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This article is written by Aditya Saurabh, pursuing a Diploma in Business Laws for In House Counsels from LawSikho.


Salon businesses popularly known as beauty parlours or beauty salons in India are numerous and can be found in every locality. Looking at a salon business one may comprehend it to be simple, hassle-free and easily set-up and run business, but in reality, it is highly competitive. 

Gone are the days when salon business was something started in a small room with unskilled employees and two-or-three usual tools. With the rapid increase in the urban population in India, the evolution of technology and science, and the rise in the salary standards; the general tendency amongst men and women of all age groups wanting to look good and groomed has increased. (Special thanks to the increasing influence of social media!) This has led to a significant surge in the beauty and wellness sector and can be claimed as one of the most profitable businesses in today’s times, attracting popular companies to invest and venture into this industry.

Do you also dream of starting up your own salon business? 

Salon business can be very lucrative and rewarding if carefully planned and every detail thought off is chalked out to absolute clarity. Making a person look and feel good is a great way to earn living, but there are several important considerations you need to take before throwing the doors open such as target clientele, type of salon, expected daily footfall (for the size of the space of salon business), location, equipments, staff, finance, and others.

Among all these considerations, legal and regulatory compliances are one of the most important factors that are required to be considered but are usually ignored, which then lead such businesses to run into troubles and losses.

Legal and regulatory compliances for a business

Businesses today need to comply with a large number of legislations and regulations determined by the law or any governing body. These compliances are thus, basically a set of rules formed by the respective authority, which can be in the form of policies or laws that ensure in setting standards for the specific industry or sector, or institution. Simple examples of compliance for a business can be obtaining a business license and paying your taxes. Compliances thus, both legal and regulatory, are an integral part of a business to ensure that the business runs smoothly, prevents itself from unnecessary penalties or legal actions that hamper its operations, saves itself from financial losses, and ensures continuous generation of customer confidence.

In India, businesses have to comply with the laws and regulations formed at three levels: central, state, and locally regulated, according to the geographical presence of the industrial segment. The compliances can be generally divided into the broad categories according to the issues it resolves pertaining to the economy, public interest, and environment.

How compliance is beneficial to any business?

Businesses have often seen compliances as a burden due to the cumbersome processes involved, and thus only fulfill their minimum requirements. Due to this, businesses miss the opportunity to improve their business procedures, activities and revenues. Understanding the rationality behind the compliances would help any business take advantage of the benefits it may offer.

  • Compliances are made to ensure that a business acts responsibly to protect the health, safety and welfare of others. For example, laws and rules regarding discrimination and harassment can help you create a better working environment for your employees, which can lead to more worker productivity. Following safety and security rules can help in preventing injuries, fires, or building evacuations that can hurt your pockets.
  • Compliances help in setting standards for safety, health, finance, and environment; as a business offers a plethora of complex new products and services to the customers which are a result of technology revolution. In order to set the standards for such products and services, compliances such as FSSAI for food products, hallmarks for ornaments, etc are formulated by the respective authorities.
  • Compliances help in decreasing the risk of fines, penalties, work stoppages, lawsuits or a shutdown of the business. For example, when you don’t meet the compliance requirements, such as in your manufacturing procedures or advertising methods, you can harm your production and also help someone suing you strengthen his case.
  • Compliances help a business in building better public relations by providing it the ability to tout the compliances performed on the website and market it. For example, when you place job advertisements, include the fact that you are an equal opportunity employer and you do not discriminate based on race, sex, caste, or sexual orientation. Further, you can highlight your business’s commitment to both physical safety and mental health by referencing key policies and benefits dedicated to proactive healthcare and wellbeing, such as extended maternity and paternity leaves.
  • Compliances help in retaining employees as it would make them feel working in a fair, professional and safe environment. For example, forming a PoSH Policy that mirrors your legal compliance obligations can ensure employee retention.
  • Compliances help in improving the credibility of the businesses and raise them as a socially and environmentally responsible entity in the market. For example, permits from pollution control boards ensure that whether an industry is following proper technologies for the environment or not. 

Compliances become more important as and when any business grows to prevent the risks and alleviate their effects. As the business grows, the complexity and responsibility of the business also grows towards the stakeholders. In order to manage all these, compliances can thus be very useful. 

What are the legal and regulatory compliances for salon business?

The salon business industry has witnessed exponential growth in its size and types of salons, starting from a small business to a huge chain of salon business or from a simple hair cutting salon to a multi-service beauty salon. Thus, detailed planning regarding the ownership structure of a salon business is imperative to choose.

Independent Owner: Many people who decide to start a salon business don’t have huge investments or plans of expansion and only want to work independently or with a group of entrepreneurs in the neighbourhood. This set-up can thus be started with minimal operational and investment cost. Independent owners can adopt a Sole Proprietorship structure (most commonly used) or a One Person Company or a Limited Liability Partnership.

Salon Franchisee: For the people who decide to start a salon business as a franchisee of a popular salon chain, higher investment than an independent owner is required. Further franchise fee based on the revenue of the franchisee salon is also to be shelled out by the salon. However, the franchisor supports in detail planning and establishment of the salon business including its operations, staff training, branding, advertising, etc. Salon franchise models can adopt an LLP or a private limited company structure. The drafting of the Franchise Agreement is to be carefully done. For example, Naturals Salon and Spa is a popular salon chain whose franchisee can be taken.

Chain of Salon Business or Salon Franchisor: For the people who decide to start and own a chain of salon business, significant time and capital along with vendor partnerships, branding and other plans are required. Chain of salon business models can adopt an LLP or a private limited company structure. To be a popular chain owner or franchisor, a brand is one of the most valuable assets, for which trademark registration is important.

After finalizing the corporate structure of the salon business, necessary legal and regulatory compliances will be required to be undertaken to run the salon business, which are:

  • Registration of Business Structure

Based on the chosen business structure, one must obtain a registration from the registrar of companies for a Company which would entail filing of incorporation forms with the MCA (Ministry of Corporate Affairs), Memorandum of Association, Articles of Association and a common seal of the company; and for the registration of a LLP the prerequisite would be LLP Deed, filing of incorporation forms with the MCA, along with a Common Seal of the LLP. For the registration of a partnership firm at the sub-registrar’s office, Partnership Deed would be a prerequisite. No registration is required for a sole proprietorship in India to run a business.

  • PAN and TAN

One must get a PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number) in the name of the salon business if a LLP or a private limited company structure has been chosen, and in the name of the salon business owner if a Sole Proprietorship, has been chosen.

PAN is a 10-digit unique alphanumeric number of which registration is mandated by the Income Tax (IT) Department for all individuals and entities that are generating income or paying income tax or performing any high-value financial transactions. Also, to track all compliances and filings of the transactions of the assessee, PAN is used by the IT Department.

For the allotment of PAN an online application or in person application by visiting the IT department can be made through Form 49A. PAN has a lifetime validity once issued. If an individual or entity does not have PAN, tax at the highest possible rate is deducted.

TAN is also a 10-digit unique alphanumeric number issued to individuals or entities that are required to deduct or collect tax on payments like salary, payments to contractors, payment of rent, etc. made by them under the provisions of Section 203A of the Income Tax Act, 1961. The section also makes it mandatory to quote TAN in all TDS/TCS returns, payment challans and certificates to be issued. Also, TDS payments, returns and challans are not entertained by banks if the TAN number is not quoted in documents.

For the allotment of TAN an online application or in person application by visiting the IT Department can be made through Form 49B. TAN has a lifetime validity once issued but, in case of changes in the details it has to be informed to the IT Department. If not applied for TAN or not quoted it in relevant documents a penalty of Rs. 10,000/- can be imposed.

  • Fire NOC

One must obtain a Fire No Objection Certificate (NOC) from the Chief Fire Officer of the Fire Department Authority of the particular state or municipality to ensure that the property is fire resistant and improbable to cause any harm to the property and life due to fire. Every building that has a height of more than 15 meters is required to obtain this NOC by submitting the building plans, its model, electrical appliances used and certificate from the Architect, etc. and after verifying and auditing by the Fire Department of the building’s fire resistance and fire safety mechanism.

If there is any failure to comply with fire-safety norms, Fire Department as per NBC (National Building Code of India), issues notices to building owners or occupants and has the power to cut the water and electricity of the building or even seal the building from further use. According to the state authorities, the validity of the NOC varies and is required to be renewed.

  • Trade License

One must obtain a Trade License before commencing the salon business by filing an online application form through the online portal of the municipal corporation of the respective state along with required documents such as registration certificate, Fire NOC, Police NOC, Identity proof, address proof, etc. It is issued by the municipal corporation for commencing a business at a particular location after ensuring that the public is not adversely affected or harmed by the business and the business follows relevant rules and guidelines and undertakes safety measures.

This license is valid for a period of one year and is required to be renewed within thirty days from the date of its expiry. Failure to obtain a valid trade license before commencing the business activity or delay in renewing it upon its expiry will attract penalty as per the rules and regulation of the issuing authority. 

  • Registration under Shops and Establishments Act

One must file an application under FORM A along with other required documents for registration under the Shops and Establishment Act, within 30 days of commencement of the salon business to obtain a license under this Act from the particular State labour department. This Act is applicable nationwide to all the commercial establishments and shops where individuals are employed or are engaged to do office work or provide services, but does not include a factory, such as the hotels, eateries, amusement parks, theatres, etc. However, every state has its own list of shops and commercial establishments that come into the Act which also varies in each state, who are mandated to register under the Act of the particular state.

The Shop and Establishment Act license is a basic license which acts as a legal entity proof to apply for other registrations required to run a business in India such as opening a current account in a bank. This licence also helps in availing Government benefits, resolving disputes in a legal manner, and further lists out norms for the business such as opening and closing hours, working hours, overtime policy, rest intervals, holidays, paid leaves, display of notices, etc. for employing any person. Thus, if any business fails to obtain a license or does not follow the provisions of the Act or Rules, a penalty is imposed.

  • GSTIN Registration

One must register and obtain GSTIN (Goods and Services Tax Identification Number) free of cost, which is a unique 15 digit identification number assigned to every business entity registered under the GST regime. Any service provider business whose aggregate turnover in a financial year exceeds Rs.20 lakhs (Rs. 10 lakhs for North Eastern states & Special Category States) is mandatorily required to register under the GST regime. The consequences of evading GST laws can cause financial losses such as the penalty for not registering under GST regime is 10% of the tax due or Rs 10,000 whichever is higher.

Having a GST registration gives the business a symbol of validity, a legal recognition that helps in attracting more customers and grows business. Further it ensures that the business is compliant and helps in claiming service taxes and input tax credits, which helps in boosting the business. Further, registering under GST regime helps small businesses to avail composition scheme, according to which a lower amount of tax at a fixed rate is charged from the businesses whose turnover does not exceed Rs 1.5 crore in a year. 

  • Professional Tax Registration

One must obtain a professional tax certificate or enrolment number by registering as a payee of professional tax in a local professional tax office of the relevant state within 30 days of starting the business. Two types of professional tax certificates are issued, namely, PTEC (Professional Tax Enrollment Certificate) and PTRC (Professional Tax Registration Certificate). A business entity may or may not require both the certificates.

Professional tax is a state level tax which differs from state to state and is imposed by the local municipality on income earned by way of profession, trade, calling or employment. Currently, not all states impose professional tax but Rs. 2500/- is the maximum amount of tax that can be imposed. Under this, the business owner is duty bound to deduct a certain amount from the income of his employees, monthly, semi-annually or annually and deposit the same to the relevant government department. 

  • Music License (Copyright Requirements)

One must obtain a Music License as per the Copyright Act, 1957, if planning to play a pre-recorded music in the form of gramophone records, music cassettes or CDs or radio or Tv or audio-visual etc. for non-private purposes in salon business, from a Copyright Society or performing right society duly registered under Section 33 of the Copyright Act. Such a Music license required by a salon business can be issued by making an application along with relevant documents at the facilitation centre of the Phonographic Performance Limited (PPL) Society. 

  • MSME Registration

One may obtain a MSME registration by filing a registration form, online or offline, before the Ministry of Micro, Small and Medium Enterprises to avail the benefits under the MSMED Act, 2006 from Central or State Government and the Banking Sector. MSME registration provides a wide range of benefits such as eligibility for lower rates of interest, excise exemption scheme, tax subsidies, power tariff subsidies, capital investment to avail a host of benefits. There is no expiry for the MSME Registration certificate, but the business’s investment and turnover must fall within the eligibility limit for the registration.

  • Other Registrations

Trademark registration: One may obtain a trademark registration by applying, online or offline, with the Office of the Controller General of Patents, Designs & Trademarks which is under the Department of Promotion of Industry and Internal Trade, Ministry of Commerce & Industry to ensure that the brand name, its reputation and ideas are protected and are not used by anyone else. Once the trademark is successfully registered, the owner of the trademark shall be the individual, company or LLP whose name is mentioned as the applicant in the application form. 

ESI (Employees State Insurance) Registration: One must obtain ESI Registration which is in the ESI notified areas, having more than 10 employees (in some states it is 20 employees) who have a maximum salary of Rs. 21,000/-. As per this scheme, which is managed by the Employee State Insurance Corporation under the Ministry of Labour and Employment, Government of India, many benefits such as medical, monetary, maternity, old age medical expenses, etc and given to the workers by the employer. 

As per Sec 1(5) of the ESI Act a shop must file for ESIC registration which can be done online on the ESIC portal. However, an Exemption Certificate has to be obtained if any establishment is exempted from this registration.

EPF (Employees Provident Fund) Registration: One must obtain EPF Registration within one month of attaining the strength of 20 or more persons (10 persons in some states in India) employed by the salon business. EPF registration is done under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 where once registered, the business continues to be under its purview, even if the employee strength decreases. Businesses are also advised to perform voluntary registration with EPFO, if the strength criteria are not met.

Intimation to Pollution Control Board: There is no requirement for a salon business to obtain a licence from the PCB as it falls under the white category of the industry as per the PCB’s notification and is thus exempted from obtaining consent of the Board under the provisions of the Water (Prevention & Control of Pollution) Act, 1974 & Air (Prevention & Control of Pollution) Act, 1981 and Hazardous Waste Management Rules, 2016. However, one must be intimate about the setting up of salon business and obtain an acknowledgment from the concerned PCB.

Impact of COVID-19 on salons

Due to the Coronavirus outbreak, the next visit by a customer to a beauty parlour or salon can be a surprising experience starting from social distancing norms, to mandatory masks, to booking a prior appointment, to thermal checks before entering the beauty salon, to may be bringing your own personal items such as towels among others either due to the government guidelines or due to the voluntary undertaken precautionary measures. In either scenario, efforts have been made to restore the normalcy in India after the salons have resumed their work. 

However, the fear of COVID-19 transmission is higher in a salon business as most of the work involves physical contact. Due to which, it becomes crucial that salon businesses are properly regulated so that the people are safe, Covid cases don’t increase and the businesses don’t have to shut again. Several government bodies have released guidelines such as the detailed Operating Guidelines for Salons, Beauty Parlors and Barbers Amidst COVID-19 Scenario released by Shravan Hardikar, Municipal Commissioner of Pimpri Chinchwad Municipal Corporation, Pune (India) which has both the mandatory and general guidelines which is required to be followed by the salon businesses. Further, salons have voluntarily made guidelines such as the L’Oreal India has created a ‘Back to Business’ safety guidelines for its salons, outlining hygiene and operating guidelines to run the business and gain customer trust.

These guidelines are required to be followed by the salon businesses of the particular region or area or brand but any deviance from it does not really have any adverse implication to the businesses. So, are these guidelines enough? Since the Covid-19 outbreak seems to go nowhere and might stay for a longer while; the problem with these guidelines is that they are not strictly and uniformly imposed everywhere and are blatantly ignored by most of the salon businesses. Therefore, there is a need for mandatory regulatory compliance with deterrent provisions that curb negligence and regulate salon businesses everywhere in India as these places possess a high risk of transmission of Covid-19. Having such a regulatory compliance to fight Covid-19 shall benefit both the customers and the salon businesses.

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