Updated Apr 13, 2022

What is a Trade licence in India?

What is a Trade licence in India?

A trade licence is a document or certificate of permission for a person planning to open a business or commence a particular trade or business in a specific area/location.

The trade licence ensures that the person operates the business or trade by adhering to all the standards of safety issued by the State’s Municipal Corporation. It also protects residents from being affected by any health hazards.

The trade licence limits the holder’s activity to the particular trade for which the permit is issued. It does not allow the licence holder to carry out any other business. Furthermore, it does not entitle the licence holder to property ownership.

Benefits of trade licence

Obtaining a trade licence renders the following benefits:

• Prevent exploitation of workers working on the premises.
• Ensures proper safety measures are taken against fire-related accidents.
• Impel businesses on adopting fair trade practices and preserve everyone’s interest.
• Increase business goodwill by protecting consumers’ interests against any illicit trade.
• Finally, help a business to grow and improve credibility over time.

Types of trade licence

There are three main types of Trade licences issued by authorities. They are:

1. Shop Licence

A shop licence is necessary for sellers of dangerous materials like firewood, crackers, candles, etc. and risky business shops such as barber, laundry shops, etc.

1. Industrial Licence

Manufacturing industries of small, medium and large scale must obtain an industrial licence.

1. Food Establishment Licence

Every food selling entity, such as restaurants, hotels, canteen, food stalls, bakeries, meat and vegetable sellers etc., needs a food establishment licence.

Who issues the trade licence?

The municipal corporation’s licence department issues a trade licence for industries, engineering, health etc. To regulate the businesses, the government of India authorises licences. The licences grant permission in letters or documents/certificates for carrying out business activities where it is located—the rules and regulations for issuing the permit depend on the state.

Trade licence eligibility

For obtaining a trade licence to carry out the business activity, an applicant:

• Must be above 18 years of age.
• They shouldn’t have any criminal records.

Also, the business should be legally permissible in obtaining the licence.

Documents required for trade licence

For obtaining the trade licence, a person must submit the following documents:

• Business address proof
• Applicant’s ID proof
• Aadhaar Card
• In case of proprietorship - Applicant’s PAN Card or else PAN Card of the company.
• In the case of Company - Memorandum of Association (MOA)
• Municipal Property Tax receipt for owned premises of business location or else lease document/consent letter of the owner of the business location is rented.
• Certificate of Incorporation, in case of companies
• Nearby property owners’ No objection Certificate (NOC)
• Certified plan layout of the business

Processing Time

After applying, it takes around 7-10 days to process and issue a Trade licence in metro cities. It takes longer in small towns and rural areas.

Renewal of trade licence

The trade licence issued by the municipal corporation is valid only for one year. Hence, the applicant needs to renew the licence every year. The licence owner should make the renewal application within 30 days from expiry. In case of delay, a fine is levied according to the rules and regulations of the issuing authority.

For renewal of the trade licence, the applicant needs to submit the following documents:

• Trade licence’s original copy
• Challans of the previous year
• The Latest paid property tax receipt

Points to Remember

1. Rules and Regulations for issuing the trade licence vary from state to state.
2. The fee for issuance differs based on the type of business.
3. A company with a trade licence can attract more customers or investors than those with no trade licence.
4. A trade licence ensures that the trader performs ethical business practices. It also makes sure that the trader follows safety measures and guidelines.
5. Suppose a person fails to apply for a licence or commences business activity before issuing the permit. In that case, the respective government authority possesses the right to levy a fine and penalty. In addition, failure to comply with the rules and regulations of the trade licence can result in the closure of the business.

Conclusion

A trade license is a permission or certificate for carrying out trade activities. State’s Municipal Corporation issues it. It ensures the trader observes required safety measures. Thus, a trade license is a necessary certificate for starting a business.