Starting and Running an IT/Software business in India

Starting and Running an IT/Software business in India - Here’s the big picture . With major global developments in Big Data, Internet of Things, SaaS based software products, the future of IT and software businesses is brighter than ever. But India presents a unique opportunity with its focus on innovation, low costs, skilled manpower and a supportive business environment. While India’s GDP is growing at a high rate of 7-8% in 2024-25, the IT and IT-related sectors are growing at double the rate of economic growth in India. In this post, we bring to you the big picture of starting and running a successful IT and software business in India. 
Bharat 6G Vision and Digital India 
In line with the Digital India initiative, India is developing and planning to deploy 6G technology by 2030, as part of the Bharat 6G Vision. This initiative aims to establish secure, intelligent, and widespread connectivity, which could dramatically transform the Indian economy?. This creates new business opportunities for startups in the IT, software and hardware related fields in India. 
Regulatory aspects of India’s software and IT business industry 
All services relating to IT, software and general policy oversight for technologies are controlled by the Ministry of Electronics and Information Technology. This nodal agency frames schemes and gives grants for research. The Ministry also represents India in the Global Partnership on Artificial Intelligence (GPAI). It also administers the Human Centered Computing (HCC) Division that engages in Technology Development for Indian languages. The Digital India Corporation has also been set up by the Ministry of Electronics and Information Technology (MeitY), Government of India, to innovate, develop and deploy ICT and other emerging technologies for the benefit of the common man. 
Businesses in this space have to mandatorily comply with the following laws:

The Information Technology (IT) Act, 2000 - defines various technological developments, e-commerce and electronic data exchange, prohibits data confidentiality breach and protects privacy.

Digital Personal Data Protection Act, 2023 - provides for personal data protection mechanism, obligations of data collection agencies and enforcement measures

The Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 - provides norms for protection of sensitive personal data, collection and anonymizing data

RBI and Ministerial Regulations - that provide for mandatory regulations such as localized storage of payment data of Indian users, VPN providers are also required by the Ministry of Electronics and IT to provide details of its users to the government for a period of five years.

Other laws

The Payment and Settlement Systems Act, 2007 for e-commerce payments

Foreign Direct Investment (FDI) Policy for E-commerce, 2018, provides guidelines for foreign investment in e-commerce companies operating in India.

Importer Exporter Code (ANF 2A)issued by the Directorate General of Foreign Trade(DGFT), Ministry of Commerce and Industry.

Minimum Wages Act, 1948 and other labor rules as applicable within the state of operation

Operating in Software Technology Parks in India and Electronic Hardware Technology Parks  
A Software Technology Park (STP) acts as a single-window in providing services to the software exporters. The services rendered by STP for the software exporters mainly include statutory services, data communications services, incubation facilities, training and value-added services, all aimed at aiding the growth of tech startups in the IT space.
At present, a total of 63 software technology park centers/sub-centers are operational across the country, out of which 54 centers are in Tier II and Tier III cities.

Incubation services and modern facilities - An STP has plug and play facilities for startups. This equips small and medium software companies to access state of the art infrastructural facilities without a large capital outflow to create them. This includes :

Ready to work-office space with reliable internet connectivity at attractive tariffs.

Access to tools, labs, mentoring, marketing etc. where available

High-Speed Data Communication (HSDC) services through a developed state-of-the-art HSDC network called SoftNET for software exporters.

Security services - Software Technology Parks are also equipped with Information Security Audit Service to companies by warranting them a digitally secured ecosystem to conduct their business in a seamless manner. A CERT-In empaneled organization, offers Vulnerability Assessment and Penetration Testing (VAPT) to help evaluate and mitigate risks of vulnerability exploitation.
 Next Generation Incubation Scheme for software companies
The aim of NGIS is to provide a vibrant software product ecosystem in Tier-II cities to complement the robust IT Industry for continued growth, new employment and to enhance competitiveness. NGIS is being launched from 12 Tier-II STPI locations viz. Agartala, Bhilai, Bhopal, Bhubaneshwar, Dehradun, Guwahati, Jaipur, Lucknow, Prayagraj, Mohali, Patna and Vijayawada.

Specific benefits for IT or IT enabled services companies in GIFT City, Gujarat
Export of computer software and services that includes IT, IT enabled services and business process outsourcing grew at 12.2% and reached $193 billion in the year 2022-23. In order to encourage exports and domestic manufacturing of software and IT products and services, the government has extended special benefits to IT service startups setting up their units in the GIFT City SEZ in Gujarat. 
These are available for setting up R&D facilities of IT companies, BPO and KPO units, operation of E-Commerce companies, setting up vertical IT parks as well as web-based, ERP and software application development. 
Some of the key advantages for setting up IT units in GIFT City are:

Stamp duty, registration and conversion fee exemption for developers and units

Construction Subsidy of 300 per sq. ft of built-up area for Vertical IT/Ites Parks

Reimbursement of Electricity duty and Rs. 1 subsidy on tariff

Reimbursement of PF contribution by Employer. This includes 100% of EPF amount paid in case of female employees and 75% of EPF amount paid in case of male employees.

Lease rental subsidy

Capital subsidy is available for hardware, pietworking etc. for up to 1 crore

Support to R&D Institutions - This includes assistance up to 60% of the project cost, excluding land, subject to a maximum of Rs 50 lakhs

Market Development Support - This is available to IT MSMEs at the rate of 50% of expenditure towards Creation of stall and on rented space.

Patent Assistance - Support for applying for patents is available at the rate of 50%, subject to a ceiling of 2 lakhs per patent for domestic patents and 5 lacs per patent for international Patents.

Centre for Entrepreneurship - Building startups in emerging tech sectors 
In order to boost innovation in Internet of things (IoT), Blockchain, FinTech, Artificial Intelligence (AI), Augmented & Virtual Reality (AR/VR), ESDM, Data Science & Analytics, Medical Electronics & Healthcare, Gaming & Animation, Machine Learning, Cyber Security, DroneTech, LegalTech etc. The Ministry of Electronics has embarked on launching Centers of Excellence in specific domains pan-India.
These offer integrated IPR, incubation services, partnerships with academic and government, access to Sandbox for testing softwares, data analytics labs apart from physical infrastructure in order to boost innovation in the tech and software space in India.  
These include:

Electropreneur Park in Delhi University Campus

Internet of Things OpenLab, Bengaluru

FinBlue Centre of Entrepreneurship, Chennai

Neuron, Mohali

MOTION, Pune

Virtual & Augmented Centre of Entrepreneurship (VARCoE), Bhubaneshwar

Electropreneur Park, Bhubaneswar

IMAGE, Hyderabad that focuses on gaming and VFX startups

MedTech Centre of Entrepreneurship, Lucknow

Apiary, Gurugram

FASAL, Akola for internet of things in Agriculture.

OctaNE, in eight capital cities of North East - for animation, data analytics, IT applications, gaming, entertainment and drone technologies etc. in North East

Pre-registration process requirements 
Intellectual property registration 
Domain Name - In today’s digitized world, securing a domain name for your tech company is of foremost importance. Courts when deciding cases of trademark infringement often look at who began to use a disputed domain name first. Hence, first usage of a name can go a long way in determining ownership rights over it. 
Trademark and Copyright Registration 
Copyrights Act, 1957 extends the protection of copyrights to software by including codes and computer programs in its ambit through an amendment that added Sections 65A and 65B. It also has penal provisions to prevent piracy and infringement against a software holder. Penal provisions are also present under the Information Technology Act, 2000 that penalize a person or a company assisting in counterfeiting of software. 
Securing a trademark can lead to better brand recognition, visibility and also serve as a differentiator for customers. 
Patent Registration on Technology
Patents are the key point of negotiation with investors when it comes to software businesses. A business with a registered patent is viewed more favorably by investors. For inventions of a scientific nature, it is advisable to seek a patent registration at the earliest as the average time taken from filing to the actual grant is about five years in India.
Legal Requirements for incorporation of company

Obtain Director Identification Number and Digital Signature Certificate for all the directors of the business. Additionally, copies of Aadhar card, PAN Card of the Directors are required.

Fill the SPICE+ form, which combines formalities of 13 services by three different ministries (Ministry of Corporate Affairs, Ministry of Labor, and Department of Revenue, Ministry of Finance) for name reservation, incorporation, PAN allocation etc. Using the AGILE PRO - S form, application for registration of GSTIN, ESIC and EPFO number, opening of bank account etc. can be completed.

Draft the Memorandum of Association and the Articles of Association that align with the company’s objectives, future prospects for growth and ultimate aim.

Apply for a new PAN (permanent account number) and TAN (tax deduction and collection account number) for the new company.

Details such as address of the company, number of subscribers to Memorandum of Association, stamp duty and other information will also be required by the Ministry of Corporate Affairs.

Navigating agreements for your software and IT business

Software License Agreements

A carefully drafted software license agreement can save your business from legal hassles at a later stage. It should typically cover the duration of license, rights of licensor and licensees, payment of royalty and clauses that specify the grounds for rescinding the license.

Insurance agreements

It is essential for software companies to obtain insurance for technical snags as well as natural disasters that can wreak havoc on back-end technology and data rooms. It may also be appropriate to cover for risk of data privacy, cyber-security breaches and defaults in case you take debts with your business asset base

Non disclosure agreements with employees, directors and other stakeholders

In order to protect sensitive business information, software codes and trade secrets, it is necessary for a software and IT business to consider signing Non Disclosure Agreements. While drafting NDA clauses, it is advisable to include hefty penalties upon its breach to dissuade third parties like employees from spilling secrets. While the legal jurisprudence in India tilts in favor of weaker parties (often the employees) and the penalty clauses may not be upheld by adjudicating courts in their entirety, it still serves as a valuable purpose of discouraging disclosure while also aiding in convincing courts of the seriousness with which the aggrieved company may view such information. 
As India positions itself as a leader in IT and software, it stands to make a substantial impact on the global stage, through technological advancement made by businesses in this space. Compliance Calendar has helped hundreds of startups and foreign companies in starting business in India. Connect with our experts today to get the best of advice on running a compliant software business in India.

Starting and Running an IT/Software business in India - Here’s the big picture

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