EOR vs Entity Setup in India [2026]

EOR vs Company Incorporation in India: Which Path Is Right for Your Business?

Every global company expanding to India faces a foundational decision: should you set up your own legal entity, or use an Employer of Record to hire employees without incorporation? The answer depends on your headcount projections, timeline, budget, and long-term India strategy. An EOR gets you operational in days at a variable monthly cost. Entity incorporation takes 10-16 weeks and requires significant upfront capital, but gives you full operational control. This guide provides the data you need to make the right choice and shows how to work out when switching from EOR to your own entity makes financial sense.

Quick Comparison: EOR vs Entity Setup

Parameter	EOR (Employer of Record)	Company Incorporation
Setup Time	24-48 hours from signed MSA	10-16 weeks
Upfront Capital Required	None	No legal minimum share capital
Monthly Cost per Employee	From USD 50/employee/month, all-inclusive (TMS): market ranges vary	Varies (internal payroll + overhead)
Entity Type	Use provider’s existing entity	Private Limited Company, LLP, or Branch Office
ROC Registration	Not required	Required under Companies Act, 2013
PF/ESI Registrations	Under EOR’s registrations	Must obtain independently
GST Registration	Not required for client	Required if turnover exceeds Rs 20L
Annual Compliance Filings	Handled by EOR	15+ annual filings with MCA, IT, GST
Bank Account	Not required in India	Required: Indian corporate bank account
Director Requirements	None	At least 2 directors, 1 of them resident in India
IP Ownership	Requires assignment clauses	Direct ownership possible
Scalability	Best for 1-30 employees	Better economics at 30+ employees
Exit Complexity	End EOR agreement	Company winding up takes 6-24 months
Office Lease	Optional	Typically required for registered office

The True Cost of Entity Setup in India

Incorporation Costs

Setting up a Private Limited Company in India involves several stages, each with associated costs and timelines.

The first step is obtaining a Digital Signature Certificate (DSC) for the proposed directors, which costs Rs 1,500-3,000 per director and takes 1-3 days. Next, you apply for Director Identification Number (DIN) through the SPICe+ form, which is included in the incorporation application.

The SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) form is filed with the Ministry of Corporate Affairs. Government fees are small: name reservation costs Rs 1,000, there is no MCA filing fee for companies with authorised capital up to Rs 15 lakh (a fee applies above that), and stamp duty varies by state from about Rs 1,000 to Rs 15,000. Professional fees for a chartered accountant or company secretary to handle incorporation typically range from Rs 15,000 to Rs 50,000.

There is no statutory minimum share capital for a private limited company. How much you put in is your choice, based on what the business needs until it earns revenue, and a foreign parent must report the investment to the RBI.

Post-incorporation registrations add further costs and time. PF registration takes 7-15 days and becomes mandatory once you employ 20 or more people, though voluntary registration is advisable from day one. ESI registration takes 7-15 days and covers employees earning up to Rs 21,000 a month once you have 10 or more employees. Professional Tax registration timelines and costs vary by state. Shops and Establishments registration with local authorities takes 7-30 days. GST registration is required if annual turnover exceeds Rs 20 lakh and takes 7-15 days.

Leaving aside the share capital you put in, professional fees, government charges and post-incorporation registrations usually come to Rs 2-5 lakh before you hire your first employee. Ongoing annual compliance, including statutory audits, MCA filings, income tax returns and GST returns, adds Rs 3-8 lakh per year depending on the complexity of operations. As the employer, your entity also carries the labour-code duties itself, from PF and ESIC to the employer obligations under the OSH Code.

The 10-16 Week Timeline Reality

The fastest possible incorporation timeline is approximately 10 weeks. This assumes no delays in document verification, no name rejection by the Registrar of Companies, and all directors having their documentation ready.

A realistic timeline looks like this. Weeks 1-2 involve document preparation, DSC procurement, and DIN applications. Weeks 3-5 cover SPICe+ filing and MCA processing. Weeks 6-8 are for post-incorporation registrations including PAN, TAN, PF, ESI, and GST. Weeks 9-10 address bank account opening, which often requires physical presence and can be delayed by documentation requirements. Weeks 11-14 handle setting up payroll systems, HR policies, and employment contracts. Weeks 15-16 are for onboarding your first employees.

During these 10-16 weeks, your competitors are already hiring talent. An EOR eliminates this delay entirely.

The EOR Alternative: Speed and Simplicity

How EOR Works for India Entry

With an EOR, you sign a service agreement with a provider that already has a fully compliant Indian entity. The EOR hires your employees on its payroll, manages all statutory compliance, and invoices you a consolidated monthly fee. Your employees work exclusively for your company under your direction.

Setup takes 24-48 hours. There is no capital requirement, no director appointment, no government filings, and no bank account needed in India. You go from decision to having an employee on payroll within the same week.

The EOR model is especially compelling for companies that need to hire urgently. If you have identified a great candidate in India who has other offers on the table, waiting 16 weeks for entity setup means losing that candidate. An EOR lets you extend an offer and onboard within days.

The Breakeven Analysis: When to Switch

EOR makes strong financial sense for small teams. Global EOR platforms typically price India between USD 99 and USD 699 per employee per month. TMS pricing is banded: USD 100 per employee for the first 5, USD 75 for employees 6 to 10, USD 65 for 11 to 25 and USD 50 from the 26th, for employees earning up to USD 3,000 gross a month. A team of 10 costs USD 875 a month, about Rs 81,000. On the entity side, indicative market ranges put setup at about Rs 2-5 lakh once, then about Rs 11-23 lakh a year to run: Rs 3-8 lakh in compliance plus Rs 8-15 lakh for an in-house finance and HR team.

Here is a simplified yearly comparison at TMS rates (Rs 93 per USD). Salaries and statutory contributions are the same under both, so only the overhead is compared. A foreign-owned subsidiary also has costs not counted here, such as transfer pricing documentation, foreign investment (FEMA) filings, a resident director and office space.

For a team of 5, the EOR fee is about Rs 5.6 lakh a year against Rs 11-23 lakh to run your own entity, so EOR clearly wins. At 15 employees the fee is about Rs 13.4 lakh, inside the entity range. At 30 employees it is about Rs 23.4 lakh, at the top of the range, and at 50 employees about Rs 34.6 lakh. Where the two lines cross for you depends on your real entity costs, which is why TMS models both for your headcount.

Many companies use a phased approach. They start with EOR for the first 12-18 months, validate the Indian market, and start entity setup as the team approaches 50 employees. The EOR provider can then transition employees to the new entity once it is operational. This is the lowest-risk path to building an India presence.

EOR vs Subsidiary in India: 3-Year Cost Comparison

Most comparisons show you month one. The honest comparison is three years, because entity costs are front-loaded and EOR costs scale linearly with headcount.

Scenario: a growing team, with 5 heads in year 1, 15 in year 2, 30 in year 3. Figures below are illustrative and use ₹93 per USD, the rate our EOR calculators use; entity lines are indicative market ranges, and statutory rates are standard national figures confirmed in your quote.

Cost line	EOR (TMS)	Your own subsidiary
Incorporation & registrations	None	Indicative ₹2 to 5 lakh in professional fees, once
Annual compliance (ROC, audit, filings)	Included in the fee	Indicative ₹3 to 8 lakh per year
In-house finance/HR to run it	Not needed	1 to 2 hires from year 1 (indicatively ₹8 to 15 lakh per year)
EOR fee	Banded from USD 100 down to USD 50 per employee per month: about ₹5.6 lakh in year 1 (5 heads), ₹13.4 lakh in year 2 (15) and ₹23.4 lakh in year 3 (30), roughly ₹42 lakh over three years (full-year basis; less with mid-year joins)	Not applicable
Salaries and statutory contributions	Same under both	Same under both
Time to first compliant hire	24 to 48 hours	10 to 16 weeks
3-year picture	Fast to start and cheaper for small teams; the fee grows with every head	Roughly ₹35-74 lakh over the same three years on these indicative ranges, before transfer pricing, FEMA filings and office costs; fixed costs are spread as the team grows

Most TMS clients switch at 50 to 75 employees, when the team is large enough to justify the 10 to 16 week setup, a local finance and HR team, and the management time a subsidiary needs. Which is why the real question isn’t “EOR or subsidiary.” It’s “EOR then subsidiary, and when.”

Want the exact monthly number for a specific salary and state? Use our EOR cost calculator, or see the full EOR pricing in India breakdown.

The Graduation Path: From EOR to Your Own Subsidiary

EOR is a stage, not a trap, and we’ll tell you when you’ve outgrown it.

Most TMS clients run on EOR until they reach 50 to 75 employees. By then the team is usually large enough to justify a subsidiary’s fixed overhead and its own finance and HR function. TMS manages the graduation end to end:

• Entity readiness: CA/CS firm introductions for incorporation, registrations and ongoing filings (see our guide to registering a company in India)
• Employee transfer: offer letters from your new entity, with statutory continuity: PF balance transfers, gratuity service continuity, leave carry-over
• Parallel payroll runs during cut-over, so nobody’s salary is ever at risk
• Infrastructure: office space and IT equipment partner network
• Your HR function: we recruit and train your in-house HR team, then hand over cleanly

One TMS client started with 5 EOR engineers and grew into a 400-person GCC with its own entity, with TMS managing the incorporation transition and still supporting them today on talent acquisition and compliance. Many graduated clients stay with TMS for talent acquisition, statutory compliance, POSH and contract staffing. No exit fees. You’re never locked in, and never left alone.

Already running India contractors and weighing conversion? See contractor-to-employee conversion and the misclassification risks of leaving them as contractors.

EOR or Subsidiary? A 60-Second Decision Checklist

Tick what’s true for you:

• ☐ We need people on payroll this month → EOR (24 to 48 hours vs 10 to 16 weeks)
• ☐ We’ll have fewer than 50 employees for the next 2 years → EOR
• ☐ We’re 50 to 75+ heads or committed to that scale on a known timeline → subsidiary (hire via EOR while it’s set up)
• ☐ We’ll invoice Indian customers at scale → subsidiary, eventually (EOR bridges the setup period)
• ☐ We want compliance risk off our books → EOR (TMS: zero statutory penalties in 10+ years)
• ☐ We have (or will hire) India finance/HR/legal capability → subsidiary is viable
• ☐ We might exit India if the market doesn’t work → EOR (no exit fees; winding up an entity typically takes 6 to 24 months depending on route)
• ☐ Not sure → that’s what a 30-minute discovery call is for: +91-22-4896-7640

Weighing contractors as a third route? See the full three-route comparison: how to hire in India without an entity →

Set Up a Company in India vs Using an EOR

Foreign businesses entering India face one core choice: set up a company in India (your own entity) or hire through an Employer of Record (EOR). Registering an entity gives you full control and a permanent legal presence but takes time and carries ongoing compliance; an EOR lets you hire employees in India in days with no entity at all. TMS offers both and helps you pick the right one.

When to Register Your Own Entity

• Long-term, full-scale operations and larger teams in India
• You need your own legal presence, IP ownership, or local contracts
• You are ready for ongoing statutory and corporate compliance

See our full guide to company registration in India.

When to Use an EOR

• You want to hire in India quickly without forming an entity
• You are testing the market or hiring a small initial team
• You want TMS to be the legal employer while you direct the work

Learn more about EOR in India.

Long-Term Strategic Considerations

IP and Data Control

With your own entity, intellectual property created by employees belongs directly to your Indian subsidiary, which can be structured to assign IP to the parent company through intercompany agreements. With an EOR, IP assignment requires specific clauses in the employment agreement and the service agreement, adding a layer of contractual complexity. For companies in technology, pharmaceuticals, or other IP-intensive industries, this is an important consideration.

That said, a well-drafted EOR agreement with proper IP assignment clauses provides effective protection. TMS includes comprehensive IP assignment provisions in all employment agreements, ensuring that intellectual property rights flow clearly to the client company.

Client and Vendor Contracts

If your India operations involve direct contracts with Indian clients or vendors, having your own entity is often necessary. An EOR arrangement covers employment, but it does not give you a legal entity to enter into commercial contracts, open a local office under your brand, or invoice Indian customers. If your India presence is purely a talent hub serving your global operations, an EOR works perfectly. If you need commercial operations in India, entity setup becomes necessary regardless of team size.

Exit Strategy Flexibility

Winding up an EOR arrangement is straightforward. You provide the contractual notice period, the EOR manages employee exits per Indian labour law, and the relationship ends. Winding up an Indian entity is significantly more complex, involving MCA filings, tax clearance certificates, employee settlements, and a process that can take 6-24 months. If there is any uncertainty about your long-term India commitment, EOR preserves optionality that entity setup does not.

Frequently Asked Questions

Can I use an EOR and simultaneously set up my own entity?

Yes. This is the recommended approach for companies committed to India. Start hiring through an EOR immediately while initiating entity incorporation in parallel. Once your entity is operational, transition employees from the EOR to your own payroll. TMS supports this transition process, ensuring zero disruption to employees and continuous compliance coverage during the switchover.

Do I need a physical office in India if I use an EOR?

No. EOR employees can work remotely, from co-working spaces, or from client offices. The EOR provides the registered office address for statutory purposes. However, if you want a branded physical office, you can lease space independently. Your employees simply work from that location while remaining on the EOR’s payroll.

Can an EOR handle senior executive hires in India?

Yes. EOR services cover all levels from junior associates to CXO-level hires. For senior executives, additional considerations include equity compensation structuring under Indian tax law, supplementary health insurance beyond ESI, and car or housing allowances. A good EOR provider has experience managing executive-level compensation packages that comply with Indian tax regulations while remaining competitive in the talent market.

What is the tax treatment for the foreign parent company when using an EOR?

Using an EOR generally does not create a Permanent Establishment (PE) for the foreign company in India, provided the arrangement is structured correctly. The EOR is the employer, not an agent of the foreign company. However, PE determination is fact-specific under the applicable tax treaty, and you should consult with a tax advisor to confirm the structure does not inadvertently trigger PE exposure based on the nature of your employees’ activities.

How does TMS facilitate the transition from EOR to own entity?

TMS provides a structured transition plan that includes employee communication and consent for transfer, mapping of all statutory benefits including PF balances, leave balances, and gratuity accruals, parallel payroll runs during the transition month to ensure no salary disruption, transfer of employee records and HR documentation, and post-transition support for the first 3 months to resolve any compliance gaps. The typical transition for a team of 20-30 employees takes 4-6 weeks from start to completion.

At what team size should we switch from EOR to a subsidiary?

It depends on your salaries, headcount and what a local company costs you to run. Most TMS clients switch at 50 to 75 employees, once the team justifies a local finance and HR function and the 10 to 16 week setup. TMS manages the transfer with full statutory continuity and tells clients when they’ve reached that point.

What does it cost to keep an Indian subsidiary compliant each year?

Indicatively ₹3 to 8 lakh per year in filings, audit and professional fees, plus an in-house finance and HR team, typically ₹8 to 15 lakh a year.

Is it cheaper to use an EOR or set up a company in India?

For small teams or short timelines, an EOR is usually cheaper and faster. As the team grows, your own company’s fixed costs are spread over more people; most TMS clients switch at 50 to 75 employees. TMS will model both for your headcount.

Can TMS hire our team via EOR while our subsidiary is being incorporated?

Yes, this is the standard phased path. We hire your team on EOR in 24 to 48 hours, then transfer them to your entity at go-live with PF, gratuity and leave continuity, using parallel payroll runs so no salary is ever at risk.

Start Hiring in India This Week

Do not wait 16 weeks to hire your first Indian employee. TMS EOR services get you operational in days, with full compliance and the flexibility to transition to your own entity when the time is right.

Email sales@tmservices.co.in or call +91-22-4896-7640 to start your India hiring journey today.

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