This article is to share with you the procedures to set up branches in India.

Basic reasons for setting up branches in India:

Setting up branches in various states of India is inevitable as it is a very vast country. If you situate your head quarter in say Bangalore ( presently the silicon valley of India) which is in Southern India and attempting to fly across to Punjab in Northern India is an insurmountable task.Perhaps, it’s the only way to go from the logistic standpoint.

Secondly, by setting up branches supports, it can provide the necessary infrastructure for your company’s business to expand in the hugh potential markets of India.

From operation standpoint, it can smoothen your company’s cash / fund collections as we would have collection points at branches itself.

Lastly but not least, there could be the issue of sales tax. Not forgetting that at this moment of writing there are still five states in India who has not yet adopted VAT ( Sales tax being modified into VAT) and this complete uniformity of VAT might take at least another year to complete.

Requirements in Setting Up A Branch In India

Company can open branches at desired places, by passing a resolution in the AGM / EGM / Board of Director Meeting. After obtaining the authorization by way of a resolution, the company can go ahead with setting up branches.

1.0 SALES TAX/VAT REGISTRATION

In order to conduct a business in branches, your company needs to apply for sales tax registration. Your objective is to obtain the Local and the Central Sales Tax Number.

In a state, a company can have more than one place of business, hence the place, where the first sales registration has taken place would then become your Main office and other places would become branches of the main office within the state. However, if you choose this to be the Main office, you need to obtain branch certificate for other units.

2.0 DOCUMENTS REQUIRED

For the purpose of Sales Tax registration for the branches, the following documents are required:

2.1. Rental Agreement of the premises / No Objection letter from the owner / Distributors, who is owning the building or as the case may be.

2.2 Memorandum of Association / Articles of Association of the Company,

2.3 Board Resolution of the Company to set up a branch in a particular state with address.

2.4 Photographs of Directors.

2.5 Sales Tax Registration Application form duly -filled and signed off by the Directors.

3.0 OPERATION OF BRANCHES:

Once you have legally incorporate the branch, your company has the choice to either operate the branch as a true branch by investing all the infrastructure like manpower, fixed assets and others

However, many companies in India prefer to use C& F agent to help in the operating of their branches. This therefore will save a lot of overheads.

3.1. CARRYING AND FORWARDING AGENTS (C& F):

C& F are outsiders appointed by the company and its remuneration is based on the stipulated terms and conditions of an agreement with them. They will look after the operation of your branches for a commission fixed by the company. Their rates, shall depend on the effort of C& F’s time spent and investments made. Incidentally, there are quite a number of long established C&F agents in India.

3.2. INVOICING, ACCOUNTING, INVENTORY AND BANK ACCOUNTS

Invoicing:

Whether you are using a C&F agent or having your own staff, each branch should have separate invoice numbers for both internal controls and VAT/sales tax purposes:
For example say in Chennai Branch, the invoice no. can start from CHN0000001 and for Jalander branch say JAL 00001 and so forth,

Invoices generated from the Branch Module of your Accounting system should have the address of the Branch, where sales conducted on the top of the invoice. In other words, by looking at the invoices, the authorities should be able to identify the point that particular invoice is generated from the branch.

Sales tax of the state where the branch is situated has to be applied in each branch module while raising invoices.

Your branch sales register should able to generate the following format::

COMPANY ABC INDIA PVT LTD – XXX BRANCH

SALES REGISTER FOR THE MONTH OF xxx ‘2006

Inv. No Date Customer NAME Total Sales Tax Net Sales

However, if you were to enlist the help of the C& F agent instead of establishing a proper branch:
The “branch C&F”, would assist you to procure the order and collect the sales proceeds and passes it on to your Head Office through order form. Your Head Office would then able to generate the invoice for the branches’ customers and courier the invoice to the Branch. Based on the Invoice, the branch would dispatch the goods to the customers

The branch module should handle all registration of your branches customers. This should be isolated from your Head Office billing module.

Accounting:

Separate set of books of accounts needs to be maintained for each branch, and needs to be audited separately either by the same Head office’s auditor or by another appointed auditors for branches audit purposes.

Initially it would be better that your Head Office should keep the branches books of accounts on behalf of the branch and exercise total control on the branches on its accounts and finance matter.

If the branch turnover increases, perhaps then you might want to look at the option of appointing a branch accountant. At end of each month, the Head office, would prepare consolidated Financial Statement covering all branches transactions.

Inventory:

If your accounting system has Branch Module, that module should able to keep track of the movement of stocks to the branches and sales of the stocks by the branches. All inventory particulars should be updated. Any point of time, the inventory in each branch in the branch module should tally with physical stock of the branch.

Bank Account:

In order to smoothen the collections, it is advisable to open bank accounts at each branch so that the Branches can deposit cash / cheques / Demand Drafts into their local bank and if your headquarter is in say Bangalore Office, you can then transfer the fund online to your main account in Bangalore..

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