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India’s rapidly growing economy and business-friendly environment provide numerous opportunities for domestic and international companies to expand their operations. One popular method for expansion is by forming a subsidiary, allowing companies to establish a separate legal entity under the umbrella of their parent company. In this article, we will explore the process of forming a subsidiary of a private company in India, with a focus on the Companies Act, 2013, and the Income Tax Act, 1961, considering the revisions and amendments made to the Acts.

I. Understanding the Companies Act, 2013:

The Companies Act, 2013 replaced the Companies Act, 1956, and introduced significant changes to the legal framework for company incorporation in India. Let’s delve into the key requirements under the current act.

Eligibility Criteria:

Under the Companies Act, 2013, a private company is eligible to form a subsidiary in India. A private company must have a minimum of two shareholders and two directors, with at least one director being an Indian resident.

Obtaining Director Identification Number (DIN):

Before incorporating a subsidiary, the proposed directors must obtain a Director Identification Number (DIN) from the Ministry of Corporate Affairs (MCA). The DIN is a unique identification number that enables individuals to act as directors of Indian companies.

Obtaining Digital Signature Certificates (DSC):

Digital Signature Certificates (DSCs) are required for the electronic filing of documents with the MCA. The proposed directors must obtain DSCs from government-approved certifying agencies.

Name Reservation and Incorporation:

Once the DIN and DSCs are obtained, the next step is to reserve a unique name for the subsidiary. The parent company must ensure that the proposed name complies with the naming guidelines prescribed by the MCA. After name approval, the incorporation process begins, which involves filing the necessary documents, such as the Memorandum of Association and Articles of Association, with the Registrar of Companies (RoC).

II. Complying with the Income Tax Act, 1961:

In addition to the Companies Act, compliance with the provisions of the Income Tax Act, 1961 is crucial for the subsidiary’s operations and taxation.

Permanent Account Number (PAN):

The subsidiary must obtain a Permanent Account Number (PAN) from the Income Tax Department. PAN is a unique ten-digit alphanumeric identifier used for various taxation purposes in India.

Taxation Aspects:

The subsidiary will be subject to income tax under the provisions of the Income Tax Act, 1961. It is essential to comply with tax-related obligations, including filing annual tax returns and paying taxes on time. Engaging a professional tax consultant can ensure compliance with all tax regulations.

Transfer Pricing Regulations:

If the subsidiary engages in transactions with its parent company or other related entities, it must adhere to transfer pricing regulations. These regulations prevent the shifting of profits to low-tax jurisdictions and ensure arm’s length pricing in such transactions.


Forming a subsidiary of a private company in India requires careful adherence to the legal and regulatory framework established by the Companies Act, 2013, and the Income Tax Act, 1961, considering the revisions and amendments made to these acts. This article provides a comprehensive overview of the process, emphasizing the eligibility criteria, incorporation procedures, and key tax considerations. It is crucial for companies seeking to establish a subsidiary in India to consult legal and tax professionals to ensure compliance with the latest provisions and make informed decisions throughout the formation process.

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May 2024