Manufacturing Company Setup in India
India's manufacturing sector is experiencing unprecedented growth, driven by the government's 'Make in India' initiative, Production Linked Incentive (PLI) schemes, and favorable policy reforms. With a large domestic market, skilled workforce, and improving ease of doing business, India has become an attractive destination for manufacturing investments.
This comprehensive guide covers everything you need to know about setting up a manufacturing company in India, from company registration and environmental clearances to government incentives and ongoing compliance requirements.
Industry Overview and Opportunities
The manufacturing sector contributes approximately 17% to India's GDP and employs over 27 million workers. The government aims to increase this contribution to 25% of GDP through various initiatives and policy reforms.
Key Growth Drivers
- • Large domestic consumer market (1.4 billion population)
- • Rising disposable income and urbanization
- • Favorable demographic dividend (young workforce)
- • Growing middle class driving demand
- • Increasing FDI inflows (100% FDI allowed)
Priority Sectors
- • Automobile and auto components
- • Electronics and semiconductors
- • Pharmaceuticals and medical devices
- • Textiles and apparel
- • Food processing and agro-products
Step-by-Step Registration Process
Company Registration
Register as a Private Limited Company, LLP, or Public Limited based on your business scale. Most manufacturing units prefer Private Limited for limited liability and easier funding access.
Udyam Registration
Register under the Udyam portal to obtain MSME status. This unlocks priority sector lending, collateral-free loans under CGTMSE, and various subsidy schemes.
Factory License
Apply for factory license under the Factories Act, 1948. Required if you employ 10+ workers with power or 20+ workers without power. Obtain from the Chief Inspector of Factories.
GST Registration
Mandatory GST registration for manufacturing units. Most manufactured goods attract 18% GST, with essential goods at 5% and luxury items at 28%.
Environmental Clearances
Obtain Consent to Establish (CTE) and Consent to Operate (CTO) from State Pollution Control Board. Required if your unit falls under polluting industries category.
Fire NOC and Building Approvals
Get Fire No Objection Certificate from the State Fire Department and building plan approval from local municipal authority before commencing operations.
Essential Licenses and Permits
| License/Permit | Issuing Authority | Timeline | When Required |
|---|---|---|---|
| Factory License | Chief Inspector of Factories | 30-45 days | 10+ workers with power |
| CTE/CTO | State Pollution Control Board | 60-90 days | Polluting industries |
| Fire NOC | State Fire Department | 15-30 days | All manufacturing units |
| Building Plan Approval | Local Municipal Authority | 30-60 days | Before construction |
| Shop & Establishment | Local Municipality | 7-14 days | All commercial premises |
| Import/Export Code (IEC) | DGFT | 3-5 days | Importing capital goods/raw materials |
Production Linked Incentive (PLI) Scheme
The PLI scheme offers incentives ranging from 4% to 6% on incremental sales over base year for manufacturers in eligible sectors. This can significantly reduce your effective tax rate and improve returns.
Electronics
4-6% incentive on incremental sales. Mobile phones, IT hardware, semiconductors.
Automobiles
8-18% incentive on EVs and components. Advanced chemistry cell batteries.
Pharma
5-10% incentive on incremental sales. APIs, drug intermediates, formulations.
Taxation for Manufacturing Units
GST Rates
- • 5%: Essential goods (food items, life-saving drugs)
- • 12%: Processed foods, apparel, building materials
- • 18%: Most manufactured goods, machinery, equipment
- • 28%: Luxury items, automobiles, tobacco products
Income Tax Benefits
- • Section 115BAB: 15% tax rate for new manufacturing companies (incorporated after Oct 2019)
- • Section 35AD: Deduction for capital expenditure on specified businesses
- • Accelerated depreciation: Higher depreciation rates in initial years
Ongoing Compliance Requirements
Monthly/Quarterly
- ☐ GST Returns (GSTR-1, GSTR-3B)
- ☐ TDS Returns (if applicable)
- ☐ Provident Fund contributions
- ☐ ESI contributions
- ☐ Professional tax payments
Annual
- ☐ Annual Return (MGT-7)
- ☐ Financial Statements (AOC-4)
- ☐ Income Tax Return
- ☐ Factory License renewal
- ☐ Environmental compliance reporting
Key Takeaways
Setup Essentials
- ✓ Company registration (Pvt Ltd recommended)
- ✓ Udyam registration for MSME benefits
- ✓ Factory license under Factories Act
- ✓ Environmental clearances if applicable
Growth Opportunities
- ✓ PLI scheme benefits for eligible sectors
- ✓ 100% FDI allowed in most manufacturing
- ✓ Reduced corporate tax rate (15% under 115BAB)
- ✓ Export promotion schemes available