Different Business Models

BUSINESS MODELS
ENTRY OF CHINESE MANUFACTURERS
IN INDIAN MARKET
for

Business Model - 1
SINGLE BRAND RETAIL TRADING MODEL
E-Commerce based
Retailers, like
Flipkart, Amazon,
etc.
Each Chinese
Manufacturer
100%
Chinese/Foreign
Owned Indian
Private Limited
Company
Consumer 1
Consumer 2
Consumer 3
Single Brand Retail Trader to
meet FDI Norms which
provides for 100% Foreign
Holding under Automatic
Route subject to conditions.
B2C
Transfer
Pricing
Provisions as
Associated
Enterprises
**Other Issues:
1. In case of 100% Chinese Owned Indian Company, as
per Companies Act, 2013, out of Two Directors one
must be Resident of India.
2. A Registered Office in India is required.
3. Transfer Pricing Norms are required to be met.
B2B

CONDITIONS: FDI in Single Brand product retail trading would be subject to the following conditions:
(a) Products to be sold should be of a ‘Single Brand’ only.
(b) Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more
countries other than India.
(c) ‘Single Brand’ product-retail trading would cover only products which are branded during manufacturing.
(d) A non-resident entity or entities, whether owner of the brand or otherwise, shall be permitted to undertake ‘single brand’ product retail
trading in the country for the specific brand, directly or through a legally tenable agreement with the brand owner for undertaking single
brand product retail trading. The onus for ensuring compliance with this condition will rest with the Indian entity carrying out single brand
product retail trading in India. The investing entity shall provide evidence to this effect at the time of seeking approval, including a copy
of the licensing/franchise/sub-licence agreement, specifically indicating compliance with the above condition. The requisite evidence
should be filed with the RBI for the automatic route and to competent authority for cases involving approval.
Business Model - 1

(e) In respect of proposals involving foreign investment beyond 51%, sourcing of 30% of the value of goods purchased, will be done from
India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors. The quantum of domestic sourcing
will be self-certified by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts which the
company will be required to maintain. This procurement requirement would have to be met, in the first instance, as an average of five
years’ total value of the goods purchased, beginning 1st April of the year of the commencement of the business i.e. opening of the first
store. Thereafter, it would have to be met on an annual basis. For the purpose of ascertaining the sourcing requirement, the relevant entity
would be the company, incorporated in India, which is the recipient of foreign investment for the 40 purpose of carrying out single-brand
product retail trading.
(f) Subject to the conditions mentioned in this Para, a single brand retail trading entity operating through brick and mortar stores, is
permitted to undertake retail trading through e-commerce.
CONDITIONS: FDI in Single Brand product retail trading would be subject to the following conditions:
Business Model - 1

Business Model - 2
CASH & CARRY WHOLESALE TRADING/WHOLESALE TRADING
(No FDI investment in Indian Company i.e. 100% Resident owned)
E-Commerce based
Retailers, like
Flipkart, Amazon,
etc.
Each Chinese
Manufacturer
(Manufacturer 1)
100%
Chinese/Foreign
Owned Indian
Private Limited
Company
Consumer 1
Consumer 2
Consumer 3
Each Chinese
Manufacturer
(Manufacturer 2)
Indian Company
(100% Indian)
100%
Chinese/Foreign
Owned Indian
Private Limited
Company
*Transaction ‘2’, also B2B, is Cash & Carry
Wholesale Trading/Wholesale Trading to meet
FDI Norms which provides for 100% Foreign
Holding under Automatic Route.
No Restrictions in
trading of Multi Brand
Products.
2*
2* B2C
*Transaction ‘1’ is B2B transaction between
Chinese Manufacturers and their respective
“100% Chinese/Foreign Owned Indian Private
Limited Company”
1*
1*

Business Model - 3
CASH & CARRY WHOLESALE TRADING/WHOLESALE TRADING (B2B) and
MULTI BRAND RETAIL TRADING (B2C)
(With FDI investment in B2C Company)
E-Commerce based
Retailers, like
Flipkart, Amazon,
etc.
Each Chinese
Manufacturer
(Manufacturer 1)
100% Chinese
Owned Indian
Private Limited
Company (B2B)
Consumer 1
Consumer 2
Consumer 3Each Chinese
Manufacturer
(Manufacturer 2)
Indian Company
doing B2C
Business
(with Foreign
Investment ranging
from 0.1-51%)
100% Chinese
Owned Indian
Private Limited
Company (B2B)
*Transaction ‘1’ and ‘2’ are Cash & Carry
Wholesale Trading/Wholesale Trading to meet FDI
Norms which provides for 100% Foreign Holding
under Automatic Route.
*Transaction ‘3’
would be a Multi
Brand Trading
Transaction (B2C)
subject to severe
conditionality.
1*
2*
3*
(B2C)

(With FDI investment in Indian Resident Owned Company)
CONDITIONS: FDI in multi brand retail trading, in all products, will be permitted, subject to the following
conditions:
(i) Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be
unbranded.
(ii) Minimum amount to be brought in, as FDI, by the foreign investor, would be US $100 million.
(iii) At least 50% of total FDI brought in the first tranche of US $ 100 million, shall be invested in 'back-end infrastructure' within three
years, where ‘back-end infrastructure’ will include capital expenditure on all activities, excluding that on frontend units; for instance, back-
end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control,
packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will
not be counted for purposes of backend infrastructure. Subsequent investment in backend infrastructure would be made by the MBRT
retailer as needed, depending upon its business requirements.
(iv) At least 30% of the value of procurement of manufactured/processed products purchased shall be sourced from Indian micro, small
and medium industries, which have a total investment in plant & machinery not exceeding US $ 2.00 million. This valuation refers to the
value at the time of installation, without providing for depreciation. The ‘small industry’ status would be reckoned only at the time of first
engagement with the retailer, and such industry shall continue to qualify as a ‘small industry’ for this purpose, even if it outgrows the said
investment of US $ 2.00 million during the course of its relationship with the said retailer. Sourcing from agricultural co-operatives and
farmers co-operatives would also be considered in this category. The procurement requirement would have to be met, in the first instance,
as an average of five years’ total value of the manufactured/processed products purchased, beginning 1st April of the year during which the
first tranche of FDI is received. Thereafter, it would have to be met on an annual basis.
Business Model - 3

(v) Self-certification by the company, to ensure compliance of the conditions at serial nos. (ii), (iii) and (iv) above, which could be cross-
checked, as and when required. Accordingly, the investors shall maintain accounts, duly certified by statutory auditors.
(vi) Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census or any other cities as per the
decision of the respective State Governments, and may also cover an area of 10 kms around the municipal/urban agglomeration limits of
such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will
be made for requisite facilities such as transport connectivity and parking.
(vii) Government will have the first right to procurement of agricultural products.
(viii) The above policy is an enabling policy only and the State Governments/Union Territories would be free to take their own decisions in
regard to implementation of the policy. Therefore, retail sales outlets may be set up in those States/Union
Territories which have agreed, or agree in future, to allow FDI in MBRT under this policy. The list of States/Union Territories which have
conveyed their agreement is at (2) below. Such agreement, in future, to permit establishment of retail outlets under this policy, would be
conveyed to the Government of India through the Department of Industrial Policy & Promotion and additions would be made to the list at
(2) below accordingly. The establishment of the retail sales outlets will be in compliance of applicable State/Union Territory laws/
regulations, such as the Shops and Establishments Act etc.
(ix) Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of
multi-brand retail trading.
CONDITIONS: FDI in multi brand retail trading, in all products, will be permitted, subject to the following
conditions:
Business Model - 3

Business Model - 4
DIRECT ENTRY
(No FDI investment in Indian Company i.e. 100% Resident Owned)
E-Commerce based
Retailers, like
Flipkart, Amazon,
etc.
Each Chinese
Manufacturer
(Manufacturer 1) Consumer 1
Consumer 2
Manufacturer
(Manufacturer 2)
Indian Company
(100% Indian)
*Transaction ‘1’ and ‘2’ are Direct Transactions of
Chinese Manufacturers with Indian Company.
No Restrictions in
Products.
1*
2*
B2C

Business Model – 4A
E-Commerce based
Retailers, like
Flipkart, Amazon,
etc.
Chinese
Manufacturer
(Manufacturer 1) 100% Chinese
Owned Indian
Private Limited
Company (B2B)
Consumer 1
Consumer 2
Consumer 3
Chinese
Manufacturer
(Manufacturer 2)
Indian Company
(100% Indian
owned)
• *Transaction 1 & 2 are B2B transactions.
• *Transaction 2 between 100% Chinese Owned
Indian Company and 100% Indian Residents owned
Company is Cash & Carry Wholesale
Trading/Wholesale Trading to meet FDI Norms
which provides for 100% Foreign Holding under
Automatic Route subject to conditions.
No Restrictions in
Products.
1*
1*
3*2*
B2C

Business Model - 5
DIRECT ENTRY
E-Commerce based
Retailers, like
Flipkart, Amazon,
etc.
Each Chinese
Manufacturer
Consumer 2
Manufacturer
(Manufacturer 2)
Indian Company
doing B2C
Business (with
Foreign
Investment
ranging from 0.1-
51%)
*Transaction ‘1’ and ‘2’ are Direct Transactions of
Chinese Manufacturers with Indian Company.
*Transaction ‘3’
would be a Multi
Brand Trading
Transaction subject to
severe conditionality.
1*
2*
3*
(B2C)

• At least 50% of total FDI brought in the
first tranche of US $ 100 million, shall
be invested in 'back-end infrastructure'
within three years
• At least 30% of the value of
procurement of manufactured/
processed products purchased shall be
sourced from Indian micro, small and
medium industries, which have a total
investment in plant & machinery not
exceeding US $ 2.00 million.
• In respect of proposals involving foreign
investment beyond 51%, sourcing of 30%
of the value of goods purchased, will be
done from India, preferably from MSMEs,
village and cottage industries, artisans and
craftsmen, in all sectors.
Conclusion/Analysis
• At least 50% of total FDI brought in the
first tranche of US $ 100 million, shall be
invested in 'back-end infrastructure' within
three years
• At least 30% of the value of procurement
of manufactured/ processed products
purchased shall be sourced from Indian
micro, small and medium industries, which
have a total investment in plant &
machinery not exceeding US $ 2.00
million.
Reasons for Not Selecting the following Business Models
Business Model – 1 Business Model - 5
SINGLE BRAND RETAIL
TRADING MODEL
CASH & CARRY WHOLESALE
TRADING/WHOLESALE TRADING
(With FDI investment in Indian Resident
Owned Company)
Business Model – 3
DIRECT ENTRY
(With FDI investment in Indian Resident
Owned Company)

Approved Business Models
Business Model - 2 Business Model - 4
CASH & CARRY
WHOLESALE TRADING/
WHOLESALE TRADING
(No FDI investment in Indian
Company i.e. 100% Resident
Owned)
DIRECT ENTRY
(No FDI investment in
Indian Company i.e.
100% Resident Owned)
Suitable for Business requiring Staff
Support Services and After Sale
Services. Eg. Sale of Printers, electronic
Items, or sale of any other such product
which require after sale services or
support services. For example, sale of
Printers require after sale services
relating to additional sales of cartridges.
Suitable for Business which does not
require any Staff Support Services or
After Sale Services. For example, sale of
Pencil, Umbrella, etc.
Business Model – 4A
CASH & CARRY
WHOLESALE
TRADING/WHOLES
ALE TRADING
(Without FDI
investment in 100%
Indian Company)

GST Implication on Business Model - 2
Custom Duty @ 15% would be
charged on Electronic Goods. (Eg.
Electronic Toys of Transaction Value=
Rs. 1000, Custom Duty= 1000*15% =
Rs. 150/-).
GST: IGST @ 12% (Eg. Electronic
Toys) would be charged on Transaction
Value + Custom Duty. (Eg. In above
case GST would be applied on Rs. 1150,
therefore, IGST= 1150*12%= Rs. 138/-
). The IGST so paid is available as
‘Input Tax Credit’ to the 100% China
Owned Indian Company, which can be
adjusted against Output Liability.
1. GST would be attracted on the sale transaction by the 100%
Indian Company to Customers (i.e. B2C transactions carried
out through E-Commerce Operators). GST (IGST, CGST,
UTGST or SGST) would be attracted as per the Place of
Supply of Goods. The same would be the Output Liability of
the 100% Indian Company.
2. E-Commerce Operators deduct Business Promotion
Charges along with GST and TCS as applicable while
remitting the Sale Proceeds to the 100% Indian Company. The
GST and TCS so deducted would be available to the 100%
Indian Company as ‘Input Tax Credit’, which can be adjusted
against Output Liability.
GST would be attracted on the
sale transaction by the 100%
China Owned Indian Company to
100% Indian Company (i.e. B2B
Transactions). GST (IGST, CGST,
UTGST or SGST) would be
attracted as per the Place of
Supply of Goods. The same would
be the Output Liability of the
100% China Owned Indian
Company.

Transaction 1
B2B
Import of Goods by "100% Chinese Owned Indian Private
Limited Company" from China
Eg. Import of Electronic Toys
Custom Duty on Imports- 15%
IGST Rate on Imports- 12%
Particulars Amount (in USD)
CIF Price $1,000
Add: Custom Duty @ 15% $150
$1,150
Add: IGST @ 12% $138
Total Cost Price $1,288
Add: Transport Charges $10
Add: Admin Charges $20
Total Cost $1,308
Add: Margin @5% $65
Sales Price $1,373
GST Calculations for "100% Chinese Owned Indian
Private Limited Company"
Input Tax Credit Details
IGST of USD 138 paid by "100% Chinese Owned Indian
Private Limited Company" would be available as Input
Tax Credit.
Transaction 2
B2B
Sale of Goods by "100% Chinese Owned Indian Private
Limited Company" to "100% Indian Resident Owned
Company"
GST Rate as per Place of Supply
(Intrastate- CGST & SGST)
Rate: CGST-6%, SGST-6%
Sales Price $1,373
Add: CGST @ 6% $82
SGST @ 6% $82
Total Invoice Value $1,538
Add: Margin @ 4% $62
Sales Price $1,600
Output Tax Liability Input Tax Credits
CGST - $ 82 IGST - $ 138
SGST - $ 82
Input Tax Credit of IGST can be used to Set-off the Output
Tax Liability of CGST & SGST.
Net GST Payable $27
Transaction 3
B2C
Sale of Goods by "100% Indian Resident Owned
Company" to Customers through E-Commerce Operators
(Interstate- IGST)
Rate: IGST-12%
Sales Price $1,600
Add: IGST @ 12% $192
GST Calculations for "100% Indian Resident Owned
Company"
IGST - $ 192 CGST - $ 82
SGST - $ 82
Input Tax Credit of CGST & SGST can be used to Set-off
the Output Tax Liability of CGST & SGST.
Net GST Payable $27

DIRECT ENTRY
E-Commerce based
Retailers, like
Flipkart, Amazon,
etc.
Each Chinese
Manufacturer
Consumer 2
Manufacturer
(Manufacturer 2)
Indian Company
(100% Indian)
Custom Duty @ 15% would be charged on
Electronic Goods. (Eg. Electronic Toys of
Transaction Value= Rs. 1000, Custom Duty=
1000*15% = Rs. 150/-).
GST: IGST @ 12% (Eg. Electronic Toys) would be
charged on Transaction Value + Custom Duty. (Eg.
In above case GST would be applied on Rs. 1150,
therefore, IGST= 1150*12%= Rs. 138/-). The IGST
so paid is available as ‘Input Tax Credit’, which can
be adjusted against Output Liability.
1. GST would be attracted on the sale transaction by the 100% Indian Company
to Customers (i.e. B2C transactions carried out through E-Commerce
Operators). GST (IGST, CGST, UTGST or SGST) would be attracted as per
the Place of Supply of Goods. The same would be the Output Liability of the
100% Indian Company.
2. E-Commerce Operators deduct Business Promotion Charges along with GST
and TCS as applicable while remitting the Sale Proceeds to the 100% Indian
Company. The GST and TCS so deducted would be available to the 100%
Indian Company as ‘Input Tax Credit’, which can be adjusted against Output
Liability.
CHINA INDIA
3*
2*
1*

DIRECT ENTRY
Transaction 1 & 2
B2B
Import of Goods by "100% Indian Residents Owned Company" from Chinese
Manufacturers
CIF Price $1,000
$1,150
Add: IGST @ 12% $138
Total Cost $1,308
Sales Price $1,373
GST Calculations for "100% Indian Residents Owned Company"
* IGST of USD 138 paid by "100% Indian Residents Owned Company"
would be available as Input Tax Credit.
Transaction 3
B2C
Sale of Goods by "100% Indian Resident Owned Company" to Customers
through E-Commerce Operators
Sales Price $1,373
Add: CGST @ 6% $82
SGST @ 6% $82
GST Calculations for "100% Indian Resident Owned Company"
CGST - $82 IGST- $138
SGST - $82
Input Tax Credit of IGST can be used to Set-off the Output Tax Liability of CGST
& SGST.
Net GST Payable $27

GST Implication on Business Model – 4A
Transaction 1
B2B
Import of Goods by "100% Chinese Owned Indian Private
Limited Company" from China
CIF Price $1,000
$1,150
Add: IGST @ 12% $138
Total Cost $1,308
Add: Margin @5% $65
Sales Price $1,373
* IGST of USD 138 paid by "100% Chinese Owned
Indian Private Limited Company" would be available as
Input Tax Credit.
Transaction 2
B2B
Sale of Goods by "100% Chinese Owned Indian Private
Limited Company" to "100% Indian Resident Owned
Company"
Sales Price $1,373
Add: CGST @ 6% $82
Add: SGST @ 6% $82
Sales Price $1,600
CGST - $ 82 IGST - $ 138
SGST - $ 82
*Input Tax Credit of IGST can be used to Set-off the
Output Tax Liability of CGST & SGST.
Net GST Payable $27
Transaction 3
B2C
Sale of Goods by "100% Indian Resident Owned
Company" to Customers through E-Commerce Operators
(Interstate- IGST)
Rate: IGST-12%
Sales Price $1,600
Add: IGST @ 12% $192
GST Calculations for "100% Indian Resident Owned
Company"
IGST - $ 192 CGST - $ 82
SGST - $ 82
Input Tax Credit of CGST & SGST can be used to Set-off
the Output Tax Liability of CGST & SGST.
Net GST Payable $27

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