Trade License: How to obtain it in India

Posted by Enterslice Group on March 12th, 2020

A trade license is a mandatory document or a certificate that permits the applicant (any person who is seeking to open a business) to start a particular trade or business in a particular area or location. But it is significant to note that, the concerned license does not allow the holder to do any other trade or business than for which the license is issued. Also, this license does not pass on or transfer any ownership of the property to the license holder.

By way of a Trade License, the respective State Government regulates and administers the operations and affairs of a specific business from a particular locality. Further, it regulates and makes sure that there is no harm either to the living or the health of the citizens due to health hazards and Nuisance happening through carrying improper trade.

Further, the Trade License is issued with the prescribed standards, safety guidelines, and the relevant laws to make sure how a business is being done and also to protect the community within the state. Furthermore, the Trade License is administered and issued by the respective State Government for regulating and administering the trade and business within the city.

The Business entities that are not adhering to the prescribed rules of trade license might face a hefty penalty. Thus, the business owners must apply for a trade license to the specific state authority without any subsequent delay. Lastly, obtaining Trade license registration is time-consuming as well as an expensive process that is discussed hereafter.

How it is distinct from a Company Registration

The registration of the business is crucial for giving it a legal status of its own. Further, it depends upon the promoter to choose upon the type and nature of the entity he wants to start depending upon his business scale. Also, it is mandatory and obligatory for every entrepreneur to acquire the trade license prior to commencing any business activity. Lastly, if in case any person is found conducting the business activity with no trade license, then the business will be deemed as illegal, and moreover, a heavy penalty may also be levied upon the owner.

Minimum Requirements for obtaining a Trade License

Following are the minimum requirements for a trade license – 

1. Must be a citizen of India

2. Minimum age of the applicant must be 18 years

3. No previous criminal records under the name of the concerned applicant

4. Business must be legally acceptable

5. The Application form needs to be submitted before 30 days from the date of starting a business

6. Trade License can only be issued if the concerned business is conducted within a permissible area such as –

• Commercial

• Local Commercial

• Notified Commercial

• A Residential area having small shops of a maximum area of 20 sq.m. on the ground floor

Types of Trade License 

Following are the types of Trade License – 

1. Industries License – Small, Medium and the large scale manufacturing units.

2. Shop License - Dangerous and Offensive trades such as the sale of firewood, candle manufacturer, cracker manufacturer, barber shop, dhobi shop etc.

3. Food Establishments License - Restaurants, canteen, hotels, food stall, the sale of meat and vegetables, bakeries etc.

Processing Time of a Trade License

It usually takes approximately 8-10 working days in the processing of a trade license application in big cities and might take a bit longer in small cities.

Key Points for a Trade License

Following are the key points for a better knowledge regarding Trade License in India – 

1. Trade license is allotted by a municipal authority that can be used solely for the trade or business it is issued for.

2. Rules, time-limit, procedure and fee structure for trade license vary from one state to another state.

3. The registered business has better goodwill and a competitive gain in comparison to those with no trade license

4. Business having such trade license portrays an image of being ethical and is carrying a legal business activity

Documents Required for obtaining a Trade License

1. Documents required for a Trade License

• Identity Proof of an applicant

• Address Proof of an applicant

• PAN Card of the establishment (this is applicable for the Company or LLP or Firm)

• Certificate of Incorporation

• AOA (Articles of Association) and MOA (Memorandum of Association) of the company

• Affidavit

• Bank Statement

• Cancelled Cheque

• Property Tax Receipt

• Income Tax Return

• Documentary Proof of the establishment

• Lease documents or the Consent letter from the property owner

• Utility bills such as the water bill or the electricity bill

• No-Objection Certificate (NOC) from the owner

• Other documents as required

2. Documents required for the Renewal of Trade License

• Copy of the original license

• Identity Proof

• Address Proof

• Old G-8 receipt

• Application for the renewal of the Trade License 

3. Documents for the issuance of a duplicate Trade License

• Copy of the First Information Report (FIR)

• Indemnity bond as per the prescribed format

How to apply Online for obtaining a Trade License

For obtaining a Trade License, an online application is required to be filed with the appropriate authority by the professionals. Further, for obtaining online trade license, all the prescribed documents are required to be submitted with the authorities concerned. After due verification of the documents submitted, the authorities concerned will issue a trade license.

Renewal of Trade License

It is not a one-time license, as it is to be renewed on a periodical basis. Also, the requisite of the payment of annual fees for the continuity of the concerned trade license is also mandatory and compulsory in some specific states and cities. Further, the renewal of trade license is done from a period starting on 1st January and ending on 31st March of every year. Furthermore, the application for the renewal shall be made at least thirty days prior to the commencement of the year for which application is required for. Lastly, a fine of 50 per cent of the license fees is imposed in case of any delay caused in the trade license renewal process.

Penal Provisions

There are various prescribed rules, regulations and provisions that are mandatorily needed to be followed by the registered person. Further, in case there is any failure in complying with the registration requirements of a trade license and starting any trade activity prior to the issuance of the trade license, the person in the default will be liable to pay a prescribed penalty. Furthermore, some legal action can also be taken against the concerned defaulter.