject to RBI guidelines, can only undertake specified, limited activities and require prior approval from the RBI (granted through authorised dealer banks).

Selecting the appropriate entity form impacts not only regulatory compliance but also foreign ownership limits, governance requirements and operational flexibility.

Under Indian company law, minority shareholders enjoy statutory protections aimed at safeguarding their interests against oppressive conduct by majority stakeholders.

Shareholders holding at least 10% of a company’s share capital may call for shareholder meetings, initiate class action suits or approach the National Company Law Tribunal (NCLT) for relief against oppression and mismanagement. Shareholders with 25% or more voting rights can block special resolutions relating to key corporate actions such as amendments to constitutional documents, mergers or winding-up.

In private companies, minority rights are typically negotiated contractually and may include board representation, veto rights on reserved matters, information access and exit mechanisms – critical tools for foreign or institutional investors seeking investment protection.

In public listed companies, minority shareholders can nominate a “small shareholder director” and benefit from oversight by a mandated stakeholders’ relationship committee. Additionally, the SEBI’s SCORES platform allows shareholders to raise and track grievances, with listed companies required to respond within 30 days.

FDI in India is subject to certain mandatory disclosure requirements under foreign exchange laws, regardless of investment size.

For primary and secondary issuance in the case of unlisted companies, the reporting obligation rests on the Indian investee company or the resident party. For primary issuance, the Indian investee company is required to file Form FC-GPR with the RBI within 30 days of issuing equity instruments; for secondary transfers, the resident party (transferor or transferee) must file Form FC-TRS within 60 days of transfer or receipt/remittance of funds, whichever is earlier.

For listed companies, investors (including foreign investors) acquiring 5% or more of shareholding or voting rights are required to make public disclosures under the SEBI Takeover Code. Subsequent changes of 2% or more also trigger disclosure obligations. Additional filings may apply under insider trading regulations if the investor qualifies as a “designated person”. An assessment of any sector-specific or FDI-linked approval and post-investment reporting requirements should also be undertaken.

India’s capital markets are a key part of the Indian financial system and support economic growth by mobilising long-term and higher-risk capital that commercial banks typically avoid. While bank financing is a crucial source of funding for businesses – especially for short- to medium-term needs, capital markets offer an increasingly important alternative, particularly for companies seeking long-term, large-scale or risk-tolerant capital.

The Indian capital markets consist of:

• the securities market, comprising both the primary market (IPOs, FPOs, private placements) and secondary market (stock exchanges);
• financial intermediaries, including mutual funds, venture capital funds, private equity firms and merchant banks;
• development finance institutions catering to infrastructure and industrial sectors; and
• the gilt-edged market for government securities regulated by the RBI.

Capital markets not only diversify funding options for corporates but also – subject to market risks – offer investors potentially superior returns compared to traditional bank deposits. As regulatory frameworks and investor participation continue to deepen, the capital markets are playing an even bigger role in financing India’s development and private sector expansion.

India’s capital markets are regulated by the Securities and Exchange Board of India (SEBI), which oversees market participants, protects investor interests, and promotes fair and efficient trading practices.

The SEBI regulates both the primary and secondary markets, monitors insider trading and fraudulent and unfair trade practices in the securities markets, and governs takeovers, disclosures and corporate governance of listed companies. It also licenses and supervises key intermediaries such as merchant bankers, brokers, credit rating agencies and portfolio managers. As a quasi-judicial authority, the SEBI has wide enforcement powers, and is empowered to conduct investigations and impose civil and monetary penalties.

Foreign investors acquiring listed securities in India are required to register with the SEBI as foreign portfolio investors (FPIs) via a local custodian. The SEBI’s FPI regulations prescribe eligibility criteria, investment limits and permitted classes of securities, including equity and certain categories of debt. FPIs are also subject to limits set by the RBI, and are required to comply with periodic reporting and disclosure obligations.

While FDI into unlisted companies is regulated by India’s foreign exchange laws, any FDI into listed companies may trigger securities law requirements, including disclosures, compliance with the SEBI Takeover Code and insider trading restrictions, depending on the nature and size of the transaction.

Indian foreign exchange laws do not specifically subject investment funds to any additional regu¬latory review for the purpose of FDI.

India has a mandatory and suspensory merger control regime governed by the Competition Act, 2002 (as amended) and enforced by the Competition Commission of India (CCI). Under the regime, certain transactions, termed “combinations”, cannot be consummated without prior notification to and approval from the CCI.

Notification Triggers

A transaction must be notified to the CCI if it meets any of the following thresholds:

• asset/turnover thresholds – if the combined assets or turnover of the involved parties (or their groups) exceed specified limits in India or globally; and
• the deal value threshold (DVT) – the DVT was introduced in September 2024 and requires transactions to be notified where the deal value exceeds INR20 billion (approximately USD240 million) and where the target has “substantial business operations in India”, regardless of the target’s asset or turnover value.

Exemptions

Certain exemptions exist, such as the de minimis exemption, which applies if the target’s Indian asset value or turnover in India falls below specified thresholds. However, this exemption does not apply to transactions meeting the DVT.

Process and Timelines

Filing

Parties must file a notification with the CCI before implementing a transaction. The filing can be made in a Form I (short form) or Form II (long form), depending on the parties’ combined market shares in the overlapping markets.

Review period

The timeline for approving a transaction in Phase I is 30 calendar days (excluding the time taken to clear any defects and clock-stops). The outer limit for approving a transaction stands at 150 calendar days.

Standstill obligation

Parties cannot consummate the transaction, or any part of it, until they receive CCI approval. Violations may lead to penalties of up to 1% of the total assets or turnover or the value of the transaction, whichever is higher. For certain transactions, such as open market purchases, the CCI allows a derogation from the standstill obligation, provided specific conditions are met, including filing a notification within 30 days of the first acquisition and the parties refraining from exercising ownership or beneficial or voting rights until approval is granted.

India maintains a robust merger control regime that includes a substantive assessment of FDI to ensure that it does not adversely affect competition within the country.

Substantive Assessment Criteria

The CCI evaluates combinations to determine whether they are likely to cause an “appreciable adverse effect on competition” (AAEC) in the relevant market. This assessment encompasses various factors, outlined under the Competition Act, 2002 (as amended), including:

• market concentration – the level of concentration in the market and the market share of the entities involved;
• barriers to entry – the extent of barriers preventing new competitors from entering the market;
• countervailing buyer power – the ability of buyers to counteract any potential negative effects of the combination;
• substitutability – the availability of substitute goods or services in the market;
• vertical integration – the nature and extent of vertical integration resulting from the combination; and
• innovation – the impact of the combination on innovation within the market.

Review Process

The CCI’s review process is structured in two phases.

• Phase I: a preliminary review to assess whether the combination is likely to cause an AAEC. This phase must be completed within 30 calendar days (excluding the time taken to clear defects or any clock-stops).
• Phase II: if the CCI identifies potential concerns in Phase I, a detailed investigation is initiated, which must be concluded within 150 calendar days from the date of notification.

During the review, the CCI may seek information from the parties involved and, in certain cases, invite comments from third parties to assess the potential impact on competition.

Green Channel Approval

Introduced in 2019, the Green Channel route allows for deemed approval of combinations that do not exhibit any horizontal, vertical or complementary overlaps between the parties. This automatic route is attractive for global investors, and significantly expedites low-risk deals.

In recent high-profile cases, such as the USD8.5 billion merger between Reliance Industries and Walt Disney’s Indian media assets, the CCI conducted a detailed enquiry on market concentration in the sports broadcasting rights segment. The CCI’s approach underscores commitment to maintaining competitive markets and its intent to closely examine significant FDI transactions that may influence market dynamics in India.

In India’s merger control regime, the CCI may require remedies to address potential anti-competitive effects of a combination. While these remedies are recommended on case-to-case basis, they can be broadly categorised as structural, behavioural or a combination of both.

Structural Remedies

These involve changes to the structure of the merging entities, such as divestiture of certain businesses or assets. For example, in the Disney-Reliance USD8.5 billion merger, the parties agreed to divest certain TV channels to alleviate concerns regarding market concentration in the media sector.

Behavioural Remedies

These are commitments to act in a certain way post-merger to maintain competitive conditions. For example, in the same Disney-Reliance merger, the companies pledged not to unreasonably increase advertising rates for certain cricket events for which they held broadcasting rights, till the time the parties held such rights.

The CCI’s approach to remedies has evolved to allow for more flexibility and negotiation. For example, under the 2023 Amendment to the Competition Act, 2002, the CCI introduced a framework for proposal of modifications during the Phase I review, enabling earlier resolution of competition concerns.

India’s merger control regime empowers the CCI to block or challenge FDI transactions that meet specified thresholds and pose competition concerns.

Appeals Process

Decisions of the CCI can be appealed before the National Company Law Appellate Tribunal (NCLAT), and appellants are required to deposit 25% of the penalty amount with the NCLAT when preferring an appeal. Appeals from the NCLAT lie with the Supreme Court of India, the final appellate authority.

Gun-Jumping

For notifiable transactions, parties are required to notify the CCI and obtain its approval before consummating the transaction. The CCI can initiate an enquiry into a transaction that was not notified to it for a period of up to one year from the date of completion of the transaction. Notifiable transactions that have not been notified to the CCI are not automatically void but are voidable.

Implementing a notifiable transaction without prior approval constitutes “gun-jumping” and can attract penalties of up to 1% of the total assets or turnover or value of the transaction, whichever is higher, of the acquirer or merging parties.

As discussed in 1.2 Regulatory Framework for FDI, India regulates FDI through a dual-route (ie, approval and automatic) framework governed by the DPIIT. While India does not have a standalone national security screening regime, prior government approval is required for investments in certain sensitive sectors.

Regardless of the route, all FDI must comply with applicable sectoral laws, licensing requirements and regulatory approvals (eg, in banking, insurance or non-banking financial services), as set out in 1.2 Regulatory Framework for FDI, prior to making the investment. Failure to seek prior clearance in approval-route sectors can result in regulatory action and penalties.

While there are no available general exemptions from compliance with the FDI regime, certain investors such as foreign venture capital investors or investments under treaty-based frameworks may qualify for relaxed treatment if specific conditions are met.

Approval Process via the Foreign Investment Facilitation Portal

In terms of process and timelines, for sectors under the approval route, foreign investors can submit their proposals through the Foreign Investment Facilitation Portal (FIFP). The DPIIT acts as the nodal authority and consults the relevant line ministry or sectoral regulator for clearance. To streamline this process, the DPIIT has issued Standard Operating Procedures (SOPs), under which:

• proposals are processed within eight to ten weeks of submission;
• the relevant ministry/ministries may seek clarifications or additional information during this review; and
• the DPIIT may take an additional two weeks for reconsideration if conditions are proposed or applications are initially rejected.

India’s foreign investment approval regime is administered via the FIFP (see 7.1 Applicable Regulator and Process Overview) and is co-ordinated by the DPIIT. In the case of FDI through government approval routes, a detailed scrutiny is undertaken. The process involves both commercial and national security considerations, with specific criteria set out in the SOPs.

Required Documentation

For proposals submitted through the FIFP, the following documentation is required:

• summary of proposed investment;
• audited financials of the investor and investee entities;
• ownership and control details, including details of significant beneficial owners;
• supporting documents such as joint venture/shareholder/technology transfer agreements;
• valuation reports issued by a chartered accountant and statutory auditor certificates; and
• foreign inward remittance certificates (for post facto approvals, if any).

Evaluation Process and Criteria

Once submitted, proposals are allocated to relevant ministries or sector regulators based on the nature of the business. Investments in sensitive sectors – such as defence, telecoms, civil aviation and broadcasting, or proposals covered under PN3 – are additionally referred to the Ministry of Home Affairs for security clearance. Where the proposed foreign equity inflow exceeds INR50 billion, the matter is escalated to the Cabinet Committee on Economic Affairs (CCEA). Key factors considered during review include:

• sector-specific caps and conditions;
• national security concerns;
• impact on domestic industry, employment and innovation; and
• alignment with broader economic and policy priorities.

The review criteria are agnostic to the investment structure – ie, whether a joint venture, minority investment or partnership. What matters is the nature of control, source of funds, sectoral sensitivities and alignment with the FDI policy.

Under India’s foreign investment regime, the relevant ministry or department as well as the DPIIT require specific remedies or commitments as part of the FDI approval process. These are typically seen at the stage of the proposal review and are tailored to the sector and nature of the investment.

At the review stage, ministries may request clarifications on the investor’s business plans, funding structure and future operations. Sector-specific commitments may also be imposed. For instance, in the pharmaceutical sector, investors are typically required to confirm that no non-compete clauses have been agreed, to preserve market competitiveness.

Once approval is granted, the government may require formal undertakings or post-approval confirmations, including:

• compliance with pricing norms and reporting obligations under foreign exchange regulations;
• adherence to downstream investment conditions, where applicable; and
• compliance with relevant environmental and anti-pollution laws.

These conditions are not exhaustive and may vary depending on the sensitivities of the sector, the nature of the investment (eg, greenfield versus brownfield) and broader policy considerations.

Upon review of the FDI proposals, if the proposal is not in compliance with sectoral conditions or national interest considerations, the competent authority (in consultation with the DPIIT) may reject it. There is no formal appeals process, though investors may submit a fresh proposal for reconsideration.

Post-investment, the DPIIT and the RBI have the authority to review and take action against non-compliant transactions under the Indian exchange control laws. If an investment is made without prior approval when required, the authorities may:

• require the parties to unwind the transaction;
• allow post facto regularisation through a compounding process, which may involve penalties; or
• initiate adjudication or enforcement proceedings.

Moreover, violations can attract monetary penalties and may lead to further regulatory scrutiny. In many cases, foreign investors opt for voluntary compounding to resolve non-compliance.

The legal and regulatory landscape governing FDI is nuanced and based on several factors, such as the nature of the investor, the investment vehicle, the sector of investment and the mode of entry; additional regulatory compliance requirements may be applicable.

General Registrations and Compliances

Certain common regulatory and compliance requirements that foreign investors need to consider are:

• obtaining business registrations such as tax registrations;
• opening local bank accounts; and
• acquiring applicable operating licences under state-specific Shops and Establishments Acts.

Depending on the industry, specific licences or approvals from sectoral regulators may also be required.

Apart from general registrations and compliances set out above, certain specific sectors involve additional regulatory considerations. A brief overview of regulatory considerations in certain sectors is set out below.

Real Estate

FDI not permitted in the real estate business – ie, dealing in land and immovable property (without undertaking any form of construction development) with a view to earning a profit from it, construction of farmhouses, and trading in transferrable development rights in India.

However, subject to specific conditions, 100% FDI is allowed under the automatic route in construction development projects (eg, townships, commercial/residential buildings, educational institutions, hotels, resorts, infrastructure projects, etc) and earning of rental income is permitted. In other words, leasehold improvement/building improvements and re-development of property, and thereafter leasing of such property along with providing managed services with respect to such property, is fine and not an issue from an FDI perspective.

Financial Services and Fintech

India’s regulated financial services sector is open to foreign investment, subject to compliance with RBI, SEBI and IRDAI norms and guidelines. In the insurance sector, FDI up to 74% is permitted via the automatic route, with Indian control and governance safeguards. As for NBFCs and fintech companies, 100% FDI is permitted under the automatic route, subject to licensing by the RBI. Further, subsectors in the fintech sector such as payments, peer-to-peer lending and digital wallets are regulated under sector-specific frameworks.

E-Commerce Activities

The FDI policy classifies e-commerce activities into two segments – the inventory-based model and the market-place based model:

• inventory model – FDI is prohibited, where the inventory of goods and services is owned by e-commerce entity itself; and
• marketplace model – 100% FDI under the automatic route is permitted where the e-commerce entity only provides its platform to facilitate transactions between buyer and seller.

Retail Industry

FDI in India’s retail industry has a differentiated regime for single brand retail trading (SBRT) and multi-brand retail trading (MBRT).

Subject to specified conditions, 100% FDI is permitted under the automatic route in SBRT. If the FDI exceeds 51%, the entity must source at least 30% of the value of goods purchased from India, preferably from micro, small and medium enterprises (MSMEs). For companies selling products with a single brand globally, this route enables them to establish wholly owned retail outlets in India. The government has also eased local sourcing norms, especially for high-tech or cutting-edge products.

In contrast, for MBRT, FDI is allowed only up to 51% under the approval route, and is subject to conditions such as minimum investment thresholds, local sourcing requirements, infrastructure development obligations and state-level consent.

Companies doing business in India are taxed under the Income Tax Act, 1961, with varying rates and compliance obligations based on residency status, nature of business undertaken, legal entity structure, and turnover. An overview of the different tax rates applicable is set out below.

Domestic Companies

Indian companies are generally taxed at 25% if turnover is below INR4 billion, and 30% otherwise (plus 7% or 12% surcharge if income exceeds INR10 million or INR100 million, respectively, and 4% cess). A reduced tax rate of 22% (plus 10% surcharge and 4% cess) is available for domestic companies that do not claim specified exemptions.

Foreign Companies

Foreign companies are taxed at 35%, with an additional surcharge of 2% or 5% if income exceeds INR10 million or INR100 million, respectively, plus 4% cess. Taxability is generally limited to income accrued or arising in India or deemed to be so.

Partnerships and LLPs

Indian partnerships and LLPs are taxed at 30%, plus 12% surcharge on income exceeding INR10 million, and 4% cess. Foreign partnerships or limited liability companies are assessed based on their structure and functions and are taxed as either partnerships or corporations, depending on their characteristics.

Minimum Alternate Tax (MAT)

MAT of 15% applies to companies not availing themselves of reduced rates, 18.5% to partnerships availing themselves of specified exemptions, plus applicable surcharge and cess, based on adjusted book profits.

Surcharge at the rates mentioned above is applicable on a base tax rate, and tax as increased by applicable surcharge is increased by cess.

India imposes withholding tax on dividends and interest paid to foreign investors under the Income Tax Act, 1961, subject to applicable tax treaty relief.

Interest payments to non-residents are typically subject to a 20% withholding tax on foreign currency loans. In specific cases (eg, issuance of certain bonds listed on the GIFT City International Financial Services Centre (IFSC)), a concessional rate of 9% applies. For other forms of debt, rates may be 30% or 35%, depending on the status of the payee (corporate, partnership, etc), plus surcharge and cess.

Dividends are taxed in the hands of non-resident shareholders at the rate of 20% withholding tax, plus surcharge and cess.

Tax treaty benefits may reduce these rates to typically 5%, 10% or 15%, depending on shareholding thresholds or holding periods. Beneficial rates are applicable only where the investor is the “beneficial owner” of the income.

Treaty shopping has long been a contentious issue in Indian tax jurisprudence. With the introduction of domestic anti-abuse provisions and India’s adoption of the OECD’s Multilateral Instrument (MLI), there is now greater scrutiny in allowing tax treaty benefits – for example, an assessment is undertaken of whether an arrangement has genuine commercial substance and whether its principal purpose is to obtain treaty benefits.

India offers several tax planning strategies that companies can leverage to optimise their tax outflows. A few such structuring strategies are set out below.

Tax-Neutral Structuring

Mergers and demergers, when structured in accordance with the conditions set out under the Income Tax Act, 1961, are tax neutral. Such structures allow the transferee to carry forward and set off unutilised tax losses. These structures are widely used for internal group reorganisations and business hive-offs. Asset transfers between a holding company and its wholly owned subsidiary may also be tax-neutral, but such transfers do not permit a step-up in the cost base for depreciation purposes.

Leveraged Acquisitions

Debt-funded acquisitions enable an interest deduction, enhancing post-tax returns. In a typical leveraged buyout, the acquiring company merges with the target post-acquisition, allowing the target to assume the acquirer’s debt – creating an interest shield and access to target cash flows.

Intellectual Property (IP) Migration

Migrating IP from India to a foreign affiliate is considered where significant future value is expected. Income from IP exploitation may thereby fall outside India’s tax net. Commercial substance, transfer pricing and valuation are key in such structuring.

Debt Versus Equity Funding

Funding through debt instead of equity infusion is a popular tax mitigation strategy. Hybrid instruments such as compulsorily convertible debentures (CCDs) offer interest deductibility (subject to thin capitalisation rules), potential treaty-based capital gains exemptions, and the possibility to convert into equity, providing flexibility in structuring returns.

Offshore Holding Structures

Indirect investments via offshore entities that hold Indian assets may be tax-efficient. Gains on exit could attract capital gains tax if the offshore entity derives substantial value from Indian assets, although tax treaty benefits may mitigate this exposure.

Business Versus Share Transfers

A share transfer is typically more tax-efficient for non-residents compared to a direct asset or business transfer, which may trigger higher tax and repatriation costs.

While structuring opportunities are available in India, tax authorities in India closely scrutinise arrangements that lack commercial substance. Accordingly, any structuring must be supported by robust documentation, arm’s length valuations, and adherence to both domestic and international anti-abuse frameworks.

Capital gains derived by foreign investors from the sale or other disposition of FDI are generally taxable in India. There is no blanket exemption under Indian domestic tax law; however, concessional tax rates apply depending on the nature of the investment and the holding period. Long-term capital gains (typically for listed shares held for more than 12 months, and unlisted shares for more than 24 months) are taxed at 10% or 20%, while short-term gains are taxed at 15% for listed shares and at regular corporate rates for unlisted shares or other capital assets.

Importantly, the application of tax treaties can provide significant relief. Certain treaties such as those with Singapore and Mauritius are beneficial with respect to sale of securities other than shares in an Indian company, and the treaty with the Netherlands may exempt capital gains arising from the sale of shares of Indian companies or other securities, subject to certain conditions and limitations (including the principal purpose test under the OECD’s MLI).

Gains from the disposition of interests in fiscally transparent entities such as partnerships or LLPs remain a grey area, as India does not automatically recognise the treaty eligibility of such entities. As a result, many foreign investors prefer to invest through a “blocker” corporation in a treaty jurisdiction to ensure access to treaty benefits, certainty of tax treatment and potential capital gains exemptions.

India imposes a mix of specific and general anti-avoidance rules aimed at curbing tax avoidance in FDI structures. These are embedded in the Income Tax Act, 1961 and are further supported by global initiatives such as the OECD’s MLI.

Specific Anti-Avoidance Rules

India requires that certain transactions be conducted at or above fair market value. If immovable property or securities are transferred at a discount to fair value, tax is triggered for both buyer and seller based on deemed income or sale consideration.

Transfer Pricing and Thin Capitalisation

Comprehensive transfer pricing rules apply to cross-border related-party transactions, and in certain circumstances to domestic unrelated transactions. These must comply with the arm’s length principle and are subject to detailed documentation and audit requirements. Thin capitalisation rules cap the deduction of interest on related-party cross-border debt at 30% of earnings before interest, taxes, depreciation and amortisation (EBITDA).

Corporate Residency

A foreign company whose “place of effective management” is in India may be considered a tax resident, bringing its global income into the Indian tax net.

General Anti-Avoidance Rules

General anti-avoidance rules (GAAR) give tax authorities broad powers to disregard or recharacterise transactions lacking commercial substance where the main purpose is to obtain a tax benefit.

Anti-Hybrid Rules and the MLI

India does not have standalone anti-hybrid rules. However, such arrangements may be challenged under GAAR. The MLI introduced the “principal purpose test” to deny treaty benefits for tax-motivated arrangements, reinforcing India’s anti-avoidance framework.

Overview of India’s Labour Law Landscape

Labour law in India is governed by both central and state-level legislation. While the central government enacts core laws on industrial disputes, wages and social security (eg, provident fund, employee insurance, and gratuity), state-specific Shops and Establishments Acts govern working conditions in commercial offices and service sectors. Reforms have been underway to consolidate various laws into four labour codes aimed at simplifying compliance and improving employer flexibility.

Collective Bargaining and Labour Representation

Collective bargaining and trade union activity are more common in traditional manufacturing and industrial sectors. Industrial establishments with 100 or more workers may be required to constitute a works committee (in the event that the relevant government issues any specific or general directions to that effect), comprising equal representation of workers and employers, to address disputes and service conditions. While white-collar unionisation is still evolving, recent developments in the IT/ITES sectors have seen increased organisation in response to layoffs and job insecurity.

Unionisation may impact employer flexibility in certain sectors. However, there are no India-specific labour restrictions that uniquely disadvantage foreign investors compared to domestic businesses.

Employee Compensation Framework in India

Employee compensation in India is primarily cash-based, with statutory requirements on minimum wages and permissible deductions. In addition to fixed salaries, employees are entitled to social security benefits such as:

• provident fund contributions;
• pension schemes;
• employee state insurance;
• statutory bonus; and
• gratuity (an end-of-service benefit).

Many companies also offer performance-linked incentives and equity-based compensation, such as employee stock option plans (ESOPs), particularly in the tech and start-up sectors.

Impact of Investment Transactions on Employee Compensation

Share sale

In a share sale, the employer-employee relationship remains unchanged, and there is no impact on compensation structures or employee rights, since only the shareholding of the company changes.

Asset/business sale

In contrast, an asset or business sale triggers more complex considerations. Indian law does not provide for an automatic transfer of employees. The buyer must obtain employee consent and ensure continuity of service and comparable/no less favourable terms of employment. If not, non-managerial staff, classified as “workmen”, with at least 240 days of tenure, will be deemed to be retrenched and may be entitled to statutory notice and retrenchment compensation under industrial dispute laws in India. Buyers must therefore carefully structure employee transitions to mitigate risks and preserve continuity during change-of-control transactions.

Apart from the employee rights in an acquisition as set out in 10.2 Employee Compensation, there are no mandatory works council or employee consultation requirements under Indian law for employee transfer in such transactions.

However, if a trade union is recognised at the establishment, it is prudent to engage in dialogue to mitigate resistance and ensure a smooth transition. Any collective bargaining agreement in place should also be reviewed, as it may impose additional obligations on the employer in the context of a transaction.

Intellectual property (IP) is an important consideration in India’s FDI screening process, particularly in sensitive sectors such as pharmaceuticals, defence and telecoms.

Where FDI falls under the government approval route, proposals are reviewed not just from a security or ownership lens but also for the strategic value of IP assets involved. In such cases, the Indian government evaluates aspects such as the location of IP ownership, potential technology transfer, and the economic benefit that the investment would bring to India – including access to innovation, local manufacturing or R&D capability.

Sectors such as pharmaceuticals are especially scrutinised where the transaction involves control over patented drugs or manufacturing know-how, as the government assesses whether the deal may affect access to essential medicines or impact domestic industry interests.

There is no standalone IP review regime, but IP considerations form part of the broader FDI approval process where applicable.

India has made significant strides in strengthening its IP regime and is increasingly recognised as an investor-friendly jurisdiction for IP protection. India has a robust statutory framework across all major IP categories (including patents, trade marks, copyrights and designs), supported by a growing body of progressive judicial decisions. Indian courts have actively adapted to modern challenges, demonstrating a willingness to tackle complex IP infringement cases with creative and business-friendly interpretations.

That said, certain sectors present enforcement and protection challenges. In software and pharmaceuticals, patentability remains restricted. For example, computer programs per se are excluded from patent protection, though courts have clarified that inventions with demonstrable technical effects may qualify. Similarly, Indian patent law restricts patents on new forms of known substances unless enhanced therapeutic efficacy is proven – an area particularly relevant to pharmaceutical applicants. Separately, there is no statutory protection for trade secrets, and protections for trade secrets are governed by general contractual and equitable principles, which may present limitations for tech-oriented businesses.

In terms of enforcement, while India’s IP enforcement mechanisms are improving, damages awarded for IP infringement remain modest compared to jurisdictions such as the USA. However, recent cases such as the Delhi High Court’s decision in a trade mark infringement suit against Amazon, where the court directed it to pay an amount of approximately USD39 million (approximately INR3.4 billion) as damages (among the highest damages awarded) to Beverly Hills Polo Club, show that courts are becoming more assertive.

Prior to the enactment of the Digital Personal Data Protection Act, 2023 (DPDPA), India did not have a standalone data protection law. Data privacy was governed through a combination of sectoral regulations and judicial interpretations under the Information Technology Act, 2000 and the Indian Supreme Court’s recognition of privacy as a fundamental right. The DPDPA, introduced in August 2023, is India’s first comprehensive data protection legislation. However, the DPDPA has so far not been notified by the central government, and therefore is not yet in force.

Extraterritorial Scope of the DPDPA

The DPDPA applies to all entities – Indian or foreign – that process personal data in connection with offering goods or services to individuals in India, thereby having clear extraterritorial reach. This means that foreign investors with no physical presence in India may still be subject to the law when handling Indian personal data.

Enforcement and Penalties

Enforcement is vested with the Data Protection Board of India, which has broad investigative powers and discretion in determining penalties. The DPDPA provides for significant monetary fines – up to INR2.5 billion (approximately USD30 million) – depending on the nature, gravity and frequency of the violation. Importantly, these penalties can far exceed actual economic loss suffered by the data principal, reflecting a strong deterrent intent.

Given the DPDPA’s scope and compliance burden, foreign investors should carefully assess their data flows involving Indian residents, implement robust privacy governance frameworks, and monitor enforcement trends. While rule-making under the DPDPA is still ongoing, businesses should start preparing now to avoid regulatory risk and reputational exposure in a rapidly evolving enforcement landscape.