How To Set Up A Trading Business In India?

Trading has always been a lucrative business in India. Because of the abundance of natural resources, low labour costs, strong logistics chain, and government policies, foreign nations are turning to India to meet their import needs. A trading business can operate across international borders or within the domestic market, focusing on local retailers. Starting a trading company necessitates some capital, contacts with logistics companies, and the completion of the registration process.
 

How to start a trading business in India?

 

1. Incorporation

   You can incorporate your trading company as a partnership firm, sole proprietorship, private limited company, or limited liability partnership (LLP). When registering as a sole proprietorship, you do not have to undergo a complex process, but only a few licences are necessary.
    
   But for any other entity, you will need the following documents.
    

   Digital signature certificate	Owner's residential proof	Unique trade name
   Director Identification Number	Proof of official address	Owner's identification proof
   Designated Partner Identification Number	No Objection Certificate (NOC) from the office premise owner	Aadhar & PAN card

    
   You will also need a consent letter from designated business partners or directors stating they are willingly joining the trading firm. Next, fill out the incorporation form, enclose all the documents, pay the necessary fees, and submit it for approval. Following approval, you must file the Memorandum of Association (MoA) and Articles of Association (AoA), depending on your entity type.
    

2. Registration for Import >Registration for Import & Exportamp; Export

   If you want to start importing and exporting with a foreign country as a trader, you must follow the steps outlined below.
    

   • Register with DGFT

     You must register your trading company with the Director-General of Foreign Trade (DGFT), and once registered, you will be assigned a ten-digit Import-Export Code (IEC). This number assists the customs department in tracking all trade transactions conducted by your company.
      

   • Apply for an import license

     An import licence is essential; without one, the goods you order from outside are not permitted to enter Indian territory. If you are importing capital goods, you must renew your import licence every two years. The licence is subject to renewal every eighteen months if the import is in consumables, components, or raw materials.
      

   • Register with EPC

     EPC stands for Export Promotion Council, and India has fourteen EPCs across sectors. You must register your trading company with it and obtain a Registration Cum Membership Certificate (RCMC). This certificate will allow you to take advantage of all of the government's trading benefits. RCMC can be obtained by submitting an IEC number along with the necessary fees.
      

   • Export license

     As a trader, you will need a unique Indian Trading Code to conduct export business. It is an eight-digit alphanumeric code that reflects the goods category. The DGFT is responsible for issuing this code.
      

Also Read: Growth Strategies for Small Businesses
 

1. Trademark registration

   A trademark can be a symbol, phrase, or sign that represents a specific service. A trademark distinguishes one company from another engaged in the same or a different business. By trademark registration, you gain the right to sue anyone who uses your name without your permission.
    
   You can register your trademark or patent with the Office of the Registrar of Trademarks, which is a department of the Ministry of Industry and Commerce, Government of India.
    

2. Tax Registration

   The trading business is subject to both direct and indirect taxes. The term "direct tax" refers to income tax levied in various forms, such as tax deducted at source (TDS), tax collected at source (TCS), advance tax, and self-assessment tax.
    
   In contrast, indirect tax refers to the Goods and Services Tax (GST). To comply with tax laws, you must obtain a Tax Deduction and Collection Account Number (TAN) and a GST Identification Number (GSTIN).
    

3. Miscellaneous requirements

   In addition to the above, you must have the following things to ensure that your company does not get into legal trouble.
    
   • Open a current bank account in the name of your trading firm. 
   • Obtain a clearance certificate under environmental laws. This certificate is required if you deal with products that harm the environment. Chemicals, explosives, etc., fall into this category.
    

 

Other considerations when starting a trading business

 

• Decide on the product

  Trading provides a diverse range of options. You can begin exporting ready-made clothing, handcrafted jewellery, perishable goods, and precious metals. It is critical to first understand the demand for these goods in both the Indian and international markets. You should also be aware of the initial investment needed to trade such goods. For example, if you are a capital goods manufacturer and trader, your capital outlay will be higher.
   

• Connect with logistics partners

  The success of your trading business is determined by how quickly you can deliver the goods. Depending on the product, you must have connections with shipment agencies as well as connections with brokers abroad to ensure the timely delivery of your goods.
   

• Arrange funds

  Trading business requires substantial funding. Clients in this industry typically purchase goods on credit or make payments after delivery. That is, you must usually bear the initial cost. In such a case, you must have sufficient cash reserves in your business. You could also look into business loan lenders. However, most lenders will only make this loan available if your trading company has been operational for more than five years. 
   
  You can get an affordable business loan interest rate if your trading business is profitable, you have good credit, and you have all papers necessary for loan approval. 
   

Also Read: Home-based Business Ideas for Women Entrepreneurs
 

Conclusion

 
Starting a trading business is more difficult than starting a retail business. You will need to go through several registration processes and meet several compliance requirements. When dealing with capital goods, the funding requirement is also significant. However, you cannot deny that the profit margin is higher here.