Guidelines Ethical Direct Selling Companies Should Follow


Nowadays, more than 6 million people / direct sellers along with 10 million affected due to scams are reported to earn an income through direct marketing. This rules out the ‘empty minds’ and helps to deal in a business by enhancing skills with little investment.

While scams / Ponzi schemes utilize marketing compensation plans over a single level, MLM compensation plans are often deceptive and continue with the negligence of government officials and individuals across the nation. A vague understanding and regulations for the compensation plans have ultimately gained prominence and have brought about financial problems and issues related to trust.

With these reasons in mind, Strategy India planned to bring in direct selling guidelines for the business to sustain in this competitive industry.

Company Registration

The company should be based in India and should be registered under the Companies Act, 2013. The Memorandum of Association (MoA) should elaborate on the business model as a direct selling approach and a compensation plan. As per the clauses, the registered company should adhere to the formalities of the Central Government including Service Tax, Income Tax, Food Safety and Standards Act of India, etc… and also with the requirements of the state government. During registration, the company should submit the list of products along with the compensation plan. Later, once the guidelines are published, the existing companies can add the information in the latest version.


There should be no confusion with the MRP and should be clearly stated on the package and the company’s website. In case the company wants to decrease or hike the price, it should inform the direct sellers 30 days in advance. For consumable products, individuals can take the advantage of a refund policy which lasts for at least 30 days. The period is calculated from the date on which the invoice is prepared. The clause is applicable only when 30% of the product is consumed. The consume gets 100% refund which can be collected from the direct seller.

On the other hand, goods can be exchanged within 30 days if it’s a non-consumable product. The item is refundable only if there are any manufacturing defects or it doesn’t seem useful for the purpose. If the product is not delivered within 20 days from the date of invoicing, the company would request the direct seller to refund the entire amount either through a reverse transaction, demand draft, cheque or pay order. The payment should be done within a time span of 7 days on receipt of the request.

Compensation Plan

The commission is generated only when the product is sold out. Every direct seller should get a chance to earn through payouts even when he or she has not included people in the network. While there are no fees for enrollments, incentives are offered only when the direct seller introduces others in the network. Payments should be done on the decided date without any delay. TDS should be deducted from the pay-outs. In case the seller is able to furnish PAN card details, then 10% should be deducted or else the company can go for 20%. Direct sellers earning more than Rs. 10,000,00/- have to pay service tax wherever applicable.

Business Information Kit

Direct sellers should purchase the information kit. The price should be not more than Rs.1500 including service taxes. No incentives should be calculated once the kit is purchased. The kit should include a Business manual, Code of Conduct, Details of customer care team, business model, Enrolment forms and the compensation plans. The kit can be returned in 30 days provided that the contents is in its proper condition. Company deducts 20% handling charges and taxes and offers the difference in 7 working days once the kit is received.

Rights and Duties of the direct seller

The direct seller should be more than 18 years of age and must be eligible according to the terms of the Indian Contract Act. Once appointed, the seller must sign an agreement with the company. Privacy of data should be maintained by the company and information should be disclosed only for KYC / KYDS formalities. A direct seller is considered to pay service tax only when the earning amount to Rs. 10,00,000 across the financial year. A direct seller has the liberty to engage with different opportunities so long as the company’s business in not disturbed.


The company is considered to be responsible for Due Diligence and always keep the data secure. This includes documents issued by government officials. They comprise of a photograph, signature proof, address proof and PAN number. The direct seller should be ready to furnish data for backups / synchronizations within 72 hours post receipt of the request sent by government bodies. The request should be made from an official email ID stating the reasons.

Virtual Currency

Virtual Currency should be generated by the company and should be lesser than the amount in the bank account. The payout is released in form of virtual currency on request of the direct seller. The company should not permit the direct seller to store more than Rs. 30,000 for a period of 30 days. Once requested, the company should pay the direct seller within a span of 15 working days.


Commissions / incentives can only be paid into the bank accounts of India through NEFT / RTGS / DD or pay orders. Payments should be credited in accounts of Indian banks and the payout should be released in accounts held in banks of India.

Company’s Website

The company’s website should be easily accessible and not be protected by a password. It should in English and Hindi as the universally accepted languages of India. It must elaborate on the top management team, offer regular updates on meetings, detailed compensation plan, and details of products. Most importantly, it should explain the terms for enrolments clearly. It should also have a section to post complaints with an effective complaint resolution mechanism. Lastly, the privacy policy should be clearly laid down for web browsers.

Companies which follow the above guidelines should not be under the provisions of Money Circulation schemes Act. 1978 or those of MPID/TNPID/OPID Acts. As per the terms of the RBI, non-banking financial organizations don’t have to comply with the guidelines. Seven days should be given for companies to reply before any action is taken. Once the guidelines are issued, companies have to give 90 days notice for aligning the process accordingly.

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