Key Licenses required to Start a Retail Business in India

Despite being one of the world’s largest retail markets, a mere 12% of retail businesses in India operate within the organized sector, equipped with required registrations and licenses necessary for legal compliance. Digitization of licensing services across regulatory authorities has undoubtedly eased their application processes. However, the scarcity of precise information about these processes has left entrepreneurs struggling in the public domain.

Retail businesses are the most common form of business establishment found around the globe. These entities directly interact with the customers to sell their products. To start a retail business you would need a successful business model and a few licenses.

Types of Goods Sold in Retail Shops

Some of the different types of goods available are:

Convenience Goods
Shopping goods
Speciality Goods
Unsought goods
Impulse goods

Convenience Goods

These are goods that are readily available for the consumption of the consumer. They are the most demanded and common products out there. Further, they include products used for daily use and immediate consumption, such as milk, vegetables, fruits, etc., which are considered essential for daily life and routine. They are inexpensive.

Shopping Goods

These include goods that require research, comparison and planning. Unlike convenience goods, these goods cannot be bought immediately. They are bought to use over a long period to fulfil tasks in the long run. Such goods include clothing, electronics, furniture, etc.

Speciality Goods

Such goods will normally be reserved for an upper class of people who have the financial means to purchase such a product. This includes rare, unique products and is not easily available to everyone. The marketing of such goods is also so that it only targets that part of the consumer group that can provide such products. The ideal example of such goods is jewellery, luxurious cars, watches, accessories, etc.

Unsought Consumer Goods

These are such goods which are readily available but not purchased regularly. They only fulfil a particular requirement and are only bought by consumers when the need for such a product arises. Examples of which are hardware store goods, electrical components goods, etc.

Benefits of starting a business in the retail industry

Easy passage to market, making things simple to analyse
Reduced costs
Potential for rapid growth
Widen your market/export ideas and reach.
Customer intelligence

Licenses And Permits Required By Retail Shops In India

Obtaining licenses and permits required by retail shops in India ensure their legal compliance with local laws and regulations. Additionally, beyond mere legal obligations, these licenses play a pivotal role in ensuring the seamless functioning of business operations as well. From crucial tax documents like business PAN and TAN to labour law registrations under the Shops Act and Professional Tax Act, each of these licenses and permits hold a distinct significance in running a retail business in India. Besides, certain industry-specific licenses may be required to comply with sectoral regulations too.

Permanent Account Number (PAN)

PAN or Permanent account number is a unique 10-digit alphanumeric code assigned to all individual and non-individual taxpaying entities by the Income Tax Department of India. Besides serving as proof of identity, PAN cards are needed by businesses for opening bank accounts, tax registrations, and filing income tax and GST returns. Besides, the Income Tax department tracks all of your business transactions, bank account activities, and tax compliances using your business PAN card. Therefore, acquiring a PAN card was made mandatory in the Income Tax Act, of 1961.

You can apply for a business PAN card online by filling Form 49 A on the NSDL or the UTTISL websites by selecting ‘firm’ in the ‘type of application’ section. Provide other details like the name of the business, address of the office, date of incorporation, etc. You will receive your e-PAN card within 7 days and have it delivered to your registered office address within 15 days from the date of application. The application fee amounts to Rs.107 for Indian applicants.

Taxpayer Account Number (TAN)

Like PAN, TAN is also a unique 10-digit alphanumeric code issued by the Income Tax Department. Your business needs to apply for a TAN in case it is involved in a Tax deduction at the source activity for its employees, staff, or any other entity providing service to it. Under Section 203A of the Income Tax Act, 1961, it is mandatory to quote the Tax Deduction Account Number (TAN) allotted by the Income Tax Department (ITD) in all TDS returns and Challans while depositing the tax in a designated Bank. Additionally, it is mandatory for employees to quote TAN while claiming TDS in their Income tax returns. You can apply for it online by filling out Form 49B available on the NSDL website. The application fee, inclusive of taxes is Rs.65 only.

Trade License

Trade licenses are issued by municipal corporations or state governments to newly established businesses resident and operational within their boundaries. These licenses allow businesses to carry out a particular business activity at a certain location mentioned in the license application. Trade licenses do not provide any ownership rights for the property which the business is operating from. Besides enabling businesses to trade products and services, it also helps government regulatory bodies monitor and control all business operations carried out within the state.

Trade Licenses are categorized into Industrial, Shops, and Food Establishment licenses. The Shops license is essential for shops involved in the sale of hazardous substances like firecrackers, firewood, fireworks, etc. If your shop sells food or related items, you must also acquire the Food and Establishment license. As a shop owner, you are eligible to apply for a trade license only if you are 18 years of age or above, have no criminal record, and are running a legal business in the shop.

The application should be submitted 30 days before the business begins operations. You can apply for a trade license on the official website of the state government or directly apply to the office of the municipal corporation. You will receive it within 7-10 days from the date of application. Once issued, the license will be valid for a year, after which it needs to be renewed. The renewal application has to be submitted within 30 days from its expiry. However, trade licenses get renewed in January only. The following documents are required to be submitted along with the application for a trade license:

Business PAN card
Business Incorporation Certificate
Aadhar card, if the applicant is an individual
Property tax payment receipt from the municipality
Lease Agreement with the owner of the property
No Objection Certificate from neighbors in the premises where the shop is located
The layout of the property
Occupancy Certificate
Loan sanction document

Shops and Establishment Registration

Registration under the Shops and Establishments Act is required for all businesses in India employing full-time, part-time, and contract workers. The provisions in the act primarily ensure better working conditions for employees regarding hours of work, minimum wage, maternity leave, sick leave, number of holidays, hygienic workplace, etc. Registration under the Act indicates that the businesses are certainly focussing on the welfare of their employees.

All businesses in India must mandatorily register under the act within 30 days after their dates of registration. Different states have different provisions under the act, which businesses registered within their boundaries must follow. The procedure for registering under the act also differs from state to state. The application for registration is filed to the State labor department and usually requires proof of address of the business, proof of the identity of the owner, business PAN card, payment or bank statement, and details of the employees as supporting documents. The validity of the registration also differs from state to state.

Professional Tax Registration

Professional tax is levied on professionals including employees, employers, and businesses. It is a state tax levied differently by different states in India. If the state where a business is located has provisions for mandatory registration under the act, the business must acquire a professional tax registration within 30 days from the start of business activities. Usually, employers, including businesses, deduct the tax at source from their employees by submitting it to the government on their behalf.

Employees can claim TDS for the professional tax while filing their tax returns. The procedure for registration is different for different states. However, the supporting documents required for registration are almost similar across states where the tax is applicable. These include proof of office address, business PAN card, certificates of registration and incorporation, Professional tax enrollment certificate, and a blank canceled check from the business bank account.

Factors to Consider before starting the retail business

Launching your business: If it is a small business it will have to stand out from other business as you cannot expect people to run into your store if you have nothing new to offer. Market is always looking for new business that have something to focus on and something catchy. Your startup will have to work on getting customers and provide benefits so you can find more buyers. This will help your store create a niche in the market.
The right location: While deciding on the business that you want to take up, deciding the location for your retail business is also very important. You cannot open a retail store for expensive clothing in a neighbourhood who only go to local stores for purchasing their clothing. Make sure your store is in demand in the area you want to open your business. You don”™t need a supermarket in a area where there are already 4 to 5 supermarkets. Start it somewhere near a residential area and it will be helpful for the customers and bring you good profit.
Working from home: Working from home is easy and simple. You can have your own time and work easily with not having to interact with too many people . But this brings limitations for your business. As there will be less buyers and you will not be able to advertise your business properly. Therefore it is always better for you to come out of your comfort zone and start a business.
Commercial locations:
While selecting a city for your retail store keep the following in the mind:

Size of the trading area of the city
Customer trends and size of the population
Purchasing power of the customers
Retail trade potential
Number and size of competition
Quality of competition

Choosing the location in the city:

Nature of competition
Traffic
Appearance of the area
Geographically suitable
Neighbourhood
Accessibility

Landlords
Marketing
Opening any sort of business calls for marketing. You can use any form of marketing that is affordable and effective for your store. Give out pamphlets and any sort of print media so the word gets out.
Hire the Right Team
As it is a proven fact that no one can run an entire business on his/ her own, therefore, hiring the right team of professionals or employees plays a crucial part. Further, it is advised to every proposed retail shop owner to properly train his/her employees after hiring them so that they are able to handle all the future customer related issues.
Legal documents
Before opening your store there are certain formalities that you will have to fill. Like getting permission from the area police and other forms and agreements. Failing of which will not announce your store as legal.

FAQs

Why is obtaining a PAN crucial for retail businesses in India?

A PAN is not only a unique identifier but also a prerequisite for opening bank accounts, tax registrations, and filing returns. It ensures that the Income Tax Department can track business transactions, enhancing transparency and compliance.

What industry-specific licenses are essential for a retail shop in India?

Depending on the nature of the business, industry-specific licenses like FSSAI registration for food businesses or retail licenses for pharmacies become crucial. These endorsements ensure adherence to specific standards within the respective sectors.

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