No prior permission of the Govt. of India is required for setting up IT software and services in the country. An individual Indian citizen can set up IT software and services in India through the following ways.

• As an individual / Proprietor.
• As a partnership / firm / trust.
• As a Company registered under Indian Companies Act 1956

New Schemes to support IT

Domestic Tariff Area

When the primary focus is to sell, in the Indian domestic market - these units can be set up anywhere in India.

• All normal laws apply
• No concession is available on import duties
• Exports are permitted

Under the special scheme EPCG (Export Promotion Capital Goods Scheme) of the Ministry of Commerce, zero duty import of capital goods against export obligations is allowed:

Special Economic Zones (SEZs)

• SEZs areas are free from the rules and regulations governing imports and exports in export production.
• SEZ areas give full flexibility of operations and the import duty free capital good and raw material.
• Movement of goods to and fro between ports and SEZ are unrestricted and the entire production in the area has to be exported.
• The first two SEZs were set up in Positra in Gujarat, Nangumery in Tamil Nadu and in various other parts of India.

Export Processing Zones (EPZ)

• Located in Cochin, Falta, Kandla, Chennai, Noida, Santa Cruz, Vishakhapatnam, and Surat.
• Units in these zones has zero import duty, special 10 years income tax rebate and availability of space.
• No restriction on quantity of domestic sales.

100 percent Export Oriented Unit (EOU)

EOU is similar to EPZ, in that it need not be physically located at EPZ.

Software Technology Parks of India (STPI)

• Special scheme under the Ministry of Information Technology, located at Noida, Navi Mumbai, Pune, Gandhinagar, Hyderabad, Banglore, Chennai, Bhubaneshwar, Jaipur, Mohali, Trivandrum etc.
• Zero import duty on all capital goods.
• Availability of infrastructure facilities like high-speed data communication links etc.

A foreign company or individual planning to set up business outsourcing in Indian IT can do it as:

• As a Foreign Company through a Liaison Office / Representative Office, Project Office or Branch Office.
• As an Indian Company through a joint venture or a wholly owned subsidiary
• Foreign Company is one that has been incorporated outside India and conducts business inside India. And these companies must comply with the provisions of Indian Companies Act 1956.

Liaison Office / Representative Office:

• The ERA Act regulates the opening and operation of such offices while the RBIs (Reserve Bank of India) approval is needed for opening these offices.
• These offices are not permitted to conduct any kind of business or commercial activity or to earn any income here.
• Commercial activities must be limited to the collection and transmission of information between the overseas Head Office and the prospective Indian customer.
• The overseas head office, through inward remittance of Foreign exchange, should meet the expenses of these offices.
• Permission for these offices is granted initially for 3 years and may be extended from time to time.

Project Office

• With the approval of RBI, overseas companies are planning to execute specific projects in India, which can set up temporary software projects or site offices in India.
• This is generally for Government approved projects.

Branch Office

Foreign companies engaged in manufacturing and trading activities abroad can set up Branch Offices for business outsourcing in India with the permission of RBI, for the following purposes.

• To represent the parent company / other foreign companies in various matters in India like buying / selling agents.
• To conduct research work in the area in which the parent company is engaged, provided the results of the research work are made available to Indian Companies.
• To undertake export and import trading activities.
• To promote possible technical and financial collaborations between the Indian companies and overseas companies.
• A branch office is not permitted to carry out manufacturing activities on its own but is permitted to sub contract these to Indian manufacturers.

As an Indian Company

• Through incorporation of a company under the provisions of Indian Companies Act 1956, a foreign company can commence operations in India.
• Foreign equity in such companies can be up to 100% depending upon the business plan of the foreign investor, prevailing investment policies of govt. of India and on the receipt of requisite approvals.

Joint Venture with an Indian partner

• By forming strategic alliances with Indian partners, foreign companies can set up their operations in India.
• This will benefit the foreign investor in the following ways:
• Available financial resources of the Indian partner.
• Already established distribution / marketing set up of the Indian partner.
• Already established contacts of the Indian partner that help smoothen the process of setting up operations.

Approval of foreign investments

• Automatic approval Foreign equity up to 50%, 51% and 74 % are given automatic approval by RBI, if they fulfill the prescribed parameters (in certain industries) specified by the Government of India.
• Govt. approval Foreign equity exceeding 50%, 51% or 74% in both specified and unspecified industries needs prior specific approval from Foreign Investment Promotion Board (FIPB).

Wholly Owned Subsidiary

• If a foreign investor holds 100% share of an Indian IT Company it has the right to set up a wholly owned subsidiary.
• Prior approval from FIPB is needed.
• Only holding operation is involved and all subsequent/downstream investments to be carried out require prior govt. approval.
• Proprietary technology is sought to be protected or sophisticated technology is proposed to be brought in.
• At least 50% of the production is to be exported.
• Proposals for consultancy.
• Proposals for infrastructure like roads, industrial model towers, industrial parks or estates.

Several means can be employed for hitting the jackpot of business outsourcing in India. The various ways of tapping Internet usage and setting up one's own company is discussed above.