Setting up a Manufacturing Entity in India: Approvals, Licences and Incentives

A manufacturing entity in India needs four things to run legally: a valid corporate structure, land with the right zoning, a factory licence, and environmental consent from the state pollution control board. What governs that factory licence changed materially on 21 November 2025, when the Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code) came into force and repealed the Factories Act, 1948 along with twelve other labour laws, subject to a savings clause for existing registrations. Most delays still do not come from any single approval taking too long. They come from sequencing: applying for a factory licence before the building plan is approved, or signing a state incentive agreement before the entity structure is finalised. This guide walks through the process in the order it actually needs to happen, with the documents each stage needs, the current legal regime for each approval, and the incentives available at each level of government.

What is the fastest legal route to set up a manufacturing entity in India?

The fastest route is to incorporate a private limited company, obtain GST and Udyam (MSME) registration in parallel with land acquisition, apply for Consent to Establish (CTE) from the State Pollution Control Board (SPCB) before construction begins, and file the factory licence application once the building plan is approved. Done in this order, a non-hazardous unit can typically be production-ready in four to seven months; a red-category or chemical-intensive unit takes six to twelve months because environmental clearance and CTE review run longer.

Choosing the right entity structure before anything else

The entity decision comes first because it determines tax treatment, foreign investment route and which incentive schemes are even open to you.

A private limited company is the default for manufacturing, domestic or foreign-owned, because it allows external commercial borrowing, gives limited liability to promoters, and is the only structure through which certain schemes such as the Production Linked Incentive (PLI) route foreign direct investment cleanly. A limited liability partnership works for smaller domestic-only operations but cannot easily raise FDI-linked incentives or list machinery-heavy assets against external debt on comparable terms. A sole proprietorship or partnership is rarely advisable once the unit crosses Udyam small-enterprise thresholds, since lenders and state industry departments generally require a body corporate for capital subsidy disbursement.

For foreign promoters, the entry route matters as much as the entity type. Manufacturing is on the automatic route under the Foreign Exchange Management Act (FEMA), 1999, for almost all sub-sectors, meaning up to 100% FDI without prior Reserve Bank of India (RBI) or government approval, subject to sectoral caps and reporting under the FEMA (Non-Debt Instruments) Rules, 2019. Defence manufacturing, certain telecom hardware and a handful of dual-use categories carry government-route conditions or caps below 100%, so this should be checked against the current FDI policy circular before the entity is incorporated, not after.

Once shares are allotted to the foreign investor, Form FC-GPR must be filed on the RBI’s FIRMS portal within 30 days of the allotment date. There is no grace period and no extension mechanism; missing the deadline is treated as a FEMA contravention from day one. Filing within three years of the due date can usually be regularised by paying a Late Submission Fee, calculated as ₹7,500 plus 0.025% of the investment amount per year of delay, capped at 100% of the amount; beyond that window, or for more substantive pricing or structuring defects, the company has to apply for compounding under Section 15 of FEMA, which is a materially heavier process. The cleanest practice is to allot shares and file FC-GPR on the same working day the funds and valuation certificate are in hand.

Documents needed for incorporation:

• Digital signature certificates (DSC) for all proposed directors
• Director Identification Number (DIN) applications, filed with incorporation
• Memorandum and Articles of Association drafted with the manufacturing object clause explicit (this affects Section 115BAB eligibility later)
• Proof of registered office (rent agreement or ownership deed plus a no-objection certificate from the owner)
• Identity and address proof of directors and subscribers
• For foreign subscribers: apostilled or notarised passport copy, board resolution authorising the Indian subsidiary, and if applicable, the FDI reporting under Form FC-GPR post-allotment

Incorporation through the Ministry of Corporate Affairs (MCA) SPICe+ form typically takes 7 to 10 working days once documents are in order. GST registration and Udyam registration can be filed in parallel and usually clear in 3 to 7 working days each. Udyam registration is not compulsory for a manufacturing unit above MSME thresholds, but where the unit qualifies, it unlocks priority-sector lending, protection against delayed payment under the Micro, Small and Medium Enterprises Development Act, 2006, and access to government e-marketplace procurement, so it is worth filing even for units expecting to outgrow the MSME band within a few years.

Industrial land: state allotment versus private land, and why the choice matters

Land is usually the single biggest sequencing decision in the whole project, and it should be made before, not after, incorporation and CTE planning are locked in.

Every major state runs an industrial development corporation that allots pre-zoned industrial plots, generally on a long-term lease (99 years is common, with freehold available in some estates): Maharashtra Industrial Development Corporation (MIDC), Gujarat Industrial Development Corporation (GIDC), Tamil Nadu’s State Industries Promotion Corporation (SIPCOT), Karnataka Industrial Area Development Board (KIADB), Uttar Pradesh State Industrial Development Authority (UPSIDA), Haryana State Industrial and Infrastructure Development Corporation (HSIIDC), and Rajasthan State Industrial Development and Investment Corporation (RIICO), among others. Plots inside these estates come pre-cleared for industrial zoning, so the land-use conversion step is already done, and many estates also carry pre-installed power substations, treated water and common effluent treatment infrastructure, which materially shortens the CTE review since baseline infrastructure is already assessed at the estate level.

Buying private land instead, particularly agricultural land, requires a separate land-use conversion, commonly called non-agricultural (NA) permission or change of land use (CLU), granted by the state revenue or town planning authority before the land can legally be used for a factory. This conversion process runs independently of CTE and the factory licence and can itself take several months, so it needs to be initiated the moment land is shortlisted, not after a purchase agreement is signed. Foreign investors should also note that FEMA restricts non-residents, including NRIs and OCIs, from directly acquiring agricultural land, which is a further reason export-oriented or foreign-invested projects gravitate toward pre-converted estate land.

The Union government’s newer BHAVYA scheme, approved in 2026 with a large multi-year outlay, aims to develop a network of plug-and-play industrial parks with pre-approved land, ready infrastructure and single-window clearances built in, which should reduce the land-conversion and infrastructure-approval burden further as parks come online. Promoters evaluating a multi-state shortlist should check whether a BHAVYA-linked park is available in the target state before defaulting to a standalone private-land purchase.

Step-by-step process for setting up the manufacturing entity

The sequence below assumes a greenfield unit on freehold or leased industrial land. Brownfield acquisitions and SEZ or IFSC units follow variants noted separately.

1. Incorporate the entity and complete FEMA reporting if foreign-owned, before signing any land agreement, since land title and lease documents are usually registered in the entity’s name.
2. Select the state and industrial zone. This decision should be made in parallel with incorporation, not after, because several state incentive schemes require the MoU or application to be filed before construction commences or before the first disbursement of project cost.
3. Acquire or lease industrial land, ideally within a state industrial development corporation estate or a notified industrial park, which comes pre-cleared for zoning and often carries fast-tracked utility connections.
4. Apply for Consent to Establish (CTE) from the SPCB before any construction begins. This is the single most commonly mistimed step; promoters who start civil work before CTE is granted risk a stop-work order and, in some states, a fresh application cycle.
5. File the Industrial Entrepreneur Memorandum (IEM), where applicable, and apply for state-level approvals (building plan sanction, fire NOC in principle, electricity load sanction) through the National Single Window System (NSWS) or the state’s single-window portal, where integrated.
6. Construct the facility and install machinery once CTE, building plan approval and fire NOC (in-principle) are in hand.
7. Apply for the factory licence under the Factories Act, 1948, once the building plan is approved and before commencing manufacturing operations. This requires a completed building with safety installations in place, so it necessarily comes after construction, not before.
8. Apply for Consent to Operate (CTO) from the SPCB once installation is complete and the unit is ready for trial production. CTO is the operating-stage counterpart to CTE and is mandatory before commercial production starts.
9. Obtain sector-specific licences where applicable: BIS certification for notified products, FSSAI licence for food processing, drug manufacturing licence from the state drug controller for pharmaceuticals, or explosives licence for hazardous chemical storage.
10. Register under labour laws: Employees’ Provident Fund (EPF), Employees’ State Insurance (ESI) where applicable, and state-specific shops and establishment or labour welfare registrations.
11. File for state and central incentives where the MoU or application was not already locked in at step 2, and begin claiming input-linked benefits such as GST input credit and depreciation once production starts.
12. Commence commercial production and begin the ongoing compliance calendar: annual returns under the Factories Act, GST filings, EPF and ESI contributions, and periodic renewal of CTO and the factory licence.

Table: approval sequencing and typical timelines

Stage	Authority	Typical timeline	Must precede
Incorporation and DIN/DSC	MCA	7-10 working days	Land agreement, bank account
FC-GPR filing (if foreign-invested)	RBI, via FIRMS portal	Within 30 days of share allotment	No grace period; strict deadline
GST and Udyam registration	GST Network, Ministry of MSME	3-7 working days each	Commercial invoicing
Industrial land allotment (SIDC) or NA/CLU conversion (private land)	State industrial corporation, or revenue/town planning authority	Weeks (SIDC estate) to several months (private conversion)	Start of construction
Consent to Establish (CTE)	SPCB	30-90 days (up to 6 months for red category)	Start of construction
Building plan and fire NOC (in-principle)	Local municipal/fire authority	30-60 days	Construction start
Factory licence / OSH registration	State Factories Inspectorate, DISH, or state OSH authority (regime depends on that state’s OSH Rules status)	30-60 days after building completion	Commencement of manufacturing
Consent to Operate (CTO)	SPCB	30-60 days	Commercial production

What state-level approvals does a new factory need?

State approvals cover land use, utilities and industrial registration, and are separate from central approvals such as company incorporation or GST. A manufacturing unit typically needs an Industrial Entrepreneur Memorandum where the product falls outside the delicensed list exemptions, a building plan sanction from the local municipal or town planning authority, an electricity load sanction from the state discom, and water connection approval, in addition to CTE and CTO from the SPCB.

Every state now runs, or is integrating with, the National Single Window System (NSWS), a central platform that consolidates access to over 325 central approvals and more than 2,300 state approvals, so that a promoter is not filing separately on a dozen department portals. Coverage still varies by state: some states have genuinely connected their backend processing systems to NSWS, while others route the same applications to email inboxes or physical files behind an NSWS front end, so the promoter should confirm actual processing integration with the state industry department before relying on NSWS timelines alone. A small number of approval categories, including drug manufacturing licences from state drug controllers, CDSCO clearances for medical devices, and building plan or occupancy approvals from local municipal bodies, remain outside NSWS’s effective scope in most states and need to be tracked independently.

State industrial policies also typically require a separate registration or MoU with the state industry department to lock in eligibility for capital subsidy, stamp duty exemption, State Goods and Services Tax (SGST) reimbursement or electricity duty exemption. This registration is usually time-bound relative to the date of commercial production, so it should be filed alongside, not after, the CTE application.

Factory licence: what it covers and who needs one, under the current regime

Until 21 November 2025, a factory licence was mandatory for any premises meeting the definition of “factory” under Section 2(m) of the Factories Act, 1948, covering manufacturing premises employing 10 or more workers where power was used, or 20 or more where it was not. That Act has since been repealed by the Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code), and the licensing threshold has changed along with the governing law. Under the OSH Code framework, a factory licence is required where a premises employs 20 or more workers with power, or 40 or more without power, which exempts a band of smaller units that previously needed a licence. The OSH Code also introduces time-bound approvals: a decision on site or construction permission must be given within 30 days, failing which permission is deemed granted, and a site appraisal committee must give its recommendation on hazardous-process factories within the same window.

This transition is state-led, not automatic on the central commencement date. The OSH Code’s Central Rules were notified only on 8 May 2026, and individual states are separately notifying their own rules under Sections 133 and 135 of the Code through 2026 at different paces: some have finalised rules, others remain at draft stage. Until a state’s rules are in force, factory registration there may still run through transitional procedures carried forward from the Factories Act under the Code’s savings clause, and an existing factory licence does not become invalid on the commencement date; it continues to be renewed and complied with until a clear migration mechanism to OSH registration is notified for that state. The practical implication is that the correct governing framework for a new factory licence application depends on which state the unit is in and where that state currently stands on OSH Rules notification, which should be confirmed with the state labour department or factories inspectorate before filing, not assumed from the central commencement date.

The applicant for the licence must be the “occupier” of the factory, a concept carried forward from the Factories Act framework: the proprietor, a partner, a director, or a person having ultimate control over the affairs of the factory. The applicant and occupier must be the same person; no other person can apply for or hold the licence. Operating a factory without the required registration and licence remains a punishable offence, with the applicable penalty now set under the OSH Code and the relevant state’s notified rules rather than under the repealed Factories Act’s Section 92, so the current penalty provision should be checked against the specific state framework in force.

Documents typically required for a factory licence or OSH factory registration application:

• Board resolution nominating the occupier, or partnership deed extract for partnership firms
• Proof of the occupier’s identity and their capacity as director, partner or proprietor
• Approved building plan, submitted in the format prescribed by the state’s rules
• Latest electricity bill or sanctioned load certificate
• Proof of occupancy: lease deed, rent agreement or conveyance deed
• Flow chart of the manufacturing process
• List of raw materials used
• List of machinery installed, with capacity and power ratings
• Site plan and layout showing safety installations, exits and fire equipment

Once the application is filed, the authority schedules a physical inspection of the premises and verifies the factory layout and safety installations, giving the applicant an opportunity to correct shortcomings before the licence is granted. The licence, once issued, is valid for a period that varies by state, and the fee is generally scaled to installed power capacity and workforce size. Renewal has to be filed before expiry; a lapsed licence effectively means the factory is operating without one.

Does the Factories Act, 1948 still apply to new factories in India?

No, not as a standalone statute. It was repealed by the OSH Code with effect from 21 November 2025, though existing factory licences and prior actions taken under the Factories Act remain valid under savings provisions until state-level migration to OSH registration is complete for that state. New factories should apply under the OSH Code framework and the relevant state’s notified OSH rules, and confirm which regime is currently operative in that state before filing, since the transition is being rolled out state by state rather than on a single national date.

Pollution consent: Consent to Establish and Consent to Operate

Environmental clearance for a manufacturing unit runs on two separate consents from the SPCB, and conflating them is one of the most common planning errors. Consent to Establish (CTE) has to be obtained before construction of the factory begins, and Consent to Operate (CTO) is obtained after construction and installation are complete, immediately before commercial production starts.

Units are classified by the Central Pollution Control Board into red, orange, green and white categories based on pollution potential. Red-category units, typically chemical, pharmaceutical bulk drug, or metal-processing plants, face the longest CTE and CTO review cycles because of the additional scrutiny on effluent treatment and emission control systems, and may also require an Environmental Clearance (EC) from the Ministry of Environment, Forest and Climate Change or the State Environment Impact Assessment Authority under the Environment Impact Assessment Notification, 2006, in addition to CTE and CTO. Green and white category units, covering most assembly, packaging and low-emission processes, generally clear CTE within 30 to 45 days.

The CTE application typically requires a project report describing the manufacturing process, raw materials and expected effluent or emission load, along with the site layout and proposed pollution control measures. The CTO application, filed after installation, requires proof that the pollution control equipment described at the CTE stage has actually been installed and is functional, along with test reports where applicable. Starting civil construction before CTE is granted is treated as a violation in most states and can trigger a stop-work direction under the Water (Prevention and Control of Pollution) Act, 1974 or the Air (Prevention and Control of Pollution) Act, 1981, so this step should never run in parallel with land development, only after CTE is in hand.

CTO is not a one-time approval either; it has to be renewed, and the renewal frequency is set by the unit’s pollution category rather than being uniform: red-category units typically renew annually, orange-category units every two years, green-category units every three years, and white-category units every five years. Operating on an expired CTO is treated the same as operating without one and can trigger a closure order, so the renewal date belongs on the same compliance calendar as GST filings and factory licence renewal, not tracked separately by the environmental team alone.

What happens if a factory starts construction before receiving Consent to Establish?

Starting construction before CTE is granted exposes the unit to a stop-work order from the SPCB and, in several states, disqualification from the current CTE application cycle, requiring a fresh filing. It can also jeopardise eligibility for state capital incentives that are conditioned on the CTE being obtained before the incentive-linked project cost is incurred, so the financial cost of getting this sequence wrong is often larger than the delay itself.

Beyond CTE and CTO: the wider environmental approval stack

CTE and CTO are not the only environmental filings a manufacturing project may need, and this is where many project timelines slip because a second or third approval is discovered only after land development has started. Whether a unit needs Environmental Clearance (EC) at all depends on the project’s activity, size and capacity as classified under the Schedule to the Environment Impact Assessment (EIA) Notification, 2006. Projects are placed in Category A, requiring clearance from the Ministry of Environment, Forest and Climate Change through the Expert Appraisal Committee, or Category B, split into B1 (requiring state-level appraisal and, in some cases, an Environmental Impact Assessment study) and B2 (screened out of a full study). All EC, and CRZ-related, applications are filed online through the PARIVESH portal, and a full Category A cycle from screening to clearance can run considerably longer than CTE alone.

A project located within roughly 500 metres of the high-tide line along India’s coastline may additionally need Coastal Regulation Zone (CRZ) clearance under the CRZ Notification, 2019, with zones classified CRZ-I (most restrictive) through CRZ-IV, also routed through PARIVESH. Units drawing groundwater need a separate no-objection certificate from the Central Ground Water Authority (CGWA) or the equivalent state groundwater authority, independent of the SPCB consents. Any unit generating, storing, treating or disposing of hazardous waste needs authorisation from the SPCB under the Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016, which is a separate filing from CTE and CTO even though the same board administers it. Where any part of the project site falls within a notified, deemed or revenue forest area, Forest Clearance under the Forest (Conservation) Act, 1980 is an additional prerequisite that has to be resolved before construction, not during it.

None of these substitute for CTE or CTO. A red or Category A project can realistically be looking at five to six separate environmental filings running in parallel: EC, CTE, CGWA groundwater NOC, hazardous waste authorisation and, where relevant, CRZ or forest clearance, each with its own authority and timeline. Mapping this stack against the site before land is finalised, not after, is what keeps a chemical or metals project on a workable schedule.

Central tax incentives for new manufacturing companies

The corporate tax rate for a new domestic manufacturing company was reduced to a concessional 15% base rate under Section 115BAB of the Income Tax Act, 1961, giving an effective rate of roughly 17.16% including surcharge and cess, provided the company was incorporated on or after 1 October 2019 and commenced manufacturing before the notified cut-off date, which was extended to 31 March 2024 by the Finance Act, 2023. As of this article’s publication, no further extension to the commencement deadline had been notified for units incorporated after that cut-off, so promoters incorporating new manufacturing companies now should verify the current status of Section 115BAB directly against the latest Finance Act and CBDT notifications before assuming eligibility; companies that do not qualify fall back to the 22% base rate under Section 115BAA, still materially below the standard 25 to 30% slab.

Section 115BAB eligibility is conditional and irrevocable once opted, filed through Form 10-ID before the due date of the first return of income. The company must be engaged solely in manufacturing or production of an article or thing, must not be formed by splitting up or reconstructing an existing business, and must use substantially new plant and machinery, with up to 20% of machinery value permitted to be second-hand only if it is imported and never previously used in India. Companies electing this regime forgo other deductions, including additional depreciation and Section 10AA export deductions, and are exempt from Minimum Alternate Tax under Section 115JB.

Beyond the headline rate, manufacturing companies not opting for 115BAB can claim accelerated depreciation on plant and machinery ranging from 15% to 40% under the Income Tax Rules, and additional depreciation of 20% on new machinery in the year of installation under Section 32(1)(iia), both of which materially reduce taxable income in the early years of a capital-intensive project.

Production Linked Incentive schemes and sector-specific support

The central government runs 14 sector-wise Production Linked Incentive (PLI) schemes covering electronics, semiconductors, automobiles and auto components, pharmaceuticals, telecom equipment, textiles, food processing, solar modules, white goods, specialty steel, drones, and advanced chemistry cell batteries, offering incentives typically structured as 4% to 10% of incremental production value over a base year, disbursed against verified output and investment milestones rather than as upfront capital grants. Eligibility criteria, minimum investment thresholds and disbursement schedules differ by scheme, so a manufacturer targeting PLI support should map eligibility before finalising plant capacity, since several schemes set minimum investment or turnover floors that affect the size of the initial project.

Export-oriented units also have the option of setting up inside a Special Economic Zone (SEZ), which carries customs duty exemption on imported capital goods and raw materials and income tax benefits under Section 10AA of the Income Tax Act, though SEZ units face restrictions on domestic tariff area sales and must route them through applicable customs duty payment. This trade-off makes SEZ location a decision that should be tested against the actual domestic versus export sales mix projected for the unit, not defaulted to because of the tax benefit alone.

State industrial incentives and how to negotiate them

State industrial policies typically offer a package that can include capital subsidy on eligible fixed assets, State Goods and Services Tax (SGST) reimbursement for a defined period, stamp duty exemption or reduction on land registration, electricity duty exemption, and interest subsidy on term loans, with the exact mix and quantum varying by state, district classification (often more generous in less-industrialised districts) and sector.

Table: typical components of a state manufacturing incentive package

Incentive component	What it typically covers	Common conditionality
Capital subsidy	Percentage of eligible fixed capital investment	Usually paid in tranches tied to commissioning milestones
SGST reimbursement	Refund of SGST paid on sales, for a fixed period	Requires the unit to be registered under the state scheme before production starts
Stamp duty exemption	Full or partial waiver on land purchase/lease registration	Must be claimed before or at the time of registration, not after
Electricity duty exemption	Waiver on electricity duty for a defined period	Often linked to timely commissioning
Interest subsidy	Reduction in effective interest cost on term loans	Usually routed through the lending bank, requires prior registration

The practical trap here is timing: most states require the unit to register under the state incentive scheme, or sign a memorandum of understanding with the state industry department, before the eligible investment is incurred, in some cases before construction even begins. Promoters who finalise land, start construction, and only then approach the state industry department for incentives frequently find that expenditure already incurred is excluded from the eligible investment base for capital subsidy calculations. This is the single most common state-incentive mistake seen in practice, and it is entirely avoidable by filing the state registration in parallel with, not after, the CTE application.

Sector-specific licences to check before finalising the project

Depending on the product, additional licences sit on top of the generic factory-licence and pollution-consent workflow. Food and beverage manufacturing needs an FSSAI licence, categorised by production capacity into basic registration, state licence or central licence. Pharmaceutical manufacturing needs a drug manufacturing licence from the state drug controller, and for certain formulations, additional approval from the Central Drugs Standard Control Organisation (CDSCO). Products falling under mandatory Bureau of Indian Standards (BIS) certification, which now spans a wide range of electronics, steel and consumer goods categories under various Quality Control Orders, cannot be sold domestically without the BIS licence in place, and this should be applied for well before the first production run, since BIS testing and certification cycles can run several weeks to a few months depending on the product category. Units storing or handling notified hazardous chemicals above threshold quantities also need a licence under the Petroleum and Explosives Safety Organisation (PESO) framework, independent of the SPCB consents.

Importing machinery: customs duty, EPCG and labour registration thresholds

Machinery imports and labour registrations are the two workstreams most guides leave until after the licences are sorted, and both have deadlines that run from the day operations start, not from when someone gets around to filing.

Importing capital equipment. Any import requires an Import Export Code (IEC) from the Directorate General of Foreign Trade (DGFT), a one-time registration independent of GST. Import duty on capital goods can be reduced to zero basic customs duty under the Export Promotion Capital Goods (EPCG) scheme where the unit commits to an export obligation, generally exports worth six times the duty saved within six years (reduced by 25% where the capital goods are sourced from an Indian manufacturer instead of imported). The EPCG authorisation, filed as Form ANF 5A on the DGFT portal along with a chartered engineer’s nexus certificate linking the machine to the export product, must be obtained and registered with customs before the machinery is shipped; applying after import defeats the benefit entirely. Machinery must generally be installed within six months of import and an installation certificate filed to keep the authorisation valid, and defaulting on the export obligation triggers repayment of the duty saved with interest. A unit not planning to export at all simply pays standard customs duty and claims input tax credit on the IGST component, which is a materially simpler path if PLI or export incentives are not part of the plan.

An alternative worth evaluating before committing to EPCG is the Manufacture and Other Operations in Warehouse Regulations (MOOWR) scheme under Section 65 of the Customs Act, 1962. Under MOOWR, the factory itself is registered as a private customs bonded warehouse, and both raw materials and capital goods can be imported without paying basic customs duty or IGST upfront; duty is deferred until finished goods are cleared for domestic sale, and fully waived if the goods are exported. Unlike EPCG, MOOWR carries no export obligation, no minimum investment threshold and no bank guarantee requirement, which makes it considerably more flexible for a unit selling into both the domestic and export markets, though it comes with its own ongoing compliance: monthly returns to the bond officer, digital stock records reconciling inputs to outputs, and duty payment on the input content of any goods eventually sold domestically. For a capital-intensive project where a large share of capex sits in imported machinery, comparing the EPCG export-obligation cost against the MOOWR compliance overhead is worth doing before either application is filed, since the two are not designed to be combined for the same goods.

Labour registrations, thresholds and the OSH Code’s effect on them. Beyond the factory licence itself, a manufacturing unit typically crosses statutory thresholds for two separate social security registrations as headcount grows: Employees’ State Insurance (ESI) applies once an establishment has 10 or more employees (20 in a small number of states) and at least one employee earns at or below the notified wage ceiling, while Employees’ Provident Fund (EPF) applies once headcount reaches 20. Both are filed through the Shram Suvidha portal, and both count contract and daily-wage workers toward the threshold, so structuring the workforce through contractors does not avoid the trigger. Contract labour itself is now regulated under the OSH Code rather than the erstwhile Contract Labour (Regulation and Abolition) Act, 1970: under the Code’s Central Rules, a principal employer or contractor engaging 50 or more contract workers in the preceding 12 months needs a single licence valid for five years, a higher threshold and a longer validity than the regime it replaced. None of these registrations wait for the factory to be fully commissioned; the trigger is headcount on the date it is crossed, which for a ramping-up unit is often well before commercial production starts.

Common mistakes that cost founders time and money

Starting construction before CTE is granted. This happens when promoters treat the pollution consent as a formality that can run in parallel with civil work. It cannot. A stop-work order at the foundation stage is far more expensive to unwind than the few weeks saved by not waiting for CTE.

Signing land or lease agreements before the entity is incorporated. Land documents registered in an individual promoter’s name, meant to be transferred to the company later, attract additional stamp duty and, in some states, capital gains exposure on the subsequent transfer that could have been avoided by incorporating first.

Buying private agricultural land without starting the NA/CLU conversion immediately. Non-agricultural permission or change of land use runs on its own timeline, independent of CTE and the factory licence, and can take months. Promoters who wait until after the purchase deed is registered to start this process routinely lose more time here than in any single environmental or labour approval.

Missing the 30-day FC-GPR window for foreign share allotments. There is no grace period, and the fix, a Late Submission Fee or a full compounding application, is materially more expensive and time-consuming than filing on time. This is one of the few deadlines in the entire setup process with genuinely zero flexibility.

Applying for state incentives after the project cost is already substantially incurred. As covered above, most state schemes exclude pre-registration expenditure from the eligible investment base, meaning the capital subsidy calculation shrinks precisely when the promoter needs it most.

Assuming NSWS coverage is uniform across states. Some states have genuinely integrated backend processing with NSWS; others use it as a front-end that still routes to manual departmental processing. Relying on NSWS’s published timelines without confirming actual integration in the specific state leads to missed construction schedules.

Treating the factory licence and pollution consents as interchangeable. The factory licence is a labour-safety authorisation, now under the OSH Code framework; CTE and CTO are environmental authorisations under separate statutes. Having one does not substitute for the other, and both are independently required before commercial production.

Citing the Factories Act, 1948 as the current law without checking the state’s OSH Rules status. The Act was repealed centrally in November 2025, but the practical regime in any given state depends on whether that state has notified its own OSH Rules yet. Advisors and promoter decks that still cite Factories Act section numbers as the operative law, without checking the specific state’s rule-notification status, risk applying the wrong threshold, the wrong application format or the wrong penalty provision.

Applying for EPCG after machinery has already shipped. The EPCG authorisation must be obtained and registered with customs before import to claim the duty benefit. Promoters who order machinery first and look at the EPCG scheme afterward simply pay full customs duty, since the concession cannot be applied retroactively.

Treelife practitioner note

We have seen capital subsidy claims reduced by more than a third because the state MoU was signed after site development had already begun, a gap entirely avoidable with a two-week head start on the state industry department filing. On the tax side, Section 115BAB’s post-2024 status is one of the most frequently misquoted provisions in promoter decks; we verify the current commencement cut-off against the latest Finance Act before any entity structure is finalised on the assumption of 15% tax eligibility, since an incorrect assumption here changes the entire post-tax return model for the project. We also flag CTE-before-construction as a non-negotiable sequencing rule in every kickoff call, because it is the single most common cause of a six-month schedule slipping to twelve.

FAQs

Q: How long does it take to set up a manufacturing entity in India end to end?
A: A non-hazardous unit typically takes four to seven months from incorporation to commercial production, assuming land is already identified. Red-category or chemical-intensive units usually take six to twelve months because environmental clearance and CTE review run longer.

Q: Is Section 115BAB still available for new manufacturing companies?
A: The concessional 15% rate under Section 115BAB required commencement of manufacturing by 31 March 2024, per the last notified extension under the Finance Act, 2023. Whether this has been further extended should be verified against the current Finance Act and CBDT notifications before assuming eligibility.

Q: What is the difference between Consent to Establish and Consent to Operate?
A: Consent to Establish (CTE) is obtained from the State Pollution Control Board before construction begins. Consent to Operate (CTO) is obtained after construction and machinery installation are complete, immediately before commercial production starts. Both are mandatory and serve different stages of the project.

Q: What documents does a factory licence application need?
A: An approved building plan, proof of occupancy, latest electricity bill, flow chart of the manufacturing process, list of raw materials and machinery, board resolution nominating the occupier, and a site layout showing safety installations, in the format prescribed by the relevant state’s rules.

Q: Has the Factories Act, 1948 been replaced?
A: Yes. The Occupational Safety, Health and Working Conditions Code, 2020 repealed the Factories Act, 1948 with effect from 21 November 2025, along with twelve other central labour laws. Existing factory licences remain valid under savings provisions, and the practical transition depends on when each state notifies its own rules under the Code, a process still ongoing through 2026.

Q: What is the factory licensing threshold under the OSH Code?
A: A factory licence is required where a premises employs 20 or more workers with power, or 40 or more workers without power, under the OSH Code framework, up from the Factories Act thresholds of 10 and 20 respectively. This should be confirmed against the specific state’s notified OSH Rules, since implementation is state-led.

Q: Can a foreign company own 100% of an Indian manufacturing entity?
A: Most manufacturing sub-sectors are on the automatic FDI route under FEMA, allowing up to 100% foreign ownership without prior government approval, subject to sectoral caps and post-investment reporting such as Form FC-GPR. Defence manufacturing and a few dual-use categories carry government-route conditions.

Q: What happens if a factory operates without a licence?
A: Operating without a factory licence is punishable under Section 92 of the Factories Act, 1948, with a fine of up to one lakh rupees, imprisonment of up to two years, or both.

Q: Does the National Single Window System cover all approvals needed for a manufacturing unit?
A: No. NSWS covers a large share of central and state approvals, but sector-specific licences such as drug manufacturing licences, CDSCO clearances, and local building plan or occupancy approvals generally remain outside its effective scope and need to be tracked separately with the relevant authority.

Q: Should incentive registration happen before or after construction begins?
A: Before. Most state industrial incentive schemes exclude project cost incurred before the unit registers under the scheme or signs the state MoU, so filing after construction has started typically shrinks the eligible investment base for capital subsidy calculations.

Q: What is the Industrial Entrepreneur Memorandum and when is it needed?
A: The IEM is a filing required for certain industrial undertakings outside the delicensed list, now filed online through NSWS. It should be filed alongside land acquisition and before major project milestones, since several states cross-check it during incentive registration.

Q: Can PLI incentives be combined with state industrial incentives?
A: Generally yes, since PLI is a central scheme tied to incremental production value and most state schemes are structured independently around capital investment, SGST reimbursement or stamp duty. Each scheme’s specific terms should be checked, since a small number of state policies exclude units already availing central production-linked support from certain overlapping benefits.

Q: Is Udyam (MSME) registration mandatory for a manufacturing unit?
A: No, it is voluntary, but strongly recommended where the unit qualifies under MSME investment and turnover thresholds, since it unlocks priority-sector lending, delayed-payment protection under the MSMED Act, and access to government e-marketplace procurement.

Q: What is the penalty for starting construction before Consent to Establish is granted?
A: It varies by state but typically results in a stop-work direction under the Water Act, 1974 or Air Act, 1981, and can require a fresh CTE application. It can also disqualify already-incurred project cost from state capital subsidy eligibility.

Q: Do I need Environmental Clearance in addition to CTE and CTO?
A: Only if the project’s activity, size or capacity falls within the Schedule to the EIA Notification, 2006. Category A projects need clearance from the Ministry of Environment, Forest and Climate Change; Category B1 and B2 projects go through state-level appraisal. EC, where required, is separate from and in addition to CTE and CTO.

Q: When should the EPCG authorisation be applied for when importing machinery?
A: Before the machinery is shipped, and it must be registered with customs before the goods arrive to claim zero or concessional customs duty. The authorisation cannot be applied for retroactively once the machinery has already been imported at full duty.

Q: What is the difference between EPCG and MOOWR for importing machinery?
A: EPCG gives zero customs duty in exchange for an export obligation of six times the duty saved within six years. MOOWR defers, rather than exempts, basic customs duty and IGST on both inputs and capital goods by registering the factory as a bonded warehouse, with no export obligation and no minimum investment threshold, but duty becomes payable on domestic clearances and monthly compliance is ongoing.

Q: Is industrial land from a state development corporation better than private land?
A: For most projects, yes, mainly on speed. Land inside estates such as MIDC, GIDC, SIPCOT, KIADB or UPSIDA is already zoned industrial, so the non-agricultural land-use conversion step is unnecessary, and many estates come with pre-installed power, water and effluent infrastructure that shortens CTE review. Private agricultural land requires a separate NA or CLU conversion before it can legally be used for a factory.

Q: What is the FC-GPR filing deadline for foreign investment in an Indian manufacturing company?
A: Form FC-GPR must be filed on the RBI’s FIRMS portal within 30 days of share allotment to a non-resident investor. There is no extension mechanism. Filing beyond 30 days, but within three years, can generally be regularised with a Late Submission Fee; beyond that, or for pricing or structuring defects, compounding under Section 15 of FEMA is required.

Regulatory references:

• Factories Act, 1948 (repealed with effect from 21 November 2025, subject to savings provisions), formerly Sections 2(m), 2(n), 6, 6(3), 7, 92
• Occupational Safety, Health and Working Conditions Code, 2020, Sections 133, 135, in force 21 November 2025
• Occupational Safety, Health and Working Conditions (Central) Rules, 2026 (G.S.R. 345(E), notified 8 May 2026)
• Contract Labour (Regulation and Abolition) Act, 1970 (repealed and subsumed into the OSH Code)
• Income Tax Act, 1961, Sections 115BAB, 115BAA, 115JB, 32(1)(iia), 10AA
• Finance Act, 2023 (extension of Section 115BAB commencement cut-off to 31 March 2024)