Article · 22 October 2026

Karnataka Shops and Commercial Establishments (Amendment) Act, 2026: How Does It Affect Businesses?

By Aditya Rao

01

Overview

Karnataka has been a stronghold of modern entrepreneurship, technology, and commercial activity in India. The Karnataka Shops and Establishments Act (“the Act”),[1] one of the country’s most forward-looking labor laws, consolidated and replaced multiple regional laws to standardize labor regulations across Karnataka.[2] Despite this forward-looking nature of the Act, 72% of businesses struggle with compliance every year,[3] with 52% seeing some form of penalties flowing from the Act.[4] The amendment to the Act, officially the “Karnataka Shops and Commercial Establishments (Amendment) Act, 2026 (“the Amendment”),[5] coming into effect in September 2026, has introduced changes that introduce further regulations for businesses in the state. It is thus crucial for startups to understand exactly what the changes are, and how one must address them.

02

What Are the Changes and How Do They Affect Businesses?

Registration and Administrative Requirements

The first set of changes are with regards to Registration and other Administrative Requirements. Registration is one of the first regulatory considerations for a business operating from a commercial establishment. With the amendment, the application for registration may now be done through electronic or digital means.[6] The requirement to notify the local Inspector of the closure of an establishment has similarly been amended to allow for digital communication.[7]

Ease of registration has also increased. A registration certificate issued under Section 4 now requires no periodic updation,[8] with validity lasting until a business ceases operation. Further, the period within which an inspector must communicate the refusal of an application has been reduced to 7 days, with silence from the Inspector indicating a confirmation of registration.[9]

Exemptions for Certain Establishments

The next set of changes increases the exemptions for establishments under the Act.[10] Establishments that employ 10+ workers that are already registered under the Occupational Safety, Health and Working Conditions Code, 2020 are now excluded. Further, any godowns or storage facilities located within 100 meters of the principal establishment no longer require separate registration.

Employee Documentation and Certification

The Amendment introduces two new provisions that alter the way companies must tackle employee records. It inserts a Section 6B which requires an employer to issue a service certificate within 7 days of receiving an application and a Section 6C that prohibits employers from retaining certain original documents of an employee.[11]

Penalties and the Settlement of Offences

The Law has revised the process for settling certain offences by payment, called compounding. The jurisdictional Labor Officer may compound an offence by collecting 50% of the fine for the first offence and 75% for subsequent offences.[12] The same person cannot compound an offence of the same nature more than twice within one year. Further, all affected persons must also receive a reasonable opportunity to be heard before a penalty is imposed.

Any appeal to these compounding orders must be filed within 30 days, subject to the statutory requirements. Any appeal must be disposed of within 60 days.[13]

The Amendment has also increased penalties under this Act for instances of non-compliance. For example, the fine for obstructing an Inspector has increased from Rs.500 to Rs.10,000 while other contraventions under Section 24 and 25 attract a similar fine.[14]

The Act also updates the outdated Payment of Wages Act to the new Code on Wages and the Code on Social Security.[15] It also removes some of the conditions stipulated for employment of women during night shifts, including driver background checks, route planning, mobile app development, control rooms and other related safety protocols.[16]

03

What Should Startups Do Now?

For startups, these requirements have several practical implications for recruitment and HR management. The Amendment includes several positive ‘quality of life’ changes for Startups while also creating a higher deterrence with increased penalties. The amendment truly reflects the forward-looking nature of the Act itself.

Businesses must now review their onboarding procedures and ensure that there exists no retention of original documents. Further, a clear process must be in place so as to comply with any service certificate requirements. Startups must organize their administrative functions in accordance with these obligations. Businesses that operate offices alongside storage facilities or have expansion plans will find administrative hurdles much more convenient to navigate. However, the exemption depends on the specific condition for registrations, which businesses must verify before concluding their status as exempted. As always, businesses must seek to stay updated on all their renewals, documents and compliances and ensure that no legal liability falls upon them, hindering their growth.

04

Notes

  1. The Karnataka Shops and Commercial Establishments Act 1961.
  2. AZB & Partners, ‘Karnataka: Recent Key Amendments to the Shops and Commercial Establishment Law’ (AZB & Partners, 18 September 2026) https://www.azbpartners.com/bank/karnataka-recent-key-amendments-to-the-shops-and-commercial-establishment-law/.
  3. Keka HR, ‘Karnataka Shops and Commercial Establishments Act: Complete HR Compliance Guide’ (Keka Compliance, 2026) https://www.keka.com/compliance/acts/karnataka-shops-and-establishments-act.
  4. ibid.
  5. The Karnataka Shops and Commercial Establishments (Amendment) Act 2026.
  6. The Karnataka Shops and Commercial Establishments (Amendment) Act 2026, s 3(1).
  7. The Karnataka Shops and Commercial Establishments (Amendment) Act 2026, s 4.
  8. The Karnataka Shops and Commercial Establishments (Amendment) Act 2026, s 3(5).
  9. The Karnataka Shops and Commercial Establishments (Amendment) Act 2026, s 3(3).
  10. The Karnataka Shops and Commercial Establishments (Amendment) Act 2026, s 2.
  11. The Karnataka Shops and Commercial Establishments (Amendment) Act 2026, s 5.
  12. The Karnataka Shops and Commercial Establishments (Amendment) Act 2026, s 11.
  13. The Karnataka Shops and Commercial Establishments (Amendment) Act 2026, s 12.
  14. The Karnataka Shops and Commercial Establishments (Amendment) Act 2026, s 9-10.
  15. The Karnataka Shops and Commercial Establishments (Amendment) Act 2026, s 6-7.
  16. The Karnataka Shops and Commercial Establishments (Amendment) Act 2026, s 8.

Publications are for general information and do not constitute legal advice.

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