PREFACE

Affected by multiple factors such as changes in labor costs, adjustments in industrial policies and changes in supply chains, manufacturing enterprises adjusted their fixed asset investment strategies and began to build factories in different places at home and abroad. The establishment of factories in other places is closer to the target market and customers of enterprises, and the establishment of factories abroad helps enterprises to break trade barriers and technology export restrictions, improve the adaptability of enterprises to the changing market and customer requirements, and enhance customer satisfaction. In the process of building factories, enterprises must face the policies, laws and regulations of Taxation and EHS (Environment, Occupational Health and Safety), and ensure the compliance of Taxation and EHS, which is the primary task of manufacturing enterprises. Previous article introduced the General Principles in EHS and Tax Compliance during the construction and operation of a new factory, taking China as an example. This article and subsequent articles will continue introducing the government permits (general permits, registration) and administrative filing required by laws involved in the process of building factories of manufacturing enterprises. This article mainly focuses on the approaches to meet the local EHS and Taxation laws and regulations concerning the construction and operation of a pharmaceutical factory in India. It will also include the analysis of legal compliance encountered in the investment and construction of factories. Related suggestions for the enterprises will be given afterwards.

I. INVESTMENT AND SECTORS

In India there are 28 states and 8 Union Territories. The state in the related contents of this article includes both State and Union Territory. Just like most of countries in the world, India have some economic zones or corridors, e.g. Delhi-Mumbai Industrial Corridor (DMIC), Chennai-Bengaluru Industrial Corridor (CBIC), Special Economic Zone at Gujarat International Finance Tec-City (GIFT City SEZ). If the factories are located in these zones or corridors, policies related to governmental approvals and taxation will be preferential. Meanwhile different States have their own policies of the sectors for foreign investment in factories, e.g. IT, Manufacturing and Creative Industries in Maharashtra (Mumbai); Automobile and Auto Components, Textiles and Pharmaceuticals in Tamil Nadu; IT, Aerospace and Defense, and Biotech in Karnataka; Chemicals and Petrochemicals, Textiles and Pharmaceuticals in Gujarat; Agriculture, Textiles and IT in Uttar Pradesh. The States and sectors can be seen in the Chart A: Top 10 GDP of Indian State.

Chart A: Top 10 GDP of Indian States

II. GOVERNMENTS AND APPROVALS

Governments possess the authority to enact laws, make decisions, and carry them out. There are three levels of government in India: central government, state government, and local government. The central government operates on a national level. The state government operates on a state level. The local government operates on a village or town level. The government is in charge of the approval of most licenses and permits. Different levels of governments have different approval authorization of permits and licenses. The requirements for business licenses and permits are different prior to construction of factory and prior to operation of factory.

III. PRIOR TO CONSTRUCTION OF FACTORY

1. Apply for zoning permit. The enterprise shall ensure the plot sits within an industrial zone. If it’s outside an active industrial estate, the enterprise shall apply for a zone permit.

2. Implement environmental impact assessment. Environmental Impact Assessment (EIA) is a mandatory legal process governed by the EIA Notification 2006, issued under the Environment Protection Act 1986 by the Ministry of Environment, Forest and Climate Change (MoEFCC). It requires that certain categories of development projects assess their potential impact on the environment — including air, water, land, ecology, and local communities — before they receive government approval to proceed. The EIA category includes Category A, and Category B which is split into B1 (requires full EIA study) and B2 (exempted from EIA study and public hearings).

a) Category A and B1 projects. Projects listed in Schedule 1 of the EIA Notification — including mining, industrial units, infrastructure, townships, and highways above defined thresholds are Category A and B1 projects. The full EIA cycle including Terms of Reference approval, EIA study by an accredited consultant, public hearing and Expert Appraisal Committee review is compulsory.

b) Category B2 projects. Projects not listed in Schedule 1, or those below the prescribed thresholds are Category B2, which may be exempt from EIA study and public hearings, but may still require Consent to Establish (CTE) and Consent to Operate (CTO) from the State Pollution Control Board. 

The pharmaceutical factory, excluding chemical factory, is listed into B2 project, which is exempt from the EIA process.

3. Apply for Consent to Establish (CTE): Consent to Establish (CTE) is the initial approval required from the relevant Pollution Control Board before setting up any manufacturing or industrial unit. The MoEFCC classifies industries into four color categories based on their pollution potential: Red (High), Orange (Medium), Green (Low), and White (Non-polluting):

a) Red: High pollution potential (e.g., chemical manufacturing);

b) Orange: Moderate pollution potential (e.g., food processing);

c) Green: Low pollution potential (e.g., assembly units);

d) White: Practically non-polluting (e.g., small-scale IT services).

White category industries do not need pollution consents, just simple registration. Factories discharging pollutants into air or water must obtain environmental clearances from the relevant State Pollution Control Boards (SPCBs) or local Pollution Control Committees (PCCs).

As for EIA projects, The MoEFCC is the central authority responsible for granting Environmental Clearance to large-scale projects (Category A), based on the technical evaluation and recommendations by the Expert Appraisal Committee (EACs). At the state level, the State Level Environment Impact Assessment Authority (SEIAA) handles smaller projects (Category B), based on recommendations from the State Expert Appraisal Committee (SEAC). 

4. Obtain Fire Department NOC (No Objection Certificate). The factories shall submit the industrial site plans to the local fire department to confirm factories have adequate emergency exits, fire hydrants, and safety alarms.

5. Apply for Power and Water Utility Links. The factories shall use the incorporation documents, land records, and initial clearances to secure high-tension power lines and industrial water connections.

6. Secure a Factory License. Every factory owner has to register the factory with the local authorities before the Factories Act, of 1948 came into force. The local authorities gave their permission to manufacture the products and carry out other business activities. The Factories Act 1948, provides a license to certain factories which fulfil the conditions given in the Act. It is mandatory under the Factories Act for manufacturing units with 10+ workers (using power) or 20+ workers (without power). The factory registration process requires submitting layout plans, safety measures, machinery details, and worker information to the local labor department. A Factory License explicitly regulates worker safety, machine power, and health standards inside a manufacturing plant.

Periodic renewal is necessary to avoid penalties or shutdowns.

IV. PRIOR TO OPERATION OF FACTORY

1. Obtain Consent to Operate (CTO). Once the unit is established, Consent to Operate (CTO) must be obtained to begin commercial operations. This consent confirms that the industry is compliant with the prescribed environmental standards. All industries must secure a CTO before commencing production or services. White category industries do not need pollution consents, just simple registration. Factories discharging pollutants into air or water must obtain environmental clearances from the relevant State Pollution Control Boards (SPCBs) or local Pollution Control Committees (PCCs).

As for EIA projects, The MoEFCC is the central authority responsible for granting Environmental Clearance to large-scale projects (Category A), based on the technical evaluation and recommendations by the Expert Appraisal Committee (EACs). At the state level, the State Level Environment Impact Assessment Authority (SEIAA) handles smaller projects (Category B), based on recommendations from the State Expert Appraisal Committee (SEAC). 

2. Udyam Aadhar Registration. The Udyam registration is important for Micro, Small and Medium Enterprises (MSMEs). The classification criteria for MSMEs are listed in the Chart B MSMEs Classification.

Chart B MSMEs Classification

The registration process is completely online, and it is mandatory for all MSMEs. It provides a certificate and a twelve-digit Unique Number. After the registration, a permanent identification number and e-certificate will be provided.

From July 1st, 2020, the Udyog Aadhar Registration converts to Udyam Aadh

3. Get drug manufacture license. Based on the Drugs and Cosmetic Act, 1940, the manufacturer shall get drug license. The application for drug license for manufacturing should be submitted to the Central Drugs Standards Control Organization (CDSCO) and/or the State Licensing Authority. The approval authorities have different responsibilities:  

For the approval process of the manufacturing of the pharmaceuticals, there are two categories based on the type of the pharmaceuticals, see the Chart C Forms and Difference.

Chart C Forms and Difference

4. Secure Sales Tax / VAT / GST License. India’s tax system spans central, state, and local governments. For businesses, the key indirect tax is the Goods and Services Tax (GST), which is mandatory for a turnover above ₹40 lakh (CNY281,720) for goods or ₹20 lakh (CNY140,860) for services. Registration is completed online via the GST portal. Businesses must file regular returns, maintain records, and issue GST-compliant invoices. Certain sectors, such as petroleum, alcohol, and tobacco, still apply VAT. States and municipalities may also levy property taxes, stamp duties, or local taxes.

As of September 22, 2025, India’s GST framework operates on four main slabs: 0%, 5%, 18%, and 40%, plus special rates of 3% for gold and jewelry, and 0.25% for rough diamonds and unprocessed precious stones.

5. Corporate Income Tax. Corporate Tax Rate Applicable for Year 2025-2026. If the Income Tax for Companies with Turnover or gross receipts in 2022-2023 are up to ₹400 crores, the Income Tax Rate is 25%. If the Income Tax for Companies with Turnover or gross receipts in 2022-2023 exceed ₹400 crores, the Income Tax Rate is 30% and the surcharge rate is 7% on the amount of income tax if net income exceeds 1 crore but does not exceed 10 crore and 12% on the amount of income tax if net income exceeds 10 crores.

6. Tax preferences for MSMEs. Tax preferences for GST and Corporate Income Tax, involved in MSMEs are listed.

6.1 GST Benefits

a) Reduced GST Rates. From textiles to handicrafts, MSMEs can benefit from lower GST rates on essential commodities. GST rates of some pharmaceuticals are reduced to 5% or 0%.

b) Input Tax Credit (ITC). ITC on GST paid for inputs fuels cost efficiency, while compliance relaxations streamline tax obligations

c) R&D Incentives. Tax rebates, exemptions, and incentives propel international trade.

6.2 Corporate Income Tax  

a) Reduced Tax Rates. MSMEs with a turnover of up to Rupees. 50 crore (500 million) can revel in the reduced income tax rate of 25%.

b) Tax Exemptions: Certain incomes, such as export profits, may be exempt from taxation.

6.3 Customs Duty Exemptions. As per Imported Machinery and Equipment, customs duty exemptions on imported machinery and raw materials are implemented.

CONCLUSION

EHS and Taxation Compliance are crucial to the success of an enterprise's investment construction. From a practical point of view, it is recommended that enterprises establish a cross functional team, invite legal and technical experts in EHS and taxation to participate in the project when necessary, and implement EHS and Taxation Compliance throughout all stages of project management. The cross functional team should establish an audit plan to ensure that the audit is completed before important nodes, identify non-compliance issues early, and reduce unnecessary rectification costs in the later stage.