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Trade license

In certain states, it is necessary to obtain a trade license before commencing a commercial activity from any premises. Usually trade licenses are required for commencing business in municipal areas, that is, towns or cities which have a municipal corporation / municipality, however they may be also required in a gram panchayat area. A trade license is issued by the municipal corporation to ensure that the manner in which a business is being carried on is according to the relevant rules, standards and safety guidelines applicable in that city.

Depending on the law of the state where a business operates, a trade license may be required for any commercial activity, or for select commercial activities only. For example, in Rajasthan, Gujarat, Maharashtra and Goa a trade license is required only for trades which have an impact on public health, such as eating establishments, factories, workshops, barber shops, flour mills – any business engaged in these activities is required to get trade license.

However, in states like Bihar, Jharkhand, West Bengal, Odisha, Chhattisgarh and Madhya Pradesh have a mandatory provision for trade licensing for all commercial activities.

(See the Table below to find the names of important cities where a trade license is required, the name of the municipal authority in that city and the parent act under which they have the powers to issue a trade license.)

The requirement of obtaining a trade license may not be applicable or enforced with respect to an independent freelancer or a consultant who works from home. However, where an organized form of commercial activity is carried out by people from specific premises (such as an office), the requirement of obtaining a trade license for the activity will be applicable. Businesses which do not obtain a trade license face the risk of harassment, penalties or even sealing of premises from officers of the local body.
The procedure & fees to obtain a trade license are set by the municipal authority therefore widely differs according to the location. The fee chart applicable in Kolkata is available here.

Note that trade license is a certificate/ document which grants permission to carry on a particular business in the premises with respect to which it is issued - it is not a document of ownership. It also does not provide permission to carry on other activities (which are not mentioned in the license).

What benefit does the government derive by imposing the requirement of a trade license?

In India, the state governments earn significant revenues from trade licenses, in the same way that they earn revenues by imposing specific taxes.

Example of a trade license in Karnataka

Under the Karnataka Municipal Corporations Act, only businesses engaged in activities that have a direct bearing on public health (such as hospitals, nursing homes, laboratories and diagnostic centers, barbers, beauty parlor, boarding, lodgings places, articles of food and drink, etc. – the complete list is provided in the Annex) are required to obtain a license, if they are located within the limits of a city that is governed by a municipal corporation. The complete list of activities that require a trade license is in Schedule X of the Act (attached as an Annex to this chapter). As per the KMC Act, carrying out a commercial activity in Bangalore without a trade license from the Commissioner (trade license is required for activities mentioned in the annex) attracts a fine (although the fine is a paltry amount of Rs. 200).

The documents which are required for obtaining a new license in Bangalore are: - Application Form; owners consent along with proof of ownership in any form viz., tax paid receipt, khata extract, sale deed, etc. Neighbour’s consent in respect of any trade in a residential zone even if it is a trade permitted in the residential zone as per the applicable local development plan.

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