Setting Up a Holding Company in India: Legal and Tax Considerations

Introduction

A holding company in India serves as the backbone of large corporate structures. It holds controlling stakes in one or more subsidiary companies, enabling centralized management, tax optimization, and strategic control.

At Makwana Sweta & Associates, leading Chartered Accountants in Mumbai, we help businesses structure holding entities in a legally compliant and tax-efficient way. This guide covers everything you need to know before setting up a holding company in India in 2025.

What is a Holding Company?

A holding company is primarily formed to own shares or interests in other companies (subsidiaries). It does not usually produce goods or services but controls and manages group operations.

Types of Holding Structures:

1. Pure Holding Company
2. Operating cum Holding Company
3. Intermediate Holding Company
4. Investment Holding Company

Legal Structure of a Holding Company in India

You can set up a holding company in the form of:

• Private Limited Company
• Public Limited Company
• LLP (Limited Liability Partnership) (with restrictions)

The most common and legally viable structure is a Private Limited Company, registered under the Companies Act, 2013.

Key Legal Requirements

• Minimum 2 Directors (1 must be a resident)
• Registered office address in India
• MOA & AOA must specify holding activities
• PAN, TAN, GST registration (as required)
• Annual filing with ROC (Registrar of Companies)

Tip: Add a clause for holding investment in other companies in your MOA to meet regulatory compliance.

Tax Implications for Holding Companies in India (2025)

1. Dividend Income: Taxable in the hands of the holding company at applicable rates.
2. Inter-company Transactions: Must comply with transfer pricing if international subsidiaries are involved.
3. MAT (Minimum Alternate Tax): Applies if taxable income is lower than book profits.
4. Capital Gains: Taxable on sale of shares of subsidiaries.
5. Set-Off of Losses: Group entities can’t cross-set off losses; each company is taxed individually.

Update 2025: The corporate tax rate remains at 22% for domestic companies (15% for new manufacturing firms).

GST Considerations

If your holding company provides management services or technical assistance to subsidiaries, it must charge GST on inter-company billing.

Also, ensure proper documentation and e-invoicing as per 2025 compliance norms.

Benefits of a Holding Company in India

• Centralized control of group operations
• Asset protection from operational risks
• Easier fundraising through equity in holding company
• Efficient capital allocation between subsidiaries
• Facilitates joint ventures, M&A, or spin-offs

Regulatory Authorities to Comply With

• MCA (Ministry of Corporate Affairs)
• Income Tax Department
• GST Department
• SEBI (if listed)
• RBI (if foreign shareholding or NBFC activity involved)

Things to Keep in Mind

• FEMA compliance for foreign investments
• NBFC registration if primarily investing in financial instruments
• Statutory audit if turnover or shareholding crosses limits
• Maintain arm’s length pricing for inter-company transactions

Documentation Checklist

• Certificate of Incorporation
• PAN, TAN, GST certificates
• Board Resolutions
• MOA & AOA
• Shareholding pattern of subsidiaries
• Auditor appointment and disclosures

Final Words

Setting up a holding company in India can simplify your corporate structure and offer multiple strategic and tax benefits. However, it must be structured carefully to comply with regulatory frameworks and avoid tax pitfalls.

At Makwana Sweta & Associates, reputed Tax Consultants in Mumbai, we specialize in company incorporation, group structuring, and tax compliance services across India. Let our team help you build a legally compliant and financially efficient holding company.

Outbound Link: MCA – Companies Act Guidelines Inbound Link: Company Formation Services