How to Start a Software Development and IT Services Company In India

Published On: Dec 6, 2022Last Updated: Sep 18, 20236.4 min read

India has emerged as a global hub for software development and information technology-enabled services businesses. While TCS, Infosys, Wipro, and Tech Mahindra are globally known brands, there are many other small and medium scale IT and software companies that have resulted in this growth. It is a very common practice for other nations to outsource their IT and software development requirements to the Indian IT companies. Besides, the Indian IT sector is estimated to make 250 billion dollars in revenue, as a result of these offshore development projects. Further, this acts as a motivation to more people opting to start IT company in India. If you’re someone looking to start software development business in India, carry on reading! This article covers how to start a software company in India and how to take measures to stay compliant after online company registration.

Table of Contents

  • Business Incorporation
  • TAN (Tax Deduction and Collection Account Number)
  • Shops & Establishment (Gumastadhara) Registration
  • Professional Tax Payment
  • GST Registration and Letter of Undertaking
  • EPF and ESIC Registrations
  • Other Good to Have Registrations
  • Requirements for subsidiary of a foreign parent company
  • Business Incorporation

    In India, you have an option of selecting the most appropriate business structure for your specific needs. To start a software or IT company in India, you can choose from any of the following options: 

    • Private Limited Company;
    • One Person Company; 
    • Limited Liability Partnership; 
    • Partnership firm; and 
    • Sole Proprietorship. 

    You can choose the right business structure after keeping in mind your specific needs related to capital requirements, management, liabilities, and more. 

    TAN (Tax Deduction and Collection Account Number)

    Under the Indian laws, businesses need to deduct and collect tax on certain payments. This mandate is also applicable to people wanting to start software company in India. These payments includes: 

    • Employees;
    • Vendors; 
    • Suppliers; and
    • Contractors. 

    The entire process related to TAN is governed by the Income Tax Department of India. Ideally, you can make the TAN application during the company registration process itself. 

    Shops & Establishment (Gumastadhara) Registration

    The rules regarding shops and establishments differ on the basis of state legislations. It refers to the registration of a business with the local municipal corporation. All persons, entities or individuals opting to start a commercial shop or establishment need to have this registration. So, if you are wanting to start IT Company or software development company in India, you also need to have the Gumastadhara registration. 

    Professional Tax Payment

    PT or professional tax refers to the direct tax that an employer deducts from the gross salary of the employee and deposits with the local authority. The amount of PT differs for people on the basis of various factors. So, before you can start your software company in India, you also need to get your professional tax registration. 

    GST Registration and Letter of Undertaking

    GST registration is mandatory for all business owners whose annual turnover limit exceeds the following: 

    • Supply of goods worth INR 40 Lakhs; and
    • Supply of services worth INR 20 Lakhs. 

    Usually after starting IT services company in India, you will need to have the GST registration. However, if you start a software company in India and don’t fall under the category of mandatory registration, you can opt for voluntary registration and claim benefits of Input tax credit.

    Also Read: What is a software development agreement?

    Letter of Undertaking (LUT)

    Export of services from India has the benefits of having a zero tax rate under GST. All you need to do for this purpose is furnish the Letter of undertaking under GST. Hence, if you are looking to start a software company in India you need to keep this registration in mind. Hence, the reason behind this is the fact that there is a big trend of outsourcing IT services and software development from India. 

    Employee Provident Fund (EPF) and Employees’ State Insurance (ESIC) Registrations

    PF and ESI are governed by the Ministry of Labour and Employment, Government of India. Businesses having twenty (20) or more employees need to register for the EPF Scheme. Such limit for ESI Scheme Registration is ten (10) or more employees. Additionally, contractors, consultants, and interns are excluded from the definition of employees.

    Other Good to Have Registrations

    • Udyam Registration (MSME Registration)

      It is a registration with the Ministry of Micro, Small, and Medium Enterprises in India. It provides you with a recognition certificate and a unique number. With this registration, you can take benefits available to MSMEs which include MSME loans, subsidies on patent and trademark registrations, overdraft interest rate exemption, protection against delayed payments, and various other government subsidies. Further, if you start a software company, you will have a lot of overhead expenses. Besides, these MSME benefits will help you in bearing certain costs. 
    • Startup India (DPIIT) Registration

      It is a flagship program of the Department for the Promotion of Industry and Internal Trade (DPIIT). There are many benefits of startup India registration. Further, DPIIT recognition is only available for innovative businesses. Hence, if you start a IT company or a unique software development company, you must apply for DPIIT recognition.
    • Trademark Registration

      While you work hard on building a brand, it is important to protect that. Trademark Registration protects business or product name, logo, slogan, and anything that carries a branding element. It makes way for exclusive ownership rights and restricts all others from its usage. It benefits the owner of the registered mark as well as creates an Intellectual Property for business.

    Also Read: Terms of Service for Online Businesses

    Requirements for opening a subsidiary of the foreign parent company – Offshore development center

    India is a popular choice for global IT services and software development companies to open offshore offices. India offers a cost-effective yet very skilled talent pool. Top companies like Intel, Cognizant, Google, IBM, and SAP have large development centers in Indian cities like Bangalore, Pune, Hyderabad, Delhi NCR, and Mumbai. Setting up a foreign company in India is easy. Except for certain sectors that attract equity cap, 100% ownership in an Indian subsidiary company for a foreign parent business is allowed. Experts at have assisted numerous businesses to open their India operations through Subsidiary Company Registration in India.

    Here are a few additional requirements for registering a company in India by foreign residents:

    • Firstly, a minimum of two (2) directors must be present to register a company in India. And at least one (1) needs to be an Indian resident.
    • In most cases, the Reserve Bank of India (RBI) allows Foreign Direct Investment (FDI) through an Automatic Route and doesn’t require any prior government approval.
    • Government Route applicable to sector-specific investment limits need prior approval of the Government of India, Ministry of Finance, and Foreign Investment Promotion Board (FIPB).
    • Comply with Foreign Direct Investment (FDI) and Foreign Exchange Management Act, 1999 (FEMA) guidelines; and
    • Lastly, establish a fair and compliant Transfer Pricing practice. Transfer Pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control.

    PRO TIP: End User License Agreements form a very important part of all software development companies. Read all about End User License Agreement here.


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    Shrijay Sheth
    About the Author

    Shrijay Sheth

    Shrijay, co-founder of, is best known for his business acumen. On this platform, he shares his experiences backed by a strong understanding of digital commerce businesses. His more than a decade-long career includes a contribution to some of the highly successful startups and eCommerce brands across the globe.

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