If a foreign company/ consultant operates in India without registering as required under the Companies Act, 2013, and other applicable laws, there can be serious legal and financial consequences. Here’s a breakdown of the key consequences:
⚖️ Legal Consequences
- Violation of Section 380 of Companies Act, 2013:
Foreign companies are required to register within 30 days of establishing a place of business in India. Non-compliance is a breach of the law. - Penalties Under Section 392:
- Company: Up to ₹1,00,000 fine, and ₹50,000 per day of continued default.
- Officers in default (including local representatives): Similar penalties may apply.
- Ineligibility to Enforce Contracts:
An unregistered foreign company may face challenges enforcing contracts in Indian courts. - No Legal Standing:
The business may not be recognized as a legal entity in India, making it difficult to file or defend legal claims.
💸 Financial and Tax Implications
- Taxation Issues:
- Unregistered businesses are at risk of being taxed at the highest slab.
- Possible denial of benefits under Double Taxation Avoidance Agreements (DTAA).
- Penalties for non-filing of tax returns or non-payment of GST/TDS.
- Permanent Establishment Risk:
If the company has a fixed place of business or dependent agent in India, the Indian income tax authorities may treat it as having a Permanent Establishment (PE) — leading to higher tax liability and retrospective assessments.
📉 Reputational and Operational Impact
- Banking Restrictions:
Indian banks may not allow opening or operating a business bank account without proper registration. - Difficulty in Hiring or Contracts:
Vendors, employees, and service providers may refuse to deal with an unregistered entity. - Barrier to Investment or Expansion:
Lack of registration can block funding from Indian investors or delay approvals from government agencies.
✅ Summary Checklist of Consequences
| Category | Consequence |
|---|---|
| Legal | Fines, inability to enforce contracts |
| Tax | Higher tax rates, penalties, denial of DTAA relief |
| Operational | No bank accounts, hiring issues |
| Reputational | Loss of credibility, compliance red flags |
