How to set up an IT Company in Ahmedabad

How to Setup an IT Company in Ahmedabad

IT industry in Gujarat

With a CAGR of 48% in IT investments over the decade from INR700.0 crores in 2005-06 to INR35,200.0 crores in 2015-16, the popularity of the Gujarat state in the IT sector has reached a new high. In 2018, the state accounted for more than 5,500 ICT companies, which includes 10% large entities, 30% medium entities, and 60% small enterprises. Let’s see how to Set up an IT Company in Ahmedabad.

The Gujarat government is working tirelessly to promote the development of the sector with positive policies and regulations that can encourage the incorporation of IT companies in the state. Specifically, the development of the state as an SME industrial ecosystem along with other new-age concepts of artificial intelligence, robotics, the internet of things, and machine-to-machine can give the required impetus to the IT industry growth. The proposal for the development of a technology hub in Ahmedabad can provide the right direction needed to Set up an IT Company in Ahmedabad and create a vibrant IT ecosystem in the city.

Information Technology (IT) and IT-enabled Services (ITeS) were accorded bonafide industry status on October 14, 2019, in the Gujarat state to improve the ease of doing business. Such a status means more development opportunities for the IT industry, which will result in an increased generation of employment. The state government’s ‘Gujarat State New IT Policy of 2016-21’ aims to develop a robust IT/ITeS ecosystem that contributes to the prosperity of the state and hence the nation. The key objectives of this policy were:

  • To leverage IT/ITeS industry for socio-economic development of the state, to promote the establishment of IT/ITeS companies that address both urban and rural markets, and to create capacity in these sectors for employment generation, skill-building, and increasing the exports
  • To become a preferred destination for the establishment of MSMEs; achievement of excellence in research and development, entrepreneurship, and innovation; and setting up of educational institutes for studies and innovation in IT
  • To develop partnerships with top-ranked organizations and companies in the IT/ITeS sector globally
  • To empower the youth through the development of IT skills and hence more employment opportunities
  • To provide a feasible and industry-friendly environment for the establishment, operations, and growth of IT companies in the state

Set up an IT Company in Ahmedabad – an ideal destination for IT companies

Ahmedabad, lying on the banks of the Sabarmati River, is the largest city in Gujarat. It is one of the major metropolitan cities in the country, with a good amalgamation of historical significance and modern developments. It has a well-connected network with other major cities of the country via roads, railways, and airways.

Ahmedabad contributes a lot to the overall economy of the state. It recorded a GDP (by PPP) of USD68.0 billion in 2017, with a rank of eight among the top Indian cities. It thrives mainly on the textile, gems and jewellery, chemicals, food processing, and pharmaceutical industries. Apart from being the centre of trade and commerce, Ahmedabad has also become a hub for higher educational institutions and information technology companies in recent times.

Some of the key factors that contribute to making Ahmedabad a preferred destination for IT companies are as follows:

  • Lower cost of real estate and superior quality of physical infrastructure, which enables companies to reduce their costs of operations
  • The compensation provided to employees in Ahmedabad is at a lower level as compared to many other cities in India
  • The state has one of the biggest optical fiber networks in India, with a network of more than 60,000 KMs
  • A strong network of non-resident Gujaratis (NRGs) in other countries that can be used to explore business opportunities in the IT/ITeS sector
  • Few policy initiatives including waiving off/concession of stamp duty for IT/ITeS firms, exemption from duty on electricity for five years from set-up, simple labor laws, and exemption from power cuts
  • Availability of financial incentives through the development of SEZs such as capital subsidies on a one-time purchase, concession on registration fee and stamp duties for the first transaction, lease rental subsidies and interest subsidies for five years, and GST incentives
  • Easy access to GIFT City – a global financial and IT services Centre of Excellence with targeted business segments of Software development, Artificial Intelligence, Robotics, Internet of Things, Business intelligence, Mobile Platforms, Communications technology, Consulting, Data Analytics, Data/information management, R&D, Web Development, and Games in the IT services
All these above-mentioned factors promote and encourage the entrepreneurs to develop IT and ITeS companies in the city, thereby contributing to the growth of the state. The entrepreneurial mindset and the ever-increasing IT capability of the youth of Ahmedabad give the required impetus to the establishment of IT companies in Ahmedabad. However, the question is how to set up an IT company in Ahmedabad? What are the rules and regulations to be followed and registrations required to operate in the IT/ITeS industry? What are the criteria to be fulfilled before setting up a base in Ahmedabad? We provide the answers here:

Registration procedure for IT companies: How to Set up an IT Company in Ahmedabad

The key steps for registration and incorporation of an IT company in Ahmedabad are as follows:

Deciding on the legal structure of the company

The first step is to decide on the legal structure in which the owner/s intends to operate the company. The options available include One Person Company, Limited Liability Partnership, Private Limited Company, Partnership Firm, and Sole Proprietorship Firm. Entrepreneurs thinking to Set up an IT Company in Ahmedabad choose the legal form depending on the business structure and the vision they intend to achieve. The comparison between various legal structures must be made based on the prerequisites, costs involved, advantages, and disadvantages.

Selecting the right business structure is a critical step since an entity’s income tax returns depend on it. The legal compliances that the entity has to abide by annually depend on the legal structure. Furthermore, some legal structures of business are observed as more investor-friendly than the other structures because the investors find the former to be generating more returns. Therefore, every entrepreneur, before registration and  incorporation of the company, must think carefully about the type of business structure he/she intends to form. The decision is based on the following factors and principles:

The number of owners/partners in a business:

If an individual is ready to bear all the costs and risks, then a sole proprietorship works best. In this case, the individual gets to enjoy all the returns and benefits from the business and also can keep the entire business under his/her control. However, if he/she thinks to share the costs and risks and seek investments from other individuals, then LLP or private limited company would be the best structure. In this case, the control and decision-making ability are also shared along with the profits.

Income tax rates imposed on the business type:

The income tax rates are different for different legal business structures. In the case of a sole proprietorship firm, the individual’s income is combined with the business income. On the other hand, in the case of a private limited company or partnership firm, the tax rate is different and applicable only to the business income.

Risks of a business:

Legal structures such as LLPs and companies have limited liability, meaning that whatever shares a member holds in the business or the amount of contribution he/she has in the company, the liability of each member is also limited to that share only. The personal assets are not impacted by the business liability. The scenario is different in the case of HUF, a sole proprietorship firm, and partnership firm because these have unlimited liability. It means members or partners contribute for the entire amount in the proportion of profit sharing ratio; members have to withstand the other members’ wrong decisions and transactions equally.

Multiple compliances and increased complexities:

Private limited companies and LLCs are required to comply with a multitude of reporting requirements and record-keeping, which becomes difficult and complex to manage. In the case of sole proprietorships and partnerships, the compliances reduce in number.

Initial investment:

If the individual intends to have less investment initially, then a sole proprietorship firm, HUF, or partnership works better. If high initial investment and high compliance costs are not a cause of worry for the individual, then an LLP, a private limited company, or a one-person company is the best to opt.

Selecting the business name or company name or brand name

Once the legal structure is decided, the next step is to decide on the name of the entity before moving ahead with the registration process. However, entities are required to follow few rules with respect to company name. The name must always be searched on the trademark website and the website of the Ministry of Corporate Affairs. It must be a unique name and not copied from the name of any other company. Following this, entities must book the domain name.

The company name must be in three parts: The keyword, which is the brand name, followed by the business activity word, which shows the key business activity of the entity’s operations and last is the structure word, which shows the type of company – LLP or private limited or any other. The keyword (brand name) must not be the same as any other company’s name.

Acquiring DSC and applying for DIN

After the selection and approval of the name of the company, it becomes essential to acquire a digital signature. Since the process of registration of a company is online, it is essential to obtain a digital signature for the incorporation process. Subscribers and directors are mandated to obtain and possess a Digital Signature Certificate (DSC). Once DSC is obtained, the next step is to apply for the Director Identification Number (DIN). An individual intending to be a director in a company must apply for DIN. For this, the individuals are required to fill and submit the form DIR-3 or through SPICe forms.

Preparation and submission of required documents

For forming any type of company in the country, a host of documents are necessary to be submitted along with the application form. The documents include the following:
  • Pan card copy of each Indian director
  • ID proof of each director, which may be anyone from Aadhaar Card, Election Card, Driving License, and Passport Copy. Passport copy is a must for Foreign Director
  • Residence address proof of each director, which may be anyone from up to two months old Bank Statements, Bank Passbook with entries of the last two months, Latest Electricity Bill, Postpaid Mobile Bill, and Landline Bill
  • 1 color photograph of each director
  • Place of business proof in Ahmedabad, which may be anyone from Electricity Bill, Landline Bill, Mobile Bill, and Gas Bill
  • An affidavit from each director on INR 300.0 stamp papers
Proofs of Foreign Director needs to be apostilled by respective country’s Apostilation Authority. Along with the submission of these documents, the e-form is filled on the Ministry of Corporate Affairs (MCA) portal. The applicant must also draft the Memorandum of Association (MoA) stating the objectives of the company and the Articles of Association (AoA) stating the rules and regulations of the company.

Certificate of incorporation

Once the entire set of required documents is submitted along with the application on the MCA portal and is found to be correct as per the regulations, it takes around 10-15 days for formal registration of the company. A Certificate of Incorporation is sent to the applicant as proof of registered company. Fulfilling the requirement to comply with other regulatory obligations such as PAN, TAN, GST, Professional Tax, ESIC Registration, Bank Account Opening, and any other Once the registration is complete, there are a multitude of other formalities to be completed. These include:
  • Obtaining TAN card: TAN stands for Tax Deduction and Collection Account Number. It is a unique 10-digit alphanumeric number allotted by the Income Tax Department (ITD) of India
  • Obtaining GSTIN number: Goods and Services Tax Identification Number (GSTIN) or GST Number is a unique identifier assigned to a business or person registered under the GST Act
  • Obtaining documents that obey the act of shop and establishment if required
  • Obtaining PAN (Permanent Account Number) from the ITD of India
  • Obtaining Professional tax registration: Professional tax is a state-imposed tax applicable to the income earned by employees for rendering their services. A company employing individuals is required to get professional tax registration
  • Opening bank account with a preferred bank to carry out all the financial transactions through it